The following post was originally published on the ImpactX blog of the Huffington Post.

Women participating in paper prototyping for new mobile app in Uganda

Women are the backbone of the household in Africa — they manage the home, care for the children, are responsible for education and healthcare, and contribute to the household’s livelihood. Helping women helps the entire family. However, women continue to lag men in participating in the formal economy, including accessing financial services.

The Problem: The Poor — Especially Women — Are Excluded From Financial Services.

For the rural poor — especially women — accessing formal financial services is nearly impossible. Few have formal identification needed to open an account; others lack a stable job or collateral needed for a loan. Often bank branches are far from a rural village, making the trip to deposit or borrow funds too expensive and time-consuming.

Many of the rural poor have taken up an approach to support saving and borrowing by forming Village Savings and Loan Associations (VSLAs). Under this approach, 25-30 members of a community form a group. This group meets weekly and saves a fixed amount — at times, as little as 20 cents a week. The savings are lent out to members as loans. All money not lent out is stored by the group treasurer in a metal box secured with three locks and three keys, which are held by three separate key holders. It is, as some group members call it, the “Village Bank.”

The Benefits And The Challenges Of The “Village Bank”

Group savings is wildly successful, with millions of individuals across Africa reporting themselves enrolled in VSLAs or other forms of savings groups. In Uganda alone, where Grameen Foundation works closely with savings groups, the FinScope 2013 survey revealed that nearly two in three adults save in some sort of group. Savings can yield big money over time — by the end of a one-year cycle, some groups have thousands of U.S. dollars locked in the box.

The challenge, however, is that cash is risky, and the group’s success can be tempting for local thieves who may target a treasurer’s home. Storing these funds as cash also means that the group’s rich transaction history is invisible to formal institutions that might be able to provide more services to groups if they had insight into transaction activity. While some banks offer formal products to groups — like group savings accounts offered by Barclays’ Banking on Change program — many groups find that they are located too far from a bank branch.

Solving The Cash Challenge: Mobile Solutions

These issues — the insecurity of cash, and the challenge in accessing cash-in/cash-out points like bank branches — are issues that mobile money has been tackling across Africa for years. Mobile money allows individuals to deposit money on an electronic wallet (e-wallet) associated with their SIM card using their basic feature phone at any local agent location, which is often a shop in a local village. They can then send money to friends or family or transfer the funds to their bank account.

This infrastructure is already in place and could be used to help groups. The problem to-date, however, is that mobile financial services are tailored to individuals and secured by a single PIN number. For a group to feel secure depositing money into this virtual system, they need group-level security.

Grameen Foundation and Airtel, one of the leading mobile operators in Uganda, partnered to develop a solution called Airtel Weza. This new wallet took the analog product — a box with three locks — and digitized it. The product features a three-PIN system requiring approval from three group members before funds could be removed from the group’s account. To ensure that three members cannot collude, additional text messages are sent to other members in the group as well. Instead of a box for physical storage, funds are stored virtually. Instead of three locks, there are three PINs. The product was launched in the Kamuli region of Uganda earlier in August, and Airtel will continue expanding across the country in the coming months.

An Upside For Both Customers And Providers

The product serves a major social need for women involved in savings groups by giving them a safe place to store excess funds. It stimulates the local economy – over 40 percent of women report that having access to a phone provides greater access to income-generating opportunities. However, attracting women to mobile services is not just a local good; it is also a boon for mobile operators and financial institutions. According to research by the GSMA mWomen team, 21 percent fewer women than men own mobile phones in middle and low-income countries. This translates into a gender gap of 300 million women and a revenue loss of $13 billion for operators. For banks, individual small savers and borrowers can be too costly to serve; offering group products provides an efficient way to serve the poor.

Developing products tailored for this market, such as products tailored for women-dominated savings groups, helps operators reach out with an offer that resonates and encourages uptake. For women, it is an important opportunity to start participating in the formal sector through the use of mobile financial services and to start slowly closing the gender gap.

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The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CARE International promotes microinsurance as part of the range of services and products that the poor need to help overcome poverty and reduce their vulnerability to shocks. However, we also know that as with all products, to be sustainable, any microinsurance model also needs to be profitable. Fortunately for the insurance industry and its clients, it’s being demonstrated that increasing profit and promoting financial inclusion do not have to be mutually exclusive. New research from our work in India shows that microinsurance distribution strategies that prioritize building clients’ financial literacy lead to almost three times as many new enrollments as those that do not.

There are a number of substantial challenges in marketing and distributing microinsurance products. Frequently, it is less a matter of marketing a product than building a new market from scratch, often in remote, hard-to-reach areas, with a client group without access to formal financial services. These factors make the costs of marketing to, distributing to and servicing clients disproportionate to the resulting margins. A number of strategies are being piloted globally to circumvent these challenges. For example, building off of growing mobile penetration rates among developing country populations, one initiative bundles an insurance product with the purchase of a SIM card. While this requires a lower initial investment, the jury is still out on the long-term value of such products. Unless clients receive thorough product education, such “blended approaches” might hinder awareness of the insurance product, as well as re-enrollment and the building of any brand loyalty.

Our analysis of microinsurance distribution took place in Tamil Nadu, India and considered three different marketing strategies: mass enrollment campaigns (e.g. public plays), group education through smaller self-help groups (SHGs), and one-on-one individual marketing. For individual marketing, agents from local NGOs sat down with women and walked them through the basics of insurance and how different policies work. Those who received individual marketing were selected through a variety of means, but primarily through their enrollment in SHGs. Because of the target market (rural, semi-literature, without access to formal financial services) these interactions involved not just salesmanship but also a mini course on personal finance.

After comparing costs, first time enrollment rates, and re-enrollment rates, we came to a surprising finding: one-on-one marketing provided the best return on investment. While this individual approach required higher initial investment in personnel time, it was much more successful in selling and re-enrolling consumers in policies, leading to a lower cost per policy. Individual marketing, which prioritized financial literacy through individual client education, enrolled almost three times as many new policy holders as the next most successful strategy of mass campaigns.

Simply put, customers at the base of the pyramid (BoP) have limited funds and need to invest them wisely. The best practice seems to be engaging with potential clients on a one-on-one basis to ensure that they fully understand how the product works – rather than just making advertising promises. This is a particular challenge for financial products like microinsurance, which ask clients to take the risk of making an investment which, if they don’t claim against the policy, they might see as a loss. One-on-one education on the basics of insurance goes a huge way to introducing the concept of microinsurance to new market bases, and to building enough consumer trust that they are willing to make the investment.

Implications for microinsurance:

1. Financial literacy isn’t charity, it’s a key part of any marketing strategy. The biggest implication of this research is that for microinsurance companies, financial literacy isn’t just corporate social responsibility, it’s core business. For BoP markets, financial literacy and marketing should be seen as synonymous. Given the generally negligible margins in microinsurance, any means of expanding the consumer base is no small feat.
2. Link with informal financial providers. CARE’s research through the Banking on Change partnership found that linking informal savings groups like SHG’s with formal sector banking could inject $145 billion into the global economy. The microinsurance industry can benefit from this. Strategically linking with SHG’s is an opportunity for the insurance industry to connect with groups that have the savings to invest in insurance products and further expand the potential market.
3. Draw on local partnerships. Incorporating financial literacy as core business benefits from local partners, like NGOs. CARE research identified local NGO staff members as the biggest influencers on whether or not clients signed onto a policy. These community-level interfaces distributed microinsurance to the “last mile” and were a crucial part of clients’ insurance experience.

For too long financial literacy has been viewed as charity, or the exclusive domain of the social bottom line. It is time to recognize financial literacy not just as a key element of financial inclusion, but as a key strategy in product creation, sales and distribution at the base of the pyramid.

Alexa Roscoe is a Private Sector Advisor at CARE International UK. This blog draws on research carried out on CARE India’s Insure Lives and Livelihoods project by Sigma Consulting, funded by the UK Department for International Development.

 Image credit: CARE International/ Helene Barnes

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Developing Financial Products Fit for the Poor

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CFI has rightly identified that having a range of financial products informed by client needs is a key priority area for achieving full financial inclusion. Through the Banking on Change Partnership, CARE, Plan, and Barclays have developed new savings-led products based on a link between informal savings groups and Barclays bank branches that have proven to be a good fit for low-income clients in the current financial services landscape.

To date, Banking on Change has developed three different types of savings accounts and an overdraft facility, connecting a total of 500 groups (that’s around 25,000 individuals) to Barclays branches. Together these groups have deposited $103,694 into accounts, showing that linkage with a global bank is possible when done in a controlled and responsible way.

Now, for the details…

The Uwezo savings product in Kenya is a good example of a Village Savings and Loan Association (VSLA) product designed with client needs in mind. The design process started with an assessment of the group’s needs, which clearly brought out the fact that members had greater financial services needs than the VSLAs could provide. We learnt that members could meet the obligations of these more formal financial services, provided they were packaged appropriately and delivered through the right kind of channels.

With this in mind, Barclays adapted its procedures to allow savings groups to open accounts easily. Before this initiative, formal registration with the Chamber of Commerce was required to open a group account. To simplify the process, Barclays agreed to accept a photocopy of the savings group’s constitution, signed by all members, as the necessary identification. By allowing group accounts, Barclays has lowered its transaction costs, as one group account is far more economical to administer than 25-30 individual accounts.

How is the Uwezo account different?

Uwezo (and the other products created by Banking on Change) are part of Barclays mainstream business at the country level, and are intended to become commercially viable sooner or later. Currently with the Uwezo account, withdrawals and deposits are free, there is no maintenance fee, and the opening balance requirement is 2,000 Kenyan Shillings (around US$23).

Barclays recognizes the real business potential presented by this largely unbanked, informal sector and the strategic importance of designing appropriate products that can support sustainable financial inclusion. The demand for linkage and potential for scale-up is enormous. Today there are about 6.3 million members of savings groups in Africa, most of whom need financial services that can complement the ones they can access in their VSLAs.

Guiding principles

This process of linking members of informal VSLAs with Barclays branches is guided by a set of principles, originally developed by CARE, which first began linking savings groups with other national, rather than global, financial service providers. These principles are essential to ensure sustainability and to ensure both the group members and the bank benefit from the experience. Some of these principles are:

• Linkage is demand-driven not supply driven: linkage relationship should be based on the needs and demands of the groups.
• Linkage is savings-driven and always starts with the offer of savings products.
• Minimize the use of savings as collateral: the flexibility and accessibility of savings is considered an important attribute by group members. Where possible, group savings should not be held as collateral by financial institutions.
• Groups are prepared before they are linked. This covers any basic financial literacy modules not already provided as part of the process of forming the group, as well as specific information about the proposed institution they will be linked with, the products the institution is offering, account opening requirements, and any other relevant information. This information allows the groups to be better prepared to enter the formal financial sector and use new types of financial services.
• A conservative savings to credit ratio is maintained.

(For the full list of principles, please click here)

What is needed for scale

To truly scale up a product, you need an appropriate delivery channel to reach an existing large-scale market. For formal financial providers to engage in this area, more research is needed on product development to help build the business case. It is also crucial to build public-private partnerships, involving both donor and developing country governments working alongside major mobile operators and financial institutions to develop and support products that can serve this market at scale.

The technology exists to significantly expand mobile banking, for example, but the business case for the private sector to invest in this market segment is not yet strong enough. Donors should seek to invest in innovative financial linkage models to help lower the risk for business.

For more information on Financial Inclusion 2020, sign up for campaign updates.

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The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Today marks the start of an important meeting in Monrovia, Liberia, where the UN High Level Panel will look at what might replace the current Millennium Development Goals (MDGs) when they expire in 2015. With a focus on economic transformation, the panel hopes that any future framework to reduce poverty includes increasing “jobs and growth,” and “tackling inequality.”

Those of us focused on financial inclusion believe increased access to finance can help achieve these admirable aims. But would the UN High Level Panel agree?

Last week the Banking on Change partnership between Barclays, CARE International, and Plan UK produced Banking on Change: Breaking the Barriers to Financial Inclusion, a report which, amongst other things, makes the case compellingly enough that we believe the UN High Level Panel should take note.

The Banking on Change partnership is committed to achieving financial inclusion by helping poor people access tailored services and products that match their level of economic development. Banking on Change is the world’s first savings-led program that combines the deep understanding of poor communities among two leading NGOs with the financial expertise of a global bank in order to encourage extremely poor people to begin their path to financial inclusion through savings-led microfinance.

Banking on Change has reached 513,000 people in 11 countries* in just three years. On average, each member has saved $58 per year through savings groups. Multiplying this figure by 2.7 billion unbanked people worldwide would represent $157 billion in potential savings annually. Where savings groups are then linked to the formal financial system, people are increasing their regular savings as they have the guarantee of its security. The expectation is that this will provide an influx in banking deposits, which could in turn be used to finance businesses and households.

After establishing a savings culture, the most entrepreneurial and active of savings group members go on to receive business skills and financial training and establish micro-enterprises before additional access to credit or more formal banking is considered. The partnership is paving the way for future NGO/private sector partnerships that can improve the lives of poor people, and also have a business benefit by opening up a new customer base at the bottom of the pyramid. The program has also had impressive social impacts. In Uganda for example, women increased their ability to influence their husband’s decisionmaking by 33 percent. And in Ghana savings groups, people regularly put money aside each month into a “social fund” which enabled them to buy National Health Insurance cover, even when they did not have access to a regular income throughout the year.

The report sets out the immense potential that this pool of savers represents, both economically and socially.

It therefore seemed obvious to us to question why financial inclusion had not and is not being talked about as part of the discussions surrounding the MDGs. We felt that the MDG process offers an opportunity to call for a new global partnership that commits governments, donors, and the private sector to take financial inclusion to scale. The MDGs would also provide a focus on including the very poorest, thereby complementing other emerging international efforts including the Maya Declaration on financial inclusion.

The report doesn’t argue that a new goal be created, but suggests that perhaps financial inclusion be used as a potential indicator of inclusive economic growth, with equity tracker measures that capture how far women and young people are financially included.

At the launch of the report, the Department for International Development’s (DFID) Chief Economist Stefan Dercon questioned the need for another MDG goal on this issue and felt that by putting too much emphasis on reaching targets, poor people might end up being forced to accept inappropriate products and services.

What is clear is that it is a missed opportunity that 2.7 billion people globally do not have access to formal financial services. This is a development challenge and an opportunity that the High Level Panel could embrace as they strive to achieve more inclusive economic growth. As the Governor of the Central Bank of Kenya has said, “Financial inclusion is no longer something that is ‘nice to do’ but is an essential part of the global economic development agenda.”

We welcome your views as to whether the MDGs should consider financial inclusion. You can also add your voice to the debate here.

For more information on Financial Inclusion 2020, sign up for campaign updates.

*Egypt, Ghana, Kenya, Mozambique, Tanzania, Uganda, Zambia, India, Indonesia, Vietnam, and Peru

Image credit: Banking on Change

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“Can we make savings a little more interesting for people, please?”