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

Have you read?

Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor

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