17 March 2018
Graham Seel

Banks and Fintech

Graham Seel - BankTech Consulting

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Financial Inclusion

The financial services industry has much to contribute to the UN and World Bank goal of full financial inclusion by 2020. This group will focus on industry contributions, ideas, barriers and enablers.

Linking Savings Groups to the Formal Financial Sector

13 January 2018  |  3144 views  |  0

Financial Inclusion efforts for the world’s poorest people have particularly focused on urban areas, and have had some success. But there is a tremendous relatively untapped opportunity for the formal financial sector to extend their reach to the rural poor. Millions people have joined informal savings groups in 75+ countries, with estimates ranging over $1 billion in assets. Savings Groups use a variety of models but have in common a number of prerequisites to successful inclusion in the formal financial system.

Benefits of savings group membership include development of good financial habits (savings, loan repayments), basic education on how finance works, community trust and interdependence, and concentration of a significant number of potential customers in one place.

Various experiments have been tried in linking savings groups to the formal financial sector. Perhaps best documented is a multi-year experiment between CARE International and Barclay’s Bank in East Africa. This linked the CARE Village Savings and Loan Association model with specially designed group accounts at Barclay’s branches. While much learning was gained the program apparently ended without any plans to continue.

As a member of World Renew’s Economic Livelihoods Working Group, I recently completed a small survey of practitioners in Africa and Central America, who are country consultants with World Renew. Over 3,000 Savings Groups, which largely follow the CARE VSLA model, have been established with local partners in 18 countries around the world. A few experiments have been tried with linkages to formal financial institutes, though with very limited success.

Based upon feedback from a number of country consultants with World Renew who have been involved in such experiments, there are several specific needs for financial services beyond Savings Groups in order to advance economic livelihoods in poor rural communities. Not surprisingly, services must include group savings and loans, and personal savings and loan accounts. Other benefits include security of funds, and access to disaster and health insurance beyond what a social fund can provide. In addition, in countries with high or unstable inflation, cash-based savings lose value very quickly, and an inflation hedge of some kind would be of enormous value.

Barriers to success most often include inaccessibility of services (e.g. branch too far away), excessive cost of services, unavailability of credit, lack of training on use of bank services, and lack of respect from bank staff for Savings Group representatives.

Keys to successful long-term engagement between Savings Groups and formal Financial Institutions include:

  • Maturity of the savings groups, including financial education, established savings and loan repayment patterns, and strong group governance.
  • Geographic closeness to a branch or qualified agent, to allow for cash-in / cash-out capabilities, even if mobile services are provided.
  • Establishment of trust between rural communities and formal financial institutions, and respect in the financial institution culture for the value and dignity of members of the community.
  • Development of specific cost-efficient services that can be offered at an acceptable cost to Savings Groups and their members. These can be no-frills services, and should require minimal to no human operational intervention. They are likely, therefore, to be mobile-based.

Implied in this discussion is an assumption that it is feasible for commercial financial institutions to develop and deliver banking services to the very poor and still make at least a moderate profit. For this to be true, several conditions would need to be satisfied:

  1. Cost of customer acquisition must become very low, even if initially relatively high. Working with local and international partners to make contact with groups of Savings Groups in a region can address this in part. In addition, delivery of mobile enrollment and KYC capabilities through agent networks would significantly reduce onboarding costs.
  2. Servicing costs must be minimized through technology (streamlined core banking, simple mobile services, and automated customer service capabilities). Some of this technology depends on wide smart-phone availability (though as M-Pesa and similar services have shown, much can be accomplished through feature phones). Use of chatbots and similar technology for customer services is still in its infancy, but provides a direction for the future. Natural Language Processing in particular may help to alleviate literacy limitations.
  3. NGOs working in this field should work together to develop clear requirements for financial institutions looking to expand. SEEP has developed a very helpful handbook that goes some way toward this. However, local conditions vary enormously and product design is likely to be quite different from region to region. Examples of differences to be addressed include:
    1. Economic conditions (stability, inflation, etc)
    2. Legal and regulatory conditions
    3. Technology infrastructure, including mobile phone network and penetration
    4. Existence of agent networks or equivalent
    5. Government policy should actively encourage financial institution engagement through a combination of carrot (e.g. tax incentives) and stick (e.g. the US Community Reinvestment Act).


Financial inclusion for very poor rural communities is challenging. However, the existence of an informal financial sector in the form of savings groups provides a tremendous opportunity for banks to develop products that can be delivered and serviced profitably.

The biggest challenge may be creation of a large enough potential customer base to cover product development costs. This can only be accomplished through the kind of collaboration sought by organizations like SEEP, CGAP and Microsave.


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job title Principal Consultant
location Concord
member since 2015
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Consultant to Fintech firms selling to, or partnering with, banks. Services include fractional Customer Success Executive, custom sponsored webinars, papers, etc.

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