In Tanzania, MicroLead and CARE have been supporting Mwanza Community Bank in its efforts to expand outreach to savings groups. CARE’s programming has always been organized around women’s empowerment and agency, relations and structures. Today, savings groups are at the core of CARE’s approach, and CARE has supported over five million savings group members in Africa.

Through this experience, CARE has increasingly found a demand from savings groups members for services that go beyond what a VSLA can provide. First and foremost, groups want increased cash security. Within five years of start up, many VSLAs are saving as much as $8,000. When it’s not being loaned out to members, this money is being stored in a lock box in the treasurer’s house – and members have substantial fear of that box being stolen. Sometimes, groups go as far as secretly moving this box three to four times a night just to prevent theft. So, savings groups are looking for a safer option to store their extra money. The second major demand groups raise is that they want to grow. Usually groups organize their share-out seasonally, e.g. around school fees or agricultural activities. But once the share-out happens, the box is empty and the group has to rebuild their loan fund from scratch. Groups know what they are capable of and demonstrate it year in and year out. They see potential for external credit to help them to recapitalize their groups and jumpstart their lending more quickly after each annual share out.

Through MicroLead, CARE experimented a great deal linking informal savings groups to banks in order to resolve these issues. Here’s what they found:

1) Linkages with formal financial institutions improves group financial performance. Looking at the data on the growth trajectory of a savings group with or without linkages, CARE has seen higher ROA for linked groups that have access to a savings account. Savings group members seem to invest more money in their own group when they know its backed by the security of a formal savings account. The savings rate for savings groups that have access to credit is also higher than prior to access to credit, presenting an opportunity for groups and banks.

2) Training builds financial management capability and discipline that allows members to take advantage of other financial services. Looking at data from several CARE partner banks, the average balance on group accounts is 146% higher for those groups that received training from CARE. This demonstrates that when the training is “right,” it can strengthen savings groups and the value proposition for formal financial institutions.

3) Serving savings groups is a promising but not proven opportunity for banks. While the business case remains unproven, it is clear that groups that are well trained have higher average deposits and higher account utilization rates than groups that have no or less training – but building group capacity is expensive. Balancing the tension between traditional, low-cost marketing and higher-touch customer engagement that yields higher value accounts is critical for success in serving these groups.

Ultimately, for Savings Groups to take up formal financial services in Tanzania, the members need to feel comfortable transitioning from informal to formal services and physical cash to mobile money as the bulk of financial service offers now rely on these channels. Additionally, the products need to be affordable, accessible and responsive to SG needs. Getting this mix right and enabling groups to overcome barriers to access at their own pace is key for broad based adoption.

To make this easier, CARE has rigorously tested the original SG linkage readiness assessment tool to determine when groups were ready to link based on years of data indicating which factors are most important to successful linkages. Five items appear key to linkage success: 1) the group’s internal fund utilization rate, 2) the proportion of members operating some sort of microbusiness, 3) savings groups should be located within three km of the nearest access point, 4) there must be a high attendance rate among group members and 5) members need some existing mobile money experience/digital literacy. Incidentally, CARE has also found that SGs with a higher proportion of female members are much more likely to keep their accounts active.

By developing tools like this, and driving innovation in the delivery and support of financial and digital literacy building for savings groups and their members, CARE and UNCDF see tremendous potential to further deepen financial access for groups who have clearly demonstrated they are interested, capable and ready to expand their use of financial services and improve their lives.

About MicroLead

MicroLead is a UNCDF-managed global initiative challenging regulated FSPs to develop and roll-out deposit services which respond to the rural vacuum of services. With the generous support of the Bill & Melinda Gates Foundation, The MasterCard Foundation and the LIFT Fund in Myanmar, MicroLead works with a variety of FSPs and technical service providers to reach rural markets, particularly women, with demand-driven, responsibly priced products offered via alternative delivery channels such as rural agents, mobile phones, roving agents, point of sales devices and group linkages. This is combined with financial education, so customers not only have access but can effectively use quality services.

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