Focus Note 2: SG Linkages - The Business Case for Private Service Providers
In 2013, the Bill & Melinda Gates Foundation (BMGF) issued a statement of work calling for an evaluation of the feasibility of digitally linking savings and loan groups (SGs) to the formal financial system in alignment with BMGF’s revised strategy to broaden the reach of digital financial systems. Thus, Bankable Frontier Associates (BFA) spent several intense months evaluating the case for promoted SGs and their members to be linked profitably to the formal financial system via mobile money, and in doing so, expand the financial options available to their members. Specifically, BFA examined the case in Kenya, Uganda, Tanzania, and Rwanda—all countries with varying levels of formal financial access and mobile money developments. From Kenya—where Equity Bank has famously focused fully on the low income segment and where M-Pesa has been a staggering success and has now broken ground on a new era of mobile money services—to Uganda, where mobile money regulations are just now taking shape, BFA surveyed various participants of a possible linkage value chain to determine the costs and benefits of linking millions of poor SG members into the formal financial system.
While the previous Focus Note asks what SG members have to gain from the world of formal finance and mobile money, this Focus Note outlines five incentives of SG linkages for banks and mobile network operators. The Note ends by discussing the tradeoffs which savings groups would face in deciding to make the switch to digital (including potentially prohibitive fees), along with a discussion of the requirements (and potential dangers) to scale digital linkages.