Impacts of Linking Savings Group to Formal Financial Service Providers and Strengthening their Internal Group Insurance Mechanism in Zambia
While the Zambian financial sector has shown moderate development over the past decade, lack of consumer awareness, low-cost products and financial literacy are challenges keeping financial inclusion at low levels. 48.7% of the rural farming population does not have access to financial services and 97.2% of the Zambian population does not use any insurance services. Part of the reason for the low financial inclusion are the high costs associated with operations in rural Zambia: banks, insurance companies and financial service providers are hesitant to provide financial services at low prices in rural areas as they expect high transaction costs and small volumes, thus, leading to financial losses. At the same time, the willingness to pay for financial services or insurance is very low in the rural sector. Savings groups could potentially be a vehicle that could help to increase access to financial services and mitigate non-insured risks.
In order to investigate two interventions or treatments aimed at increasing financial inclusion via savings groups, 3ie funded a Randomised Controlled Trial (RCT) with two interventions focusing on i) the financial linkage of community-based financial institutions (CBFIs) to the formal financial sector and ii) the strengthening of CBFIs with regard to their inherent insurance and social protection mechanism. For the project implementation funded by RUFEP, the researchers worked together with four local non-governmental organizations responsible for the implementation.