Microfinance in Africa: State of the Sector Report - Closing the Gap
This review focuses on the potential for the savings-led microfinance (MF) movement in sub-Saharan Africa to close an important gap in MF so that all poor people can access the financial products and services (including most fundamentally savings, credit, insurance, and remittances) that they need to improve their lives and livelihoods. The three sections of this review include (1) taking stock of where the savings-group (SG) movement fits within the larger MF sector and what different facilitating agencies (FAs) are doing in SG programming and where; (2) assessing program integration, in which SGs are implemented with other development programs, and linkage, in which SGs can opt into the formal financial sector; and (3) urging advocacy for changes in financial regulatory systems to enable MF development – and development policies more broadly – to be much more pro-poor and supportive of gender equality than they now are.
In taking stock of the MF sector, it is clear that the mission of the MF industry developed from the inability of the traditional formal financial sector to meet the needs of poor people. Since the 1970s there has been explosive growth in credit-led microfinancing that works to reach the poor and better-off poor. However, just as the traditional formal financial sector has not been able to serve the poor, so the credit-led MF industry has been ill equipped to reach hundreds of millions of people with the least financial resources. There is a mechanism that can fill this gap, no matter where poor people may live or work, that can give the very poor access to the basic financial services they need. That mechanism is the savings group (SG). SGs build directly on a ubiquitous tradition of savings clubs, burial societies, and rotating savings and credit associations (ROSCAs) found in almost all societies and known by such terms as “merry-go-rounds,” “susus,” and “tontines.” Formal SG development programming began in the early 1990s and today multiple agencies are engaged in SG development (the Aga Khan Foundation, CARE, Catholic Relief Services [CRS], Oxfam, Pact, Plan International, World Vision and others). Although many of these organizations have developed slightly different SG models and delivery systems, all serve the poor and very poor and all value and promote the underlying principles and attributes of SGs as self-managed, autonomous, highly participatory, community-based, democratic, sustainable and replicable entities. This report outlines what these different organizations are doing and where they are working in sub-Saharan Africa.
Program Integration and Linkage
Initially SG development programs were single purpose. The objective was to establish SGs to provide members, usually women, a safe place to save and the opportunity to obtain loans to meet subsistence needs or to invest in income-generating activities. The norm today is for SG development programs to be integrated with other development interventions focusing on, for example, health, HIV/AIDS, agriculture, market access, business development or natural resource management. This integration happens when other programs are added to SG programs or when SG programs are introduced to complement other programs. Either way generates synergies. This report documents several examples of such programs involving social protection, food security, health, literacy and business training, and special youth programs. Concomitantly there is growing recognition that some SGs want to access products and services offered by the formal financial sector and that the demand for this will only grow as members’ income-generating capacity and the savings group movement grows. Deliberate action is being taken to make it possible for those groups that want to link to do so. Historically, however, linkage has not always been positive. Learning from those failures, agencies that are working to link groups recognize that, on the demand side, it is crucial that members of SGs be financially literate and understand the implications and effect that particular
agreements can have on a group and its members. On the supply side, providers need to offer products and services that acknowledge and accommodate the fundamental principles, norms and operational structure of the SG itself. Several examples of pilot programs involving linkage that are underway are profiled in this report including a program involving savings, credit and loan insurance products in Rwanda; a pilot offering a funeral insurance product in Uganda; and a test of the use of mobile-phone technology for groups to secure and transfer cash in Tanzania.
Advocacy for Systems Change
The importance to poor people of MF in general, and the emerging SG movement in particular, makes it clear that it is not enough simply to promulgate SG programming on the ground. Although FAs work to establish, support and help SGs proliferate, developing increasingly sustainable systems to do so, it is important for agencies also to work to improve the environment in which the MF sector functions. Advocacy efforts that are pro-poor and gender-sensitive can have enormous impact on the success of MF – indeed, of development much more broadly defined – in reaching the disadvantaged. Changes in the enabling environment, within which all of MF operates, have the potential to enable very poor and marginalized people to leverage the power and versatility of the savings group to be more effective than ever before.