MICROFINANCE PAPER WRAP-UP: "The Business Case for Linkage With Informal Savings;" by Constantin Albot, Stephen Peachey; Published by MasterCard Foundation, Oxford Policy Management

This report describes Savings at the Frontier (SatF), a partnership between Canadian NGO MasterCard Foundation and UK-based consultancy Oxford Policy Management, that provided USD 17.6 million in technical assistance and direct funding to establish relationships between formal financial service providers (FSPs) and informal savings mechanisms (ISMs). The program ran from 2015 to 2022, engaging 10 FSPs in Ghana, Tanzania and Zambia: four commercial banks, four financial technology (fintech) firms and two microfinance institutions (MFIs).

By the end of the program, three Tanzanian banks and one Ghanaian fintech generated profits from their linkage solutions that surpassed the amount of their SatF funding. One of the MFIs gathered enough revenue to cover most of its operating costs, but the rest of the FSPs were either just starting to generate earnings or temporarily delayed their entry into the market. Overall, the business case for linkage with ISMs appears strong for commercial banks and somewhat promising for MFIs. However, regarding fintechs, the authors suggest additional research.

The report ends with case studies of three FSPs, one of which is DSS Platform, a Ghanaian fintech. Having received a total of USD 1.6 million from SatF, DSS Platform developed and marketed a collection tracking system for networks of susu collectors – individuals who visit savers daily to collect a set sum from each. (A common arrangement is for the susu collectors to return the savings on a monthly basis, keeping an amount equal to one day’s savings as payment.) While the project was intended to deter collector fraud, network managers mismanaged some of the funds. Meanwhile, the COVID-19 pandemic forced DSS Platform to focus on its existing clients rather than growth. Regardless, some of the susu collectors reported record high collection rates just several months past the peak of the pandemic’s onset, and DSS Platform expanded into the rural areas within the Greater Accra region. During 2020 and 2021, the fintech’s user base doubled to approximately 50,000, while its profits exceeded the amount of SatF startup funding, presenting a valid business case in favour of FSP linkage with ISMs.

This is a summary of a paper by Constantin Albot and Stephen Peachey, published by Mastercard Foundation and Oxford Policy Management, June 2022, 21 pages, available at https://www.findevgateway.org/paper/2022/06/business-case-linkage-informal-savings.

By Saulius Simonas Ramanauskas, Research Associate

Additional Resources

Mastercard Foundation homepage
https://mastercardfdn.org

Oxford Policy Management homepage
https://www.opml.co.uk

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