Savings Groups Fuel Digital Design for Smallholders in Rwanda
It’s no secret that savings groups are the lifeblood of the informal financial economy, especially for smallholder households in developing economies such as Rwanda. Savings groups are seen as a social and financial safety net for those who weather seasonal hardships related to the variability of their harvest or unforeseen emergencies.
After seven weeks on the ground in Rwanda taking a human-centered design approach and interviewing over 75 farmers, banking officials, traders, co-ops, and savings groups, it is apparent that a deeper understanding of these groups provides key insights to drive the design of new digital financial services and products. The following is a glimpse into our early insights and their implications for designing mobile financial solutions.
1. Savings groups have the ambition to grow, but often lack the systems or knowledge to translate their financial goals into reality
Many savings groups who gain momentum in size, both in membership and finances, see a parallel rise in their collective aspirations. Savings groups on the cusp have ambitious goals – they seek larger loans, more profitable investments, and community revitalization. However, they often lack the knowledge, leadership, and formal tools to take actionable steps towards these ambitions. This is complicated by the cumbersome nature of manual management and the lack of reinvestment into the collective.
A mobile-based financial channel for savings groups can equip them with a more usable management platform and translate their implicit rules, disciplines and processes into better mechanisms for understanding their own potential - such as better tracking of payments and contributions and assessment of member creditworthiness.
Fulgence has been part of a 70-member savings and loan association for six years and as the deputy president she has witnessed the group grow over time. She feels confident that being in an SLA is just the first step in becoming a co-op, but she mentions, “I don’t quite know how to make the transformation happen.”
2. Informality brings with it distinct limitations as savings groups grow
The ceiling for comfortable growth within a savings group revolves primarily around the pain points of a manual process. This includes bottlenecks around accounting, logistical challenges, human error and the insecurity of a cash-based system. Community implications of scale are just as crucial. Increased size makes it more difficult to maintain trust, transparency and an engaged sense of collective responsibility.
Many of these scaling issues can be addressed by facilitating internal group transactions and communications via a mobile-based platform. For example, using mobile money to make contributions rather than doing so manually improves safety by reducing the amount of cash transacted at any single aggregation point and decreases the error rate by precisely tracking contribution details.
Domitila is president of an SLA in Musanze. In her role as president, she implemented the use of a checking account about a year ago because she felt uneasy about managing the contributions of 147 members each week. She thinks of the account as a way to be more responsible and professional in the money management and growth of the SLA. “If everyone were to get an SMS of the deposit, they could see I am not stealing the money. This creates trust between the bank, the SLA members and me.”
3. Savings groups understand that financial emergencies are not just for moments of crisis, and they have the needed agility and familiarity with members to respond quickly
Unforeseen agricultural expenses often disrupt a farmer’s budget, especially at times in between harvests. However, the need for urgent access to capital isn’t always due to hard times. Opportunities surface, such as a competitive price to purchase a cow at the market. Additionally, celebrations - such as unplanned expenses for a holiday feast or a wedding – also require rapid access to capital. Savings groups, as community-based organizations, understand the ebbs and flows of their neighbors’ lives. Their intimacy and relative speed often make them better equipped than banks to act as a safety net for their community. However, there is a limit to savings groups’ effectiveness in serving at times of urgent need. Still, as Clement and Vestine from a Musanze savings group put it, “[they] are good because you are not alone, you feel like you are part of a family and if a calamity comes your way you will be covered.”
A mobile wallet feature associated with a group account could enable tracking of individual credit histories and payment behavior for both group and individual members. This would enable the bank to provide more favorable credit terms to disciplined savers and thereby reduce their risk exposure, creating opportunities for greater access to credit over time.
Bosco, a 33-year old farmer in Huye, told us, “If a goat is available at a lower price than usual in the market, then that’s an ‘emergency opportunity’ for me. I’ll even borrow money from anywhere to buy it. I’ll do whatever it takes to seal the deal.”
4. In the “community trust economy,” there’s a need to continuously empower leadership when seeking to streamline their operations
Leadership in savings groups is voluntary and comes with the opportunity to build reputation and trust in the village. These leaders are a crucial force for the health and success of savings groups, and rely on two primary factors: (1) the president’s ability to translate her/his leadership into collective empowerment through group decision making and (2) the strength of the accountant – the quieter but often more important link in a savings group’s prosperity - who must manage the savings group’s funds accurately, reliably and transparently. While the president may have nominal control, it’s the accountant that often carries the organization’s trust. Savings group leaders seek tools and systems that ease their accounting and management burdens, but not at the expense of empowering their members and substituting for their capable leadership.
A multi-party authentication mechanism built around a mobile savings group solution could grant equal access and control to a number of individuals in a group (such as the entire leadership committee) - and minimize the possibility of any personnel taking fraudulent advantage of their positional powers. The group can be enabled with sufficient digital ‘checks and balances’ to ensure that the group trust and integrity stays secured as they scale and evolve towards more formalized working practices, while also ensuring that real-world group dynamics and cohesion are preserved.
Emma is proud of being the SLA accountant because it means that people trust her. Although her reputation depends on managing the money properly, she feels it is “too demanding to keep everyone up to date on where the money is, how much is lent and who has already been paid.”
When applying human-centered design to financial inclusion, it’s often revealing to look to informal solutions to better understand gaps and opportunities in formal systems. While these insights about the mechanics, agility, trust, and intimacy of savings groups suggest compelling opportunities for mobile innovation, we recognize that past experiments to bring technology into these contexts have often fallen short. Designing mobile solutions given the real technical limitations (i.e., feature phones and USSD menus), the requirement for extensive demand generation and training, and ensuring commercial viability is not easy. But given the size of the opportunity and the fact that these key pain points continue to exist, the need to experiment remains.
It is an interesting thing to observe that an issue with which I worked back in the 90s today seems to be a possible solution to manage savings groups of ROSCAs, Even some of these still are being used in Latin America countries in Colombia a system called "Consorcios Comerciales" are manage by institutions that supervised by the SUPERINTENDENCIA DE INDUSTRIA Y COMERCIO, a superintendency that guarantees the formalization of these "informal" savings and lending groups to buy several products, today in Brazil, for example the figure of Companies Administrators of Savings and Lending Groups is still used to buy cars, visit http://www.jornaldoconsorcio.com.br/noticia.php?nt=198 to find out how this work. Car brands such as FIAT http://www.fiatconsorcio.com.br/ which was created in 1977, still operate under the norms of the Central Bank, visit the Web and open the page CONEHCA O CONSORCIO FIAT were you willfind a detailed description of how the system works, there it is defined in portuguese and I translated to english as: "The Consortium Fiat is the meeting of physical and / or legal entities in a closed group, in which the consortium members pay monthly installments, in order to make savings that will be allocated to the purchase of goods (vehicle) new or used. Fiat Administration Consortia form groups, conducts Assemblies and manages the financial resources of the group on behalf of the participants." , I myself was a consultant to a Cosnsocio called "CONBIENES" in Venezuela, that was used to buy from appliances, to cars and even homes. So it is a matter to open MFIs to the possibility of using tne same legal platform to promote and legalice the informal savings and lending groups. Obviously some adjustments should be made to adpat them to norms in each country, however, it would be better to have this groups under the control of a financial institution that to keep them informal. Even there are in the Internet the offering of ROSCAs administration in https://www.tutanda.com/ visit it and you will learn more about it, you can even see a video that explains te operation. Enjoy it.
I think there's also a need to support MFIs so that they can link with these SLAs.
There are many benefits for both actors...