Achieving Financial Access through Village Banking and Data

In East Africa, roughly 70% of people’s money circulates within one kilometer of home and work. Why? People in rural areas tend to live far from banks and save in small amounts. This means that for many, village savings groups or informal means of savings are a better option than a large bank. On top of this, trust of banks remains low in many places.

WSBI is one of the organizations working towards Universal Financial Access (UFA) by 2020. Two billion people globally lack financial transaction accounts, with 25 countries in particular needing the most progress. With a member network of 110 financial institutions that currently serves 1.5 billion customers in 17 of the 25 UFA focus countries, WSBI is seeking ways to leverage its members to boost financial inclusion.

Photo Credit: Logan Dickerson, 2015 CGAP Photo Contest

Progress and Questions

Although getting “An Account to Everyone” will be a long journey, much progress has been made. Likewise, lessons have been taken on board, in particular from a sponsored outreach program with 10 of WSBI’s member savings banks, where active accounts have grown from 1.2 million in 2008 to 2.8 million in 2015. However, hurdles remain.

Regular active account usage turned out to be much more difficult than first thought. The core of the challenge faced among WSBI’s partner banks was threefold: affordable pricing and low population densities put limits to the banks for providing a sustainable solution, plus there was a growing need for real usable services. Questions arose that demanded an answer. Two especially came to mind:

1. How do we meet rural people’s financial needs with services that replicate the way people already manage their finances?

Village banking emerged as the most successful route to meet peoples’ financial needs and close the proximity gap in remote Eastern Africa. We learned that most of the cash in East Africa stays in villages, so linking formal banking with village groups became an arena to capture these high-quantity, low-value transactions (a savings group might put aside $5 to $10 per month, for instance).

WSBI East African member Postbank Uganda (PBU) is working on this. There are an estimated 1.2 million members organized in formal savings groups in Uganda. PBU in 2015 reached out to 28,000 village groups assembling more than 500.000 members and is finding ways to replicate the traditional informal savings model through formal digital services without distorting the group model. The result: a threefold increase in PBU’s active customer base between 2012 and 2015 and a significant margin from a growing funding base coming from small scale savings."

2. How can segmentation of customer data help us to predict clients’ transactional behavior and address sustaining account activity after account opening?

Having a shared meaning of what defines an active account is paramount. WSBI’s definition was any account that transacted in the previous six months. The Global Findex shows only one-third of all adults – in poor or upper middle income countries – save during one year. It also seems that savings occur in bursts of activity followed by a quiet period before starting again and regular savings patterns are rather rare.

WSBI East African member Kenya Post Office Savings Bank (KPOSB) has developed an analytical model for better understanding the drivers of account activity. Together we looked at whether getting messages out to a segmented customer base could nudge their behavior in a way that savings balance as well as the frequency in making a deposit or transfer would increase The result: messages to incentivize account activity that were sent out 100 days after the last client activity did not deliver the desired results. Quiet periods for active clients do not go much beyond 50 days, thus messages aimed at nudging client behavior need to lie within this time span. To obtain a more comprehensive picture of client behavior and base the design of messages not only on data intelligence, it will be useful to also use results retrieved from client surveys and discussions.

While technology has been helpful in both cases to improve rural outreach and increase touch points with the underserved and unbanked, the customer experience is a journey where institutional learning is an ongoing process. Our video report highlights some of the bumps and discoveries we have found along the way.