Featured Article: Coming your way (like it or not) Digital Savings Groups
Aga Khan Foundation (AKF) is testing Digital Savings Groups - DSGs - in Mtwara, Tanzania. AKF has created a digital Savings Group platform with financial support from FSD Tanzania, and facilitation from Bankable Frontier Associates. The platform was developed and is hosted by Selcom, a Tanzanian payment service provider. Recently I accompanied Mark Staehle and Erasto Lameck from AKF to attend the first loan meeting of a group that had been operating for six weeks.
First of all, Wow! A real savings revolution.
What distinguishes AKF’s initiative is that, while preserving the basic principles of time-bound SGs and their strong social dynamic, digitising offers a complete solution. This is in positive contrast to partial approaches, in which digital record-keeping supports cash-based transactions that need carefully scripted procedures to maintain safety and transparency. In the AKF case everything is digital: savings, loan disbursement, repayment and share-out. This allows AKF’s groups to offer a much more flexible set of savings and loan products, while eliminating record-keeping errors and security risks (the main concern of the group that we met and indeed more generally, even in what is regarded as a safe area).
In brief:
· The platform is not tied to a telcom but is a stand-alone system hosted by Selcom, a payments aggregator. This means that any mobile money service can interact with the platform, which allows users to select a provider of their choice and to adapt to the varying quality of local telephone networks.
· At any time (not just in meetings) members can request a summary of their savings and loan accounts.
· At any time members can transfer whatever amount they want from any mobile wallet to their group account, where it is automatically recorded. The savings amount has no limit. So, here we go. Save what you like, when you like, and repay as often as you like, in whatever amount you wish when you have a loan
· Twice monthly loan disbursement meetings require around two-thirds attendance to run properly, as all operations on the platform require approval by 3 out of 5 members randomly selected by the software.
This is how it works in practice:
· Everyone sits around in a circle, as per normal, but with basic $25 Nokia in hand
· Once the meeting is open, financial statements and loan repayment progress are reviewed by the Secretary
· Members that want a loan make a verbal request to their group. All members present then discuss it and decide whether to issue or not.
· Once agreed, loans are entered in the system, which checks that they are not more than three times the person’s savings.
· As with all operations, qualified loans must be approved by the random approval process, sent by the system.
· When funds are distributed at the end of the annual cycle, profits are automatically calculated, and then allocated to each member according to the average balance of their savings in each two week period between meetings
· The group is also able to make ‘social payments’ from their fund, by paying to any valid member ‘phone number during any open meeting. Like loans this is subject to randomized approval.
I was very impressed. The group was pretty much normal for rural Tanzania, made up of members having a basic level of education. The main advantage seen by the members were:
· Safety. They had lost money from theft in a previous cash-based cycle and had no idea how this had happened
· Simplicity. (I was thrilled to hear this). Everyone ‘got it’ and it wasn’t overloaded with lots of complexity (which is unusual for this type of software). It sticks strictly to the basic SG essentials (but AKF will still have to learn how to train on those aspects of good group management which cannot be automated).
· It wasn’t a half-way house in which physical and virtual cash were mixed. This is the big distinction. When cash enters the equation, so does the risk of record-keeping error (even if the group is using a digital record-keeping system).[SR2] [MS3]
· Randomly generated approval requests ensure participation and transparency. Neither the chairperson nor the secretary has any access to the platform outside meetings, and in the meetings all transactions are subject to the approvals process.
Meetings matter.
Digital platforms can theoretically enable ‘virtual groups’ to transact without meeting, since all approvals can be carried out digitally, but the bi-weekly loan approval process in AKF’s model is designed to ensure that regular contact and interaction between members (and thus solidarity) is preserved. Without this, it is easy to envision deterioration in the social bonds that drive the entire SG movement – mutual commitment is a vital driver of savings behaviour that proponents of digital solutions seem often unwilling to acknowledge.
The system also requires a minimum 10,000 TZS ($5) balance to be retained by all members, as this is a fee that is automatically deducted at the end of the annual cycle and will cover platform running costs and Village Agent commissions. This takes all uncertainty out of the VA payment system and break-even is projected after a few years, permitting a commercial entity to break new ground in new territory, using VAs paid through the platform. What this commercial entity will look like, who owns it and what its remit will be to expand nationally remains to be defined and its business model proven, but for now the focus is on user acceptance testing.
I also think AKF will have to spend time clarifying and codifying the meeting procedures, but the system is where we ought to be headed for the long-term: this is much more exciting than bank linkage, the need for which is eliminated as there is no cash to begin with and the float is held in a scheduled bank, and is unavailable to AKF or Selcom.
“Perfection is finally attained not when there is no longer anything to add, but when there is no longer anything to take away”
I went in prepared to be sceptical but came away convinced. This is SO much better than e-recording, which is a very complex system that only records what happens with cash and has limited impact on self-financing, managed replication and good quality TA/supervision that will be regularly and reliably compensated. This is less a record-keeping system (although it is) than a complete digital cashless solution aimed at full operational cost-recovery. It’s VERY smart and if AKF can get round to sharing it (why should they?) we will all be doing this in the long-run. It is a revolutionary next step and is likely to be emulated.
Of course, you have to have a ‘phone (feature or basic Nokia), but in our (separate) evaluation work with WAMA in Lindi at the time of our visit (Lindi is much more remote than most of Tanzania) we found that even in hard-to-reach areas ‘phone ownership among members was over 80%. You also have to make sure you have your battery charged (this will be an early irritation) and, crucially, you have to be some place where there are mobile money agents. But unlike the group cashing out its money with a mobile agent to do the share-out, it’s done direct to the ‘phone and each member can encash in much more manageable amounts as they wish, in the normal way, privately with local agents.
This is the first mobile solution that I think is really practical for savings groups: by getting rid of cash, so many issues are resolved: by putting things on a platform, so many inaccuracies, errors and the need for technical support for record-keeping are eliminated. The test that AKF are doing is going on for a year, but it’s something to watch. I think that AKF may be putting me out of business, but there’s always my lathe and milling machine in the basement.
