MICROFINANCE PAPER WRAP-UP: “A Market Systems Approach to Savings Groups,” by Joanna Ledgerwood, published by The SEEP Network

In this paper, Ms. Ledgerwood advocates for a “market systems approach” to help savings groups (SGs) – self-managed associations of about 20 individuals who work together to save and borrow – thrive and replicate to satisfy more of the unmet demand for financial services. While SGs have grown exponentially in the past 25 years, Switzerland-based CARE International estimates that the number of unserved individuals could be as high as 400 million worldwide. The barriers to greater spread of SGs include members’ inability to withdraw savings on demand, the relatively short time horizon of loans, and the lack of insurance or payment services.

The goal of a market systems approach is to achieve sustainable, long-term development by working with the private sector, government institutions and civil society to facilitate change to the underlying dynamics of a market system, thus addressing constraints that prevent the market from reaching its full potential. For SGs, this can include: (1) providing support for SGs in making transactions more efficient through digital or other means; and (2) establishing rules and regulations to reshape the behaviour of individual market actors and the market as a whole.

In particular, Ms. Ledgerwood recommends: (1) Encouraging governments, civil society institutions and companies – such as fintechs – to contribute funds and training to support the operations of SGs, including to improve the effectiveness of trainers who work with SGs; (2) Providing office supplies and software to help SGs run, digitize and replicate; and (3) Collecting and sharing local and market-wide data among SGs to improve their access to information about the market in general and their members in particular.

The author also argues that lack of regulation results in sub-optimal levels of group longevity, member satisfaction and consumer protection. She recommends implementing processes for trainer certification, executed by the private sector and civil associations. These certifying entities, in turn, would be accredited by government entities. As part of this framework, relevant actors should invest in industry standards and codes of conduct, including policies regarding data ownership and privacy.

Finally, the author recommends the engagement of market facilitators to research SGs and the market for financial services in order to: (1) assist organizations in supporting SGs; and (2) assess the viability of the other strategies delineated above. By emphasizing the strategies of the market systems approach rather than just implementing supports, market actors should be able to increase their impact on the sustainability and long-term development of SGs, thus better meeting the demand for financial services worldwide.

This is a summary of a paper by Joanna Ledgerwood; published by The SEEP Network; March 2020; 16 pages; available at https://seepnetwork.org/files/galleries/SEEP_A-Market-Systems-Approach-to-SGs_20200422_FINAL.pdf

By Madigan Ruch, Research Associate

Sources and Additional Resources

SEEP Network homepage
https://seepnetwork.org

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