MICROFINANCE PAPER WRAP-UP: “Building Financial Resilience: How Financial Service Providers Can Help Low-income Customers to Manage Risk,” by Alexandra Sanchez et al, Published by Savings at the Frontier

The authors propose that financial services providers (FSPs) have opportunities to enhance the resilience of users of informal saving mechanisms (ISMs) by developing services that help ISMs manage risk. In this context, resilience is defined as “the ability to sustain one’s livelihood by preventing or reducing the impact of financial shocks on income and expenditure.” Two common types of ISMs are rotating savings and credit associations (ROSCAs) and accumulated savings and credit associations (ASCAs).

Although households use ISMs to build assets, borrow capital and manage risks, there is a limit to the amount of risk that ISMs can absorb. When unpredictable financial shocks occur, such as natural disasters or high inflation, all members of the group are negatively impacted. Thus, members are very limited in their ability to support each other. Because FSPs are often large enough to help manage such risks, there is an opportunity for FSPs to partner with ISMs, improving the resilience of ISM members and increasing the profitability of FSPs. Examples include two financial technology (fintech) firms in Ghana, Emergent Payments and DSS Platform. Among the benefits of digitizing ISMs is that the resulting data can increase the confidence of lenders in issuing loans to the ISM or its members.

Emergent Payments offers a mobile group funding and savings platform called Maximus that connects FSPs and ISMs. This platform has allowed five FSPs to provide financial services to 20,000 people in rural and peri-urban areas with limited access to formal financial institutions. It allows these users to save through a mobile wallet and receive funds from ISMs and FSPs. Emergent also offers pensions, life insurance and health insurance.

DSS Platform offers savings services as well as microloans directly to 56,000 susu customers, of whom 790 have taken out loans. Susu, a popular ISM in Ghana, involves savings collectors visiting markets and neighborhoods periodically to collect small deposits, with the total of the deposits returned at the end of the cycle, less a fee. At the onset of the COVID-19 pandemic, susu enterprises faced challenges in collecting savings from members. By digitizing susu activities, DSS has increased the resilience, efficiency and transparency of susu and enabled susu enterprises to provide microloans that low-income households can use to manage financial shocks.

This is a summary of a paper written by Alexandra Sanchez, Pete Sparreboom and Hanna Laufer; published by the Savings at the Frontier program of Oxford Policy Management Limited; October 2021; 21 pages; available at https://www.findevgateway.org/paper/2021/10/building-financial-resilience-how-financial-service-providers-can-help-low-income

By Zachary DeLuca, Research Associate

Additional Resources

Emergent Payments homepage
https://www.emergenttechnology.com/

Maximus homepage
https://maximus.global/

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