Many people in Zambia do not have access to formal banking services, meaning that savings practices are done informally. VisionFund is piloting new ways to support savings mechanisms, through mobile technology and savings groups.
VisionFund’s innovative new project with the Mastercard Foundation is piloting a savings product in Zambia using mobile technology.
Savings are a key financial mechanism with which people in Zambia meet their financial needs.
However, most savings mechanisms are still done informally, as many people in Zambia’s rural population do not have access to formal banking services. Over time, as many as 500,000 people in Zambia have become members of Savings Groups, allowing them to pool their savings into a group loan fund, and access loans from within the fund for a service charge.
Funds are kept in a box with three locks, and leaders are democratically elected to handle the money and transactions. At the end of the savings cycle, the money is paid back to group members with interest from the service charges proportional to what each member has saved, allowing group members to invest in their families’ needs and economic activities.
Savings Group Challenges
Savings groups typically save small amounts of money, meaning that members can’t always get enough capital to grow their businesses to larger scale operations.
Additionally, as savings groups grow their savings over time, holding larger amounts of money in the cash box makes holding the savings risky in case of theft or disaster. Regular bank accounts do not always suit Savings Groups because of the high cost of travelling to the bank, meaning that access to cash can be challenging. To combat these challenges, VisionFund has partnered with World Vision Zambia and Plan International, with support from the Mastercard Foundation’s Savings at the Frontier Project, to pilot a new digital solution in our Zambia project, Accelerated Linkages for Informal Savings Mechanisms in Zambia (ALISMS).
Savings Group Pilot in Zambia
In three pilot districts – Lusaka, Chongwe and Monze – 90 Savings Groups and 30 individuals totalling 1,650 individual members have been testing the digitally mirrored Savings Group Savings product in partnership with the local mobile network operator, Airtel. This was after carrying out a client-centric stakeholder and client-consultative market research and product development process. With rapid advances in mobile coverage and digital systems in Zambia, VisionFund seeks to be at the forefront of new technological solutions for maximum impact. The Temenos24 platform allows Savings Groups to conduct all their usual transactions, including savings, loans, and repayments, but in a digital format using mobile money.
Instead of using a lock box with three locks, Savings Group leaders will use three PIN numbers to conduct the share-out and issue loans throughout the cycle. This reduces the risks involved in using or keeping cash, and allows VisionFund to serve the most rural communities, as members don’t have to take time and money out of their business to travel to a physical branch. VisionFund and its partners have also provided financial education to the groups, ensuring they are equipped to understand savings and loan mechanisms on the new digital platforms.
Savings Group Linkage Loans
In the scale-up of the pilot, VisionFund will seek to reach more than 2,100 groups with 36,100 individual members with our formal Savings solution to improve efficiency and security for savings groups in Zambia. In addition, VisionFund is looking to offer complementary credit to groups who sign up to the digital solution, a Savings Group Linkage Loan. A Savings Group Linkage Loan provides a loan to the whole Savings Group, as a top up to the group’s loan fund. The interest rate of the VisionFund loan is lower than the Savings Group’s service charge, so the group makes a profit on the loans, further increasing their funds available for share-out during and at the end of the cycle.