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).
- 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.
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