Savings for the bottom of the pyramid: institutional outreach

  • Bernd BALKENHOL, Université de Genève
  • Patrick WOYAGA, PostBank Uganda
  • Katherine HUGHES, CARE International


Bernd BALKENHOL explained that this session builds on the earlier session (see Savings for the bottom of the pyramid: self-reliance models) on savings for the bottom-of-the-pyramid by looking at models of institutional outreach.

Ian RADCLIFFE first shared experiences from the WSBI "Doubling Savings Accounts" programme. The programme works with ten banks active in markets with different unbanked potential and poverty levels. He provided several key findings to the audience. Firstly, he explained how spending power defines affordability of financial services, by showing the different distribution of actual daily expenditure of the (very) poor across markets. This allowed the programme to determine how much the poor could afford to spend on buying financial services. A second finding was that, although what poor consumers can afford in terms of financial services increases in better-off countries, it still remains tight. As such, in order to capture their savings we need to drive down costs of delivering up to five transactions per month we can expect the average poor saver to make. Looking at the supply side, he shared data on the number of customers needed for different distribution channels of savings services to be sustainable and under these circumstances how this translates into the required size of catchment areas needed to break even. Thirdly, combining these insights, he found that getting true rural outreach would be difficult in Eastern Africa, as most catchment areas would fall below even the levels needed for agency models. A mobile money tie-up is therefore needed to make it more likely that clients will travel to service points. For example, in the case of Tanzania, linking with mobile money could extend outreach from 25% to up to 60% of the population.

He demonstrated that reducing prices to reach scale and reduce inactivity rates at branch level and tying with mobile network operators (MNOs) to bring down costs and extend outreach are essential to achieving a feasible business case. A key challenge is to determine what financial institutions can feasibly do themselves and where partnering becomes more attractive. Another challenge is to look at smarter business models where we stretch what we can offer and charge for services at levels people can afford instead of simply covering bank costs.

Patrick WOYAGA presented the experiences of Postbank Uganda, a Tier 2 government-owned bank participating in the Doubling Savings Accounts programme. Woyaga provided a short overview of the bank's development in terms of service points, from 47 in 2007 to 238 in 2014, largely by establishing Service Centre Locations for mobile vans. This greatly improved rural outreach and Postbank's ability to service the bottom-of the pyramid with money transfers, savings, loan and mobile banking services. Woyaga explained that moving into the bottom-of-the pyramid was an obvious step for Postbank. The unbanked, at 58% of the adult population, offered an untouched and stable market, while also fulfilling the bank's mission and aligning to government development policies. To service this target market, Postbank worked on forming and linking up to savings in partnership with NGOs, opened up rural branches and expanded its mobile banking and mobile van banking services. This was supported by the development of appropriate products in terms of (group) account conditions.

The strategy already resulted in increasing deposits and credit portfolios, especially to groups. Postbank aims to increase group-lending and saving to 50% of the bank's business in the next five years. The upcoming agency banking law should further facilitate its bottom-of-the-pyramid activities. Challenges remain however. Internal challenges included the high costs of rural service provision and high value/low volume transactions and the high dormancy rate of accounts. Other challenges were market related and included high levels of client illiteracy, low disposable incomes, and slow adoption of technology and financial services. External challenges included corruption, political instability and increasing competition. Woyaga mentioned training of staff and awareness-raising and client literacy training as important prerequisites for deepening rural and bottom-of-the-pyramid outreach.

Katherine HUGHES pointed to the increasing interest among institutions to take deposits: not only to protect their institution from external shocks and improve the stability of their portfolio, but also as savings for the unbanked has proven a sound business case. Research by CARE comes to a worldwide savings potential of USD $145 million annually. She explained CARE's progressive approach to savings-led microfinance, organising groups and building their capacities before linking willing and capable groups to the formal banking system, first to savings and where appropriate, to credit services. The challenge is to offer groups access to secure, long-term savings options, while offering financial institutions a means to collect deposits of the (rural) poor in a cost-effective manner. To bridge this gap, CARE engaged with partner financial institutions to design appropriate savings and credit products for groups and develop mobile and agency models to deliver products at low costs. She stressed that formal institutions were interested to enter this market as it provides them with a new client-base with low risks and a positive reputational effect. As a next step she presented the Linking for Change Savings Charter which aims to create a global alliance to adopt and develop new products, services and methods to reach the unbanked through savings-led approaches.


The discussion first revolved around whether opening an account should be a requirement in group formation. Hughes strongly opposed this method, as she believes a demand-based approach is required, looking at the group's needs, readiness and understanding of financial products. This is especially pertinent when linking VSLAs to credit services. She added that any formal institution could be a potential partner, including SACCOs, providing that they are capable in terms of product development and delivery.

The panellists also considered whether bank linkages could undermine the inherent group trust on which VSLAs are built. According to Hughes, the formal link only provides a platform to offer groups additional financial services. In CARE's experience, the structure of trust and the flexibility of fund allocation do not change with linking. According to Radcliffe, it could even strengthen groups. He mentioned how money transfers between members can become more transparent when sub-accounts are added to a group account.

Hughes indicated that a second phase of the programme would focus specifically on youth. Challenges when engaging with youth mostly revolve around the issue of patience: patience to build up capital within the group for onward lending and investments, as well as patience to build trust between group members. Woyaga agreed and added that training is especially pertinent to tackle this issue.

Finally interest rates on deposits were discussed. According to Hughes, increasing competition between banks in this market would mean banks have to offer more attractive products to remain relevant. This could include offering higher interest rates. Radcliffe closed the session by stating that banking the bottom-of-the-pyramid changed from a CSR activity to a viable business case. This is not only due to increased government support, but also due to technological innovations, increasing incomes of the poor and interest of new investors and market players.