To date, we’ve introduced both the benefits and the inefficiencies of informal savings groups. Today, we’ll share how mobile technology can improve informal savings groups. Injecting the benefits of mobile money, increased communication, and innovative apps into the savings group model can displace the inefficiencies that exist in trust, convenience, and security. Importantly, mobile technology does not compromise the intrinsic benefits of the savings groups.
Mobile technology can strengthen bonds of trust through:
Access to Trusted Companions. A financial inclusion study by FSD Kenya found that 40% of Kenyans surveyed don’t join savings groups because they either don’t know or don’t trust their neighbors. By using mobile money, trusted companions and family members may be included in savings groups, regardless of location. For example, an extended network of friends and family across different villages can start their own savings group, even though they live apart.
Improved Communication and Trust. Mobile phones strengthen the connections of trust through increased communication between meetings, whether it’s a simple SMS message or a more intimate connection over a social network. Group texting, in particular, can add a level of organization and transparency to the savings group agenda, thereby increasing trust.
Improved Record Keeping and Consistent Transparency. Accurate and verified record keeping through a mobile application or log increases transparency for members. Mobile phone-based products have the ability to ensure third party confirmation and receipts providing additional verification and minimize dependence on handwritten bookkeeping. Simple MFI, mCollector, and ChamaPro are examples of technologies that are built for managing savings and MFI groups that would be equally beneficial for informal savings groups.
Mobile technology increases accessibility to savings groups across distances, which is more convenient.
The traditional savings group model requires regular and consistent meetings. The meetings are designed to bring the members together to make their deposits in front of the group, assurance that every member is participating. Mobile money decreases the need for frequent meetings, as there are solutions that allow deposits to be logged without compromising transparency, as discussed above. This means that members don’t have to be present to make their deposit. Mobile money allows members in transact outside of “meeting hours” and improves the effectiveness of daily management, regardless of proximity (Goss et al., 2009). This also means that members can go to work in different areas without giving up their position in the group.
The traditional model requires group members to reference the group passbook in order to see their total contribution to date. With a mobile based tracking system they can query their contribution and have a better understanding of what their eventual payout (in the case of rotating savings groups) will be. Referencing the group’s data on a phone is much more convenient than having to locate the group passbook.
Mobile money reduces the need for cash, which is the biggest security risk with traditional savings groups.
The most obvious benefit of using mobile money-based deposits is the elimination of cash. In the traditional savings group model, one person is entrusted to hold all of the group’s cash in a locked box, while another member holds the key. Saving the money in mobile wallets significantly removes the potential for fraud or theft. “Group funds are commonly considered relatively safer than cash at home… [but] there are reported cases of fraud,” (Goss et al., 2009). Saving with a mobile wallet goes much further than cash under the mattress or in the box, whether by a group or individual.
Combining the Best of Both Worlds
With all the successes and benefits of savings groups and mobile phone technology, combining the two creates the potential to improve each, without losing their intrinsic benefits. Using mobile money eliminates exclusion from the group when someone moves away, and in fact can increase savings from that person’s continued contribution through remittances. Family members can participate in savings groups, regardless of their location. This is particularly important in areas where families have been displaced. By operating a savings group over mobile money, the group’s agenda may continue even during times of conflict or disaster. Most importantly, adding mobile technology to the traditional model doesn’t compromise the initial trust foundation, but rather improves it.
Download our research brief: Improving Informal Savings Groups with Mobile Technology (PDF).