The Inefficiencies of Savings Groups

Last week, we introduced informal savings groups and their benefits. In this post, we’ll discuss how mobile phone technology can optimize the intrinsic benefits of a savings group through mobile money, innovative cash management applications, and increased communication.

Successful financial models, according to Goss, Mas, Radcliffe, and Stark, are convenient, trustworthy, and affordable. Traditional savings groups have been successful for largely the same reasons. They are affordable – there is no transaction cost to participate. They are relatively convenient, as groups tend to be local and meetings are scheduled in advance. In addition, due to their community-style formation, they are founded on trust.

However, despite their successes and intrinsic benefits there are a number of problems that are starting to emerge as the nature of communities evolve. In particular, there are three key issues in the areas of trust, inconvenience, and security.


The issue of trust consists of three key problems or risks.

  1. People don’t join savings groups because they less frequently know or trust their neighbors. As people migrate to cities and across international borders, trusted family members or companions may be geographically inaccessible through the traditional savings group model.
  2. Bonds of trust are fragile. As in any relationship, trust is easily broken. Add the relationships of 15-20 people, and the risk is greater. If two members get into an argument, the entire group can diminish. There must be a consistent level of trust, and more importantly, communication, among all members during and between group meetings.
  3. There is a lack of independent record keeping. Handwritten record keeping can be sloppy, inaccurate, and can cause problems. The social stipulations associated with tracking each member’s deposits are very high; all members must be seen depositing their cash or they risk facing exclusion or reputational damage.


Convenience issues include the need for consistent proximity and regular meetings. Savings groups require physical presence that is not always feasible, convenient, or even in the best interest of the group’s financial situation. If someone moves away, it’s difficult for them to continue participating. In rural areas, it can be difficult to hold regular meetings due to distance. In times of conflict, disaster, or displacement, the savings cycle will stop at the time when they are needed most.

Security Risk

Finally, the method of saving cash presents a high security risk. There are also security concerns, as one person, usually in a box, holds the physical cash while another person holds the key. There is a high risk that the cash could be stolen, misplaced, or lost.

How Can We Fix the Inefficiencies?

Individually, savings groups, mobile money schemes, and banks, cannot offer consistent levels of convenience, trust, and affordability. Goss, Mas, Radcliffe, and Stark write, “those wishing to serve poor clients must deliver on all these factors,” (2009). Above, we have presented the areas where savings groups lack and present inefficiencies. Mobile technology and mobile money can solve the problems and improve savings groups as an effective financial services model. Check back next week to find out how!


Goss, Salah, Ignacio Mas, Daniel Radcliffe, and Evelyn Stark. (May 2011). “The Next Challenge: Chanelling Savings Through Mobile Money Schemes.” The Mobile Financial Services Development Report. The Bill & Melinda Gates Foundation. Retrieved from

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