The desire to keep her money in a place that is safer than under her mattress is often the motivation for a woman to seek her first engagement with a formal financial institution. But the act of saving—either to handle an emergency, or to ensure that her priorities, such as her children’s education, aren’t ignored, or to achieve a long-held aspiration or goal—carries a deeper resonance throughout women’s lives. For many adolescent girls, at the moment in their lives when they are the most vulnerable to decisions being made for them about their future, a savings account can be one of their few sources of autonomy. As the adults in their lives are deciding whether they will be able to continue their education or go to work or marry, the money they have saved in their own names can give them a seat at the table. Having a safe place to save and having control over how money is spent are twin, recurring themes running throughout the lives of women and girls.
One such story centers on a focus group of young girls, aged ten to thirteen years, in Kibera, Africa’s largest slum, just a few miles from Nairobi’s city center. The girls spoke passionately about having a savings account in their own name, outside their parents’ control, so that they could contribute to the payment of their own school fees and continue their secondary education. They already understood that an account with as little as $10 in it would give them bargaining power when their parents objected to the expense of further schooling. Likewise, they saw a savings account as a much better way to ensure their financial autonomy when the only other alternatives were working or entering into early marriage, essentially a transactional sexual relationship. This is often the only route open to young women, one they had likely seen their older sisters and cousins forced to accept. One of the most talkative and insightful girls in the group was about ten years old. Like most of the girls, she was dressed in her school uniform: a red V-neck sweater over a bright blue cotton dress with a white Peter Pan collar, black knee socks, and a pair of black sneakers. She was an excellent student, but she was concerned that her parents would not continue to fund her education once she had finished primary school and would instead require her to start working. She wanted a savings account so she could control how the money she earned collecting fabric scraps for resale was spent. (To put her earnings in context, a schoolgirl would likely earn less than $1 a day for the scraps she sold.) She explained that she would still help with family emergencies and monthly expenses, but the savings account would also allow her to protect some of that money for school fees.
Keeping girls in school, particularly if they are able to avoid child marriage and early pregnancy, is one of the highest-yielding development investments possible. Every additional year of schooling that a girl is able to complete has exponential benefits for her health and lifelong economic well-being, and for that of her future children. Studies show that a girl will earn up to 25 percent more for every year of secondary school she completes. Child marriage greatly reduces the likelihood of girls completing secondary school while greatly increasing their chances of bearing children before the age of eighteen; those children, in turn, are at greater risk of dying before the age of five. Millions of girls throughout the developing world must run a gauntlet thrown up by the people in their lives that see more value in marrying them off or putting them to work than in letting them stay in school.
A surefire way to cap the return on investment in a girl who succeeds in staying in school is to let her graduate without the financial tools to chart her own course. One head of a large charitable organization devoted to girls’ secondary education in Africa spoke of the essential role that financial education and saving money can play in making sure that girls reap all the benefits of their hard-won educations. The organization had worked with nearly seven thousand schools across Africa to educate over three million girls from the primary grades through secondary school. Their model entailed not only supporting a girl with tuition, uniforms, and school supplies but also building a support system around her, creating parent groups and training teacher mentors. However, that support didn’t extend to the very real challenges of remaining financially independent after leaving the nurturing environment of the school. In some countries the organization watched their graduates marry within a year or two of leaving school because they couldn’t support themselves. The curriculum included some basic financial education, but it wasn’t linked to any practical, real-time uses of the new concepts being taught, such as opening a savings account or developing a budget. The classroom lessons remained abstract and never came alive as tools for the girls to use once they had graduated. The organization also teamed up with a microfinance institution to provide the girls with microloans to start businesses after graduation, but they were thrust into these entrepreneurial roles without business skills, startup capital, or other resources. Not surprisingly, their attempts at starting a business were largely unsuccessful, and the girls ended up burdened by debt they couldn’t repay.
The NGO head was now weighing whether to provide the girls with a savings account when they entered the school. She reasoned that this might allow the girls some breathing room and the possibility of a broader set of choices once they left the nurturing environment of the school. The organization’s generous donors would make initial deposits for the girls to open accounts in their own names with a local bank and then match any deposits the girls or their families made over the course of their secondary education. All this would be accompanied by a more rigorous financial education curriculum that used the teachable moment of the account opening to give the girls the greatest chance of absorbing the material.
It’s worth noting here that even though the girls enrolled in this type of program are often desperately poor, they always seem to have small amounts of money that they are eager to save. Whether from selling scraps of fabric like the young schoolgirl in Kibera or hawking newspapers in morning traffic in Santo Domingo, girls do earn money that they could be putting away toward a goal. In fact, depending on the country and cultural context, girls often have strikingly different attitudes toward the money they earn. In the Dominican Republic, for example, the first girls invited to open a savings account at Banco ADOPEM also helped the bank pick a name for the account; the overwhelming favorite was Cuenta Mía, or “My Account,” and the girls almost universally declared they would be saving toward their education. One eight-year-old announced that she would be saving to become a gastroenterological surgeon, since that was the kind of doctor who had saved her grandmother’s life, and her parents couldn’t afford to pay for the many years of required medical training. In contrast, the daughters of the clients of India’s SEWA Bank were adamant that they were not saving for themselves but to contribute to their families.
Savings accounts represent the backbone of anyone’s financial life and provide a gateway to all other financial tools. To achieve gender parity in this most basic financial instrument, 245 million more women around the world would need to gain access to an account, generating annual incremental revenue estimated at $15 billion. While this opportunity may be lucrative, bringing millions of previously unserved customers into a market comes with special challenges. Is there anything that the banking sector can learn from the traditional informal savings groups about how to attract and retain this new customer base? One innovative bank in Nigeria was eager to find out.
At Idumota, one of the oldest and largest markets in Lagos, everything imaginable is available for purchase, from fresh produce to textiles and wristwatches. But Idumota is best known for two things: it’s the place to go for bulk products such as groceries, health and beauty products, and office supplies, all sold at very low prices; and it’s one of the main distribution hubs for videos produced by “Nollywood,” Nigeria’s booming film industry, which releases roughly fifty new films each week. The winding paths of the market are lined with thousands of one- and two-story shops with merchandise piled high on the counters and shelves and roll-down grates that close at night, but Ime Akpan Isaace runs her business from a small table protected by just an umbrella overhead. From that table, Ime sells the slightly bitter, spinachlike okazi leaves that are used to make a traditional southern Nigerian soup called Afang that is served at weddings, to celebrate the birth of a child, or to welcome an honored guest to your home. On the table is a wooden chopping block, a rectangular stone to sharpen her knife, and two baskets, one filled with uncut okazi leaves and the other with expertly sliced okazi ready for sale.
For years, Ime had worked alongside her husband in another section of the market, but this stall represented Ime’s first full-time venture of her own; she started her business three years ago with $31 that she and her husband had painstakingly accumulated under their mattress at home. She buys okazi from a wholesaler before dawn every day, arriving at the market around 6:30 a.m. and staying until she is able to sell all of the leaves, usually around 3:00 or 4:00 p.m. Half of Nigeria’s more than 206 million people live below the international poverty line of $1.90 a day; Ime earns the rough equivalent of $100 per month, depending on how many days she comes to market and whether it is a holiday period.
Ime had recently opened her first bank account—the BETA savings account introduced by Diamond Bank, one of Nigeria’s largest banks. Diamond Bank designed the BETA account (which means “good” in pidgin English) specifically to reach market traders like her. Diamond was established in 1990 and, over the years, had built a strong reputation as an international bank serving large Nigerian and foreign corporates, but its retail operations were limited to an affluent customer base. The bank was one of the first in Nigeria to invest in technology to improve the efficiency and service quality of its existing retail offerings for its high-end clients. When the Nigerian Central Bank began to emphasize financial inclusion as a priority, Diamond Bank’s management thought there might be a way to adapt the technology to serve unbanked and underbanked clients as well. In 2013, nearly two-thirds of Nigerians had no access to financial services and the government was eager to expand financial services to more low-income people. Nigeria was a pioneer in introducing a tiered KYC system in a deliberate attempt to bring more people into the formal financial system. Know-your-customer or KYC requirements are mandatory processes that financial institutions everywhere use to establish the identity and suitability of potential customers, often as a means to guard against money laundering and the financing of terrorist activities. These procedures can be costly for financial institutions to maintain, particularly for low-balance clients, many of whom are unlikely to have the required proof of identification and other documentation. For some clients, providing even a home address can be challenging. In rural areas, streets and roads are often unmarked, and homes, farmland, and other properties may not have numbers, leaving millions of households without a verifiable address. Without this basic identifier, they are often denied government services such as water, postal, and electricity delivery, while opening a financial account remains out of reach.
A risk-adjusted, tiered KYC system such as the one introduced by the Nigerian Central Bank allows for flexible account opening requirements subject to certain caps and restrictions on the size of account balances and the services provided. A market trader like Ime could open a tier 1 bank account by providing only her name and date and place of birth; the bank was not required to verify the information, but the account balance was limited to approximately $230 and could only be used for deposits and withdrawals. No payments or funds transfers were permitted. A tier 2 account would allow her to maintain a slightly higher balance (roughly $275) and make transfers, but the bank would have to incur additional costs to check the personal information she provided against official databases. Nevertheless, the cost reductions made possible through cell-phone technology combined with more streamlined KYC regulation led Diamond Bank’s retail banking team to seriously explore entering the inclusive finance market.
Diamond’s senior management made some important early decisions about whom to target and the product they wanted to offer this new client base. The bank already had branches inside or very close to many open-air markets similar to Idumota across Nigeria where they served medium-sized and larger businesses. Their initial customer research indicated that traders, particularly women, who operated much smaller businesses from inside the markets might be interested in services from a well-established bank. Perhaps the bank’s most significant decision, though, was to enter this market by offering a savings account rather than starting with a lending product.
Throughout West Africa, group savings schemes, called ajos in southern Nigeria or tsu tsus in francophone Africa, feature a group coordinator or collector who regularly visits men and women in their homes or businesses to collect and hold small deposits. While the schemes differ slightly from country to country and even between northern and southern Nigeria, an ajo is comprised of a group of friends or colleagues who each save a previously agreed-on amount of money each month. They choose a coordinator from among themselves to collect their money and hold it in safekeeping for a fee. At the end of each month, the coordinator gives all of the money saved to one of the group members, and this process continues, month by month, until all members have received the pot once. In customer interviews the traders placed great value on the convenience offered by the ajo coordinators’ doorstep collection, but the women expressed a strong desire to make more frequent, even daily deposits, and everyone bristled at the fees charged by the coordinator.
The customer interviews also indicated that the women felt a pervasive “emotional distance” from the bank; these women repeatedly expressed concerns that the bank “wasn’t for me.” Many of them were apprehensive that there would not be anyone from the bank who “spoke their language,” in both literal and figurative senses. The women worried that the bankers and the materials related to the product would be in English rather than their own pidgin Nigerian dialect. They were also uneasy that the account would be complicated to use and they wouldn’t understand how it worked. The women were particularly skeptical that there would be hidden fees and conditions that would let Diamond Bank take advantage of them. Their concerns about not being understood were not unfounded: Diamond’s management was surprised by the reluctance among staff from the branches located near the markets to take on this new clientele. One of the bank’s retail executives recounted his experience of a visit to a market branch. He had decided to step outside the gated car park before going inside and had walked across the road to talk to one of the women traders, whose stall was located a few feet away. He was impressed by the monthly turnover the woman was generating from a seemingly modest fruit and vegetable stall, but when he asked the branch manager whether he had ever considered banking the woman’s business across the road, the manager replied, in all sincerity, “What woman’s business are you talking about? There’s no such business across the road.” These women and their businesses were literally invisible to that branch manager.
Diamond launched the BETA savings account with all of these insights in mind, recognizing that the product’s success would rest on the bank’s ability to build trust with market traders like Ime. They took the women’s concerns about language to heart and used simple, nontechnical language to explain all the account’s features. (The BETA marketing materials all featured the pidgin tagline “No Wahala, No Cost, Plenty Awoof,” which effectively translates as “No Hassle, No Fees, Plenty of Free Stuff”). They integrated—and expanded on—the ajo’s door-to-door collection practice by recruiting a group of young men and women, mostly secondary school graduates from the community, called BETA Friends. The BETA Friends could be seen from anywhere in the crowded markets across the country, dressed in shockingly bright green t-shirts, caps, vests, or aprons. The bank’s original plan was for the Friends to provide account opening services at the trader’s place of business, introducing her to the various account features available on her cell-phone and the ATM card and providing some basic financial education to new customers. Because of the importance that potential customers had placed on convenience in the interviews, the bank had assumed that customers would eventually migrate to the cell phone or ATM to access their accounts. However, the human connection proved to be at least as powerful as the convenience of technology. The Friends quickly became the choice of most BETA customers to make their deposits. In fact, nearly 70 percent of savings deposits into BETA accounts were made through BETA Friends. While BETA account holders—particularly women—valued the convenience of the technology, the human relationship was essential for building trust and customer loyalty. In addition, the BETA product team mentioned a trend they were starting to see in the BETA Friends collection data. Even though the product was specifically designed for women traders, the uptake and usage rates were largely the same between men and women. Men customers with female BETA Friends appeared to save at a higher rate than those with male Friends. (One young female BETA Friend was particularly amused by a male trader who told her that he was saving to buy a helicopter in order to whisk her off to dinner in a different part of the city!)
Ime’s table is just a few yards down Denton Street from a Diamond Bank branch, but she had never thought it was worthwhile to open a bank account because she couldn’t spare the time to stand in line at the branch and wasn’t familiar with how an ATM works. Thanks to the daily visit to her stall by her BETA Friend, she has been able to deposit the equivalent of $6 every day that she is in the market. To put that achievement in context: it took Ime and her husband three years to save $31 to open her business, and she is now clearing as much as or more than that on a weekly basis. Ime attributes some of her success in saving to the fact that she looks forward to seeing her “Friend” and doesn’t want to disappoint her by not depositing anything. She explains that before she had a BETA account, she would frequently reach the end of the month without having saved enough to afford school fees for all of her seven children. Saving at home under the mattress, or even with the less frequent collections by the ajo, made it too easy to spend the money on other things. As Ime put it, “The money slips through your fingers.”
Ime is just one of literally millions of women, who, once introduced to banking services, become loyal clients and avid promoters of the financial institutions that serve them. By offering a convenient savings product similar to the ajo system these customers were already using, the bank made it possible for the market women to build trust with the bank and allowed Diamond Bank management (especially the bank’s Risk Committee) to better understand the risks associated with serving this new customer segment. With an existing informal savings model already in place, the market traders had established savings patterns through traditional money collectors; on average, they were already saving an impressive 60 percent of their income through informal means.
The BETA account represented a remarkably effective entry into the financial inclusion market for Diamond Bank. In fact, when Diamond Bank was subsequently acquired by Access Bank, Africa’s largest bank, in 2019, its presence within this growing market segment was cited as one of its most valuable assets. However, evaluating the empowerment effect of the program through the lens of the Chen framework introduced in chapter 3 isn’t as straightforward. In the five years following the introduction of the BETA account, Nigeria’s economy substantially worsened, with GDP growth dropping from a rate of 6.67 percent in 2013 to 1.92 percent in 2018. This slower economic growth was accompanied by a 42 percent increase in inflation, which caused many BETA clients to question the utility of leaving money in a bank account only to see its value erode. Not surprisingly, the prevailing economic climate severely affected BETA clients’ ability to experience positive material change. Nevertheless, some important indicators of empowerment are worth calling out. While the number of daily depositors declined substantially over the period, their degree of resilience through hard times was notable. Many of the clients who maintained an active BETA account saw their business profits increase and were able to make substantial investments in their businesses from their BETA account balances. These active clients also felt more able than inactive clients to gather sufficient funds to cover an emergency sum of one year’s income. In fact, several respondents identified having a safe place to accumulate emergency funds, particularly one that was safer than the ajo, as their motivation for opening or maintaining a BETA account. The difficult economy took its toll on customers’ nutrition levels and expenditures on health care and medications; however, more of the BETA customers reported that all of their children were in school than had been the case before they opened the account. Perhaps the most noteworthy changes were in the realms of relational and perceptual change. While Nigerian women are generally actively engaged in household and business decision-making, the women who maintained an active BETA account reported significantly greater involvement in making decisions on how to use their business’s profits and in making household purchases.
As the BETA account experience indicates, providing low-income women with a safe, reliable, convenient place to save can be an effective way to attract them as clients and provide a lifeline to their families. A regular savings habit is critical to low-income families with fluctuating earnings. The concept of “living on $1.90 per day” is merely economic shorthand for establishing an international poverty benchmark; rarely do these households receive a regular, daily income of any kind. Within these low-income households as well as those in developed countries, there is a clear pattern of women providing the safety net for their families. Women in the UK save an average of 41 percent of annual wages, compared to 23 percent for men, while Chile has seen women’s savings accounts grow at three times the rate of men’s savings accounts in the past decade, and this behavior holds true for both single and married women. In the case of the BETA customers, Diamond Bank found that women were far more active savings clients than men, with over half making daily deposits. Male customers, on average, had 22 percent higher balances than women, but they made significantly more frequent withdrawals, using BETA as a transactional business account. Women, on the other hand, largely through the visits from the BETA Friend, accumulated balances in their BETA accounts over time. In fact, Diamond quickly came to value these dependable, “stickier” savings from women. Within a few months of the product’s launch, the bank had changed the commission structure for BETA Friends to incentivize opening more women’s accounts.
Women’s tendency to save is, of course, nothing new—informal group savings mechanisms that draw on social capital have been around for centuries, as we saw in chapter 1. Despite the popularity of these informal savings schemes, women are often attracted to formal savings as a means to keep the sums they have accumulated intact and directed toward concrete goals. Unlike the group savings model, however, a bank account gives them access to funds in case of an emergency without having to take out a loan or wait for their proportional distribution from a group pot. Formal savings also offer greater confidentiality and security. Under the deposit collector model, there are countless tales of the collector disappearing with the group’s money.
In developing countries, 11 percent of people—fully one quarter of all savers—reported that they had saved through some mechanism other than a formal financial institution account—either through a savings group, a physical asset such as gold jewelry or livestock, or even with cash under the mattress. Interestingly, this group consisted of some savers who used only these informal means (approximately 7 percent of the total), with the remainder using both formal and informal means of saving. That represents close to 500 million people in the developing world who are actively accumulating savings balances outside the formal financial system. Financial diaries maintained over the course of a year by three hundred low-income Kenyan families showed that saving was the most frequent financial transaction performed by these households, and particularly by women, who placed a significantly greater emphasis on saving over borrowing. By year’s end, the median household had saved a whopping 129 percent of monthly income in financial assets compared to borrowing 53 percent of monthly income. That’s an extraordinary demonstration of demand for a safe place to save, and yet only 9 percent of those savings were held in formal financial institutions. Notably, only a relatively small portion of those savings were held in liquid form so that they could be easily withdrawn in the case of emergency. At the same time, many of these households used a rotating savings and credit association (ROSCA) as their principal mechanism for investment, although the sums they could access were relatively modest. It is clear that both women and men throughout the developing world derive considerable value, both economic and social, from these informal financial relationships. Unlike these informal systems, though, formal financial service providers committed to serving low-income customers can offer the tools to maintain short-term liquidity needs without the saver sacrificing long-term investment goals.
There is now a substantial base of research on the motivations for and impacts of savings by the poor. For many low-income women, saving behavior is in large part driven by the degree of financial independence and bargaining power they have in the household, and there are notable differences in saving behavior between women and men. One field experiment among 142 married couples in Kenya gave either the husband, the wife, or both a 50:50 chance to receive a small windfall once a week for eight weeks; both spouses knew the outcome of each week’s selection. The husbands and wives were all day workers, household income averaged $2.42 per day, and both were members of informal ROSCAs. Throughout the experiment, husbands spent their windfall on goods they consumed themselves (e.g., cigarettes and alcohol) in the weeks they were chosen. In contrast, there was no significant increase in expenditures by the women, and the data indicated that they saved the windfall either in cash at home or in a ROSCA. The study confirms years of observation and anecdote: when presented with additional income, women tend to save it rather than spend it on personal items.
Women’s need to shield their savings from the demands of family members and neighbors is also borne out in the literature. Researchers gave free ATM cards to 1,100 randomly selected holders of Family Bank of Kenya’s “Mwananchi” (meaning “citizen” in Swahili) account. The cards would lower withdrawal fees by 50 percent and allowed for greater convenience since banking transactions could take place outside branch operating hours. This new product feature appeared to be an immediate success: within the first six months, deposits had increased by 45 percent and withdrawals had doubled. On closer examination, though, the account data showed that all of these gains took place among joint and male-owned accounts only. For women, the ATM card was not seen as providing a cost saving or greater convenience; rather, it served to inhibit their financial autonomy. Prior to the card’s issuance, the Mwananchi account provided a secure place outside the home for a woman to protect her savings from her husband’s demands; she could refuse his requests for funds by saying the withdrawal fee was too expensive or it would take her too much time to travel to the bank. Once the ATM card was introduced, however, it was much harder to refuse him, or he could just take the card and make the withdrawal himself. There was a particular irony in this outcome since women in the part of Kenya where the experiment took place were reported by both men and women to be the household’s primary saver. Women, who should have been the target customer of this product feature, were driven away instead because their need for greater security and confidentiality was ignored in the design.
Intrahousehold dynamics dominate the academic research on women’s saving behavior and are critical to our understanding of the barriers to their accessing the formal financial system. There are other factors at play, though, which can also provide insight into designing bank accounts that serve low-income people’s needs. Around the world, fully two-thirds of unbanked individuals mention having too little money as a reason for not having a bank account, while another quarter cite transaction costs such as account opening fees and minimum balance requirements and distance to a financial service provider as major impediments. Reducing or even eliminating these costs at the outset appears not only to increase uptake of savings accounts but to have long-term benefits as well. A study among low-income households in Indonesia found that a relatively modest one-time subsidy, ranging from $3 to $14, at the time of account opening, could increase take-up by nearly 300 percent. Perhaps more important, though, two years later those households that had received the higher subsidies were significantly more likely to use the bank accounts for various financial activities.
Another study, once again in Kenya, tracked the saving behavior of a group of bicycle taxi drivers (all men) and market traders (nearly all women). Both groups saved in ROSCAs rather than in a bank, and most of the participants agreed with the statement “It is hard to save at home.” Both men and women reported that account opening fees and minimum balance requirements were the principal stumbling blocks to opening an account at a bank. In addition, the only bank in the village where the study took place made its services particularly inconvenient, offering no ATM or any other way to conduct banking activities outside the nine to three opening hours and actually charged a steep fee to withdraw savings. Researchers paid the account opening fee and provided the amount of the required minimum balance, which the study participants were not allowed to withdraw. With those initial costs covered—and with a substantial disincentive to take money out of the account in terms of time and withdrawal fees—the differences between the men’s and the women’s behavior were quite stark. The women traders not only had very high rates of usage of the account, they also substantially increased investments in their businesses, in some cases by as much as 56 percent. The bicycle taxi drivers used the accounts far less often and did not increase their total savings or investments in their business. The authors of the study declined to speculate on the men’s behavior beyond noting that the women seemed to experience the barriers to saving (convenience, time, and costs) far more significantly than men and that lifting those constraints while protecting the women from the demands of family members had a far greater impact on women’s ability to save and invest.
Digital financial services, with their lower transaction costs, greater convenience, and, in many cases, lower KYC requirements, hold promise to address many of these barriers to saving, particularly for women. Not only has Kenya’s pioneering mobile money service M-Pesa lifted one million people out of poverty, it has also improved their resilience to unexpected reductions or irregularities in household income. Many low-income households are dependent on a wide network of friends and family for loans and gifts as an integral part of their emergency safety nets. Studies have shown that users of mobile money are able to put out the call for help to a broader network and receive payments in a much more timely and efficient way than those households that must rely on in-person cash payments. As a result, M-Pesa households were able to maintain their level of spending on food and other goods and services even in the face of health emergencies or agricultural losses. In contrast, households that did not adopt digital payments were forced to decrease consumption levels by 7 percent in response to these income shocks. Digital payments yield similarly improved financial outcomes even in some of the poorest countries in the world. In Burkina Faso, users of mobile money are three times more likely to save for health and other emergencies than non-users. As discussed in chapter 3, in Niger, government benefits payments that were deposited directly into women’s cell-phone accounts gave them greater control over how the money was spent; consequently, their families had more diverse diets and were more likely to grow cash crops than women who received the benefits in cash.
Although academic research on the impact of combining cell-phone technology with traditional financial services is still in a nascent stage, both early studies and anecdotal evidence offer an important cautionary tale. Ime and the other market traders in Lagos valued the convenience of using their cell phones to perform financial functions, particularly as a way to verify that their money had been safely deposited in their accounts. But to make the transition from saving with the ajo (even with the risk of losing their money) to placing their trust in Diamond Bank, they needed the bank to have a human face as well. The BETA savings product had very high take-up rates, but the number one reason given by those individuals who closed their BETA accounts was not seeing their BETA friend frequently enough. When designing financial products to be delivered through digital channels, service providers would do well to remember the importance of retaining human touchpoints. Researchers in the Philippines studied a bank that introduced mobile banking to a sample of roughly three hundred low-income account holders. Prior to the change, clients deposited savings and repaid loans at regular in-person meetings with peers and an account officer in their villages; they could make withdrawals from a bank office in town. The bank decided to enhance customers’ convenience by shifting all payments and withdrawals to mobile transactions made through a corner store in their village for a small fee. In all cases, the transactions were more convenient for customers, with time savings of 30 percent and 70 percent for deposits and withdrawals, respectively. What were the results of all this newfound convenience? A significant decline in usage of all financial services by this customer base! Even long-time savers broke well-entrenched habits and stopped transacting with the bank. For those living closest to the new transaction points (i.e., those who experienced the greatest gains in convenience), deposit balances fell by 28 percent on average, the frequency of both deposits and withdrawals fell by 15 percent, and loan usage fell by 5 percent. Follow-up interviews determined that these results were almost entirely driven by the loss of peer interaction from the village meetings, as well as by a sensitivity to fees.
The experience of traditional savings models and the results from a growing body of research point to some “do’s and don’ts” as well as some “must-haves” for financial service providers when designing products to serve low-income clients. Savings products are rarely considered the big moneymakers for banks, particularly those accounts where clients are saving relatively small amounts at irregular intervals. With all the potential pitfalls, the small margins, and customer resistance to transaction costs that come with serving this client base, financial service providers would be rightly concerned about this market’s commercial viability. While for some financial service providers, subsidizing client deposits or eliminating account fees may seem like a bridge too far, this kind of nudge offers an important philanthropic or partnership opportunity with donors or governments eager to achieve inclusion goals. It’s critical to bear in mind that organizations serving these low-income customers equitably as well as profitably share several characteristics with respect to their culture of client service and customer protection, always recognizing the importance of building and retaining trust. They also have tended to approach product design in similar ways, recognizing the basic savings account as a gateway product that can be successfully bundled with other products and services.
As Diamond Bank evolved its BETA account, it would become a great example of product bundling. Within five years of the product launch, Diamond had opened nearly 700,000 BETA accounts while offering various ancillary products throughout that period. Recognizing that many BETA account holders were accumulating savings over time in their accounts, the bank decided to offer a BETA Target savings product. The BETA Friend would discuss the client’s goals, and together they would develop a savings plan on a mobile app. Unlike “basic” BETA, the Target account required a fairly hefty opening balance and a minimum maintenance amount, but it paid higher interest rates, depending on the account balance. Diamond also developed a thirty-day digital loan that was offered, documented, disbursed, and collected entirely through the client’s cell phone and her BETA account. The bank used the client’s savings behavior to develop a credit rating and secured the loan using a portion of her BETA savings balance as collateral.
A frequent motivator—both stated and unstated—for some low-income people to participate in informal savings groups is the ability to borrow from those groups. However, savings groups typically have strict limits on members’ borrowing, and loans made out of the groups’ collected savings are insufficient to accumulate a lump sum. The opportunity that banks offer to borrow larger amounts, along with a safe, confidential place to save, can be a powerful draw. That combination has emerged as a factor in the success of one of the fundamental pillars of the Indian government’s financial inclusion efforts. The government created the Pradhan Mantri Jan-Dhan Yogana (known as the Jan-Dhan, or PMJDY bank account) in 2014 as a basic no-frills account that can be opened at any retail bank in India. With 15 million new bank accounts created on the day it was announced, the program entered the Guinness Book of World Records for the most bank accounts opened on a single day and is generally considered a tremendous success in terms of account opening. Today there are 361 million PMJDY accounts that in aggregate hold a total deposit balance of $14 billion. Still, banks have struggled with inactive accounts and zero balances, and nearly 31 percent of these accounts have seen little to no use. At the time of the PMJDY launch, two additional benefits were also announced: free accident insurance of a little more than $1,300 and a debit card with an overdraft facility up to roughly $130. However, the government has not strictly monitored compliance with the program for anything other than account openings, and consequently, few banks have made this credit feature available to low-income clients.
Bank of Baroda, India’s second largest public sector bank, has 36 million PMJDY accounts, for a 15 percent market share, and the overwhelming majority of these accounts are held by women. The bank found that roughly a quarter of account holders were “high savers” and had established a regular pattern of savings, maintaining average annual balances of approximately $200. The remainder used the account infrequently, if at all; to break even, the bank needed account holders to maintain at least a $7 balance, so Bank of Baroda was incentivized to drive more activity. A closer look at the customer data revealed an interesting behavior pattern: once a woman in the bank’s urban branches reached a level of engagement at which she was making six deposits per year, she appeared to have established a solid savings habit and was able to maintain a steady deposit balance. In response, the bank created a campaign to welcome and recognize women’s small savings deposits; once a customer had made four deposits, the bank named her a “Jan Dhan Plus” customer and made her instantly eligible for a credit facility to incentivize even deeper engagement. The Jan Dhan Plus product is still in the early stages of rollout, but indications of higher account activity are promising.
Bundling an asset accumulation product such as a savings account with a loan can also be a risk mitigation strategy for financial service providers. A leading microfinance lender in Colombia found that its loan portfolio quality could improve by as much as three percentage points if women had either an active savings account or a health insurance policy in addition to their microloan. If a woman had a financial safety net in place so that she was not forced to choose between repaying her loan and paying the doctor to treat her sick child, chances were much greater that the bank would see its loan repaid.
Payments, particularly when made through digital channels, offer another product bundling opportunity for banks, particularly for people new to the banking system. One quarter of the people in developing countries receive government benefits or wages directly into an account; a roughly similar number are paid their wages by a private sector employer into an account. The vast majority of those payments are immediately cashed out to pay living expenses—including the payment of utilities, school fees, and remittances sent home to family members. On top of that, 15 percent of the people living in developing economies—including 210 million women—receive payment for agricultural goods in cash. The business opportunity for banks to help recipients keep this money within the system and facilitate digital payments electronically is enormous. With 585 million women around the world paying for utilities and 252 million women paying school fees all in cash, there must surely be a way for mobile network operators and payments companies to leverage these flows into greater access to a broader range of services.
Payments sent by migrant workers living abroad to family members at home represent a significant source of capital inflow for many developing countries and a critical source of household income to millions. Global remittance payments reached a record high of $554 billion in 2019. In low- and middle-income countries, these receipts represent more than both foreign direct investment and development assistance, and in thirty countries remittances make up 10 percent or more of GDP. Remittance payments also provide another opportunity to bring low-income recipients into the formal financial system. If other financial services such as insurance premiums or loan repayments are linked to these flows, they can provide even greater financial security for senders and recipients and open up additional business lines for the financial institutions that serve them.
Migrants sending money home have strong preferences over how their money is spent by recipients and are particularly concerned about how much is saved. At the other end of the transaction, recipients’ priorities may differ; they typically use their bank accounts simply to collect and then cash out remittance payments. Hatton National Bank of Sri Lanka designed a product that recognized the dual objectives of senders and receivers. More than 1.5 million Sri Lankans work in the Middle East and the Gulf States, over half of them women. While these women clearly understand the important role they play in supporting their families by sending home a portion of their wages, many also express the desire to save for their eventual return to Sri Lanka for retirement. All too often they found that their families had not honored their wishes to save a portion of their remittances and had spent the entire amount on consumption, leaving them nothing to retire on. Hatton created an account that would ensure that these women’s wishes were honored: the bank would distribute a designated portion of the remittance to family members and save the balance toward the woman’s longer-term goals. The bank also designed on-the-spot financial literacy training for receiving family members; this training resulted in significant increases in recipients’ savings balances.
The agency, autonomy, and freedom of choice that a savings account can confer on a girl cannot be underestimated; neither can the downstream developmental impacts that flow from giving her access to that account. Happily, financial service providers don’t have to make those investments in human capital at the expense of financial sustainability. With 1.8 billion youth between the ages of ten and twenty-four representing 25–30 percent of the population in developing countries, acquiring a client as a child can be seen as a smarter (and less expensive) customer acquisition strategy than waiting to pursue new clients as adults. Indeed, there is ample evidence that attracting banking customers in their youth leads to unmatched customer loyalty and a higher customer lifetime value, or the “net profit attributable to the future relationship with a customer.” Hatton National Bank in Sri Lanka is also one of the world’s leaders in youth banking and has run a “classroom banker” program for more than thirty years to make it easy for children to open savings accounts and make deposits at school. Over the years, the bank has built this program into a pipeline of long-term clients and has one of the most impressive client retention rates in the region. The program has also become one of the bank’s most effective recruiting tools: many of the children who served as “bankers” in elementary and secondary school have gone on to become successful and loyal bank employees on graduation.
When Banco ADOPEM in the Dominican Republic launched the Mía girls’ savings program with 15,000 girls, some as young as seven, the bank expected it to be nothing more than a community development activity. While the girls’ accounts never accumulated significant balances, an evaluation of the program five years later nonetheless revealed some interesting impacts on the bank’s business. All the family members—both parents and even some grandparents—of the Mía account holders transferred their banking business to ADOPEM as a direct result of the bank’s engagement with the girls. As a group, the Mía families held larger savings balances in the bank and had better loan repayment rates than the bank’s average client. If the family was a remittance recipient, the payments transferred through the bank tended to be higher. Perhaps most notable, the customer retention rate of the Mía girls and their families was 82 percent, compared to the bank’s already high average rate of 77 percent.
Youth savings programs don’t have to be loss leaders, particularly if they incorporate cost-saving digital features. A few years after introducing the BETA account, Diamond Bank developed an innovative youth savings proposition that follows young people—and their parents—throughout the years of their education. The Diamond Future account was marketed to new and existing adult clients of the bank as a flexible targeted savings plan designed to enable parents to secure their children’s future. The account also had a “Kiddies” feature so that primary-school-age children could save alongside their parents. Interestingly, the largest account balances were accumulated in accounts where mothers and daughters were saving together. At age thirteen, the children saving alongside their parents, as well as new youth clients, were able to open their own “Cool Teens” account, while parents continued to save through Diamond Future. Youth clients accessed their accounts through a digital gaming platform known as “Dreamville” where they could design financial plans, save, update their financial knowledge, and chat. When a child reached age eighteen, her parents’ Diamond Future account matured; if the student was an existing client and she decided to proceed to tertiary education, she was eligible to migrate from the “Cool Teens” platform to a “SWAG” (“Student With A Goal”) account. This account was also available digitally and was tailored to facilitate loans for higher education and professional training, as well as continued saving. The profitability of the long-term Diamond Future account effectively subsidized the other elements in the program that served to attract new, younger clients to the bank.
Access to a safe place to save is central to achieving the promise of financial inclusion for women and for financial service providers. The security and confidentiality of a savings account protect the resources that allow women to make positive changes in their families’ lives, such as more nutritious diets or better educational outcomes. Greater control over those resources, in turn, enhances a woman’s bargaining power and her role in the community, allowing her to make those strategic life choices that are at the heart of empowerment. For financial service providers, savings products are an ideal route to enter the financial inclusion market, building trust with customers and greater understanding of their needs and preferences, and, eventually, bundling or cross-selling other products and services together with savings accounts. Savings, along with financial literacy, can be a first step toward inclusion for a girl or woman and the acquisition of a lifelong client for a financial service provider.