Today, as part of a 10-day trip across five African nations, President Bill Clinton joined Barclays, CARE, and Plan International in Dar Es Salaam, Tanzania, where they visited a community group taking control of its financial future through the savings-led program Banking on Change.
Banking on Change came to fruition through a 2008 CGI commitment made by Barclays, CARE International UK, and Plan UK to improve the quality of life for people in poor regions of Africa and beyond by expanding access to basic financial services. Through their cross-sector partnership, the three organizations have extended to communities around the world a microfinance model that enables them to save regularly and access small loans from a group fund by banding together in local collectives. The Banking on Change partnership has reached 513,000 people in just three years, exceeding the CGI Commitment to Action's original target by more than 30 percent.
Below, in the first of a two-part series on President Clinton’s CGI site visit to Tanzania, Head of Global Programmes for Barclays Paulette Cohen discusses how Banking on Change is addressing financial exclusion in Africa by empowering people with the tools to save and effectively manage their money.
CGI: Today, President Clinton made a stop to observe how your CGI commitment has impacted previously "unbanked" individuals in Tanzania. What are some of the basic financial services that people in Tanzania lack, and how does that impact their quality of life?
Paulette Cohen: More than half of the adults in Tanzania have no accesses to either formal or informal financial services, and only 11 percent have a bank account. This means people find it very hard to afford some of the basic things in life — the ability to support a family, to pay for healthcare or education, or to invest in their own small enterprises. It’s virtually impossible to cope with financial emergencies.
Almost 80 percent of Tanzania’s population is under 35. Young people are even more likely to have no access to financial services and lack the skills to manage the limited amount of money they do have.
CGI: How is Banking on Change addressing the challenges facing those who lack access to financial services?
Paulette Cohen: The Banking on Change partnership between Barclays, Plan, and CARE helps to set up small informal village savings groups and gives vulnerable individuals, especially young people, the skills to save and make informed decisions about how they save and spend their money.
As the amount saved in the group grows, the members give out small loans to one another, at an agreed rate of interest so they can cover much needed household costs and invest in their small businesses.
The groups also receive enterprise training to help them make the most out of these businesses. Some of the groups are then linked to formal savings accounts, often with Barclays, specially adapted to meet their needs and provide greater financial security.
We’re really proud that this is the first partnership between a global commercial bank and international NGOs to successfully achieve this.
CGI: Can you tell me more about the Village Savings and Loans model and why it was specifically chosen to help communities in Africa?
Paulette Cohen: Banking on Change works through local organizations and members of the community who engage with group members and deliver the training. It relies on the tried and tested methodology of Village Savings and Loans Associations (VSLAs), first developed by CARE in 1991 in Niger. It is based on traditional community practice, which is why it works so well in Africa, and it takes advantage of the strong cohesive nature of these community groups.
Its success lies in its simplicity: Groups are formed when 15 to 30 people choose to come together to save small amounts regularly, often weekly. Savings are kept in a lockable box with three keys and key-holders. When they have enough saved, members can borrow small amounts, which are paid back with interest. At the end of each year, the group shares out the savings, which often have increased by as much as 60 percent. The majority of groups then begin a new cycle.
In Tanzania, this model has been developed further as 5 to 10 VSLAs come together to create umbrella organizations called Input Marketing Associations so groups can save and borrow at a higher level. Tanzania is the only country in the partnership doing this. It really enhances the sustainability and growth of the individual VSLAs because they can share training and financial resources with each other.
CGI: What does success look like on the ground, in terms of the tangible impact this program has on the lives of the "unbanked"?
Paulette Cohen: When you meet the people who are part of the group, they are full of stories about how their lives have changed for the better as a result of being part of a village savings group.
Sarah Mutanda, 24, lives in Uganda and helped set up her group. This has helped with her budgeting and planning skills and she now has a secure and regular income, which she didn’t have before. She has become a leading entrepreneur in the village spotting the need for transport, so she rents out a motorbike, and a gap in the market for cold drinks, so she is planning to buy a fridge. Sarah said: "The group has empowered us, especially the ladies, to do business and forced us to be enterprising. I am able to earn a living, I can provide for my family and my husband no longer has to provide everything."
In Tanzania, 25 year-old Moses Isaiah joined a group to learn how to save regularly. He gained the skills to set up his own business, and is now running a beauty salon. As his business has grown he has been able to employ his brother and send money home to pay for his brothers and sisters to go to school. Moses said: "I always thought that one day I would start my own business but I didn’t have the confidence to do it. Being a member of the group encouraged me to take the first step."
CGI: What is being done to ensure the sustainability of the program and its results?
Paulette Cohen: Banking on Change aims to be both sustainable and scalable. The village savings group model is proven to work as groups continue to save long after any support from the partners ends because the skills to save are then embedded within the community. We know that other groups form in the area as communities want to benefit from the same sort of economic boost they see within the region.
Linking mature savings groups to formal bank products enables the groups to save more, feel their funds are more secure, and in time access other financial services such as access to credit through overdraft facilities.
As the program focuses more on giving disadvantaged young people the financial and enterprise skills they need to fulfill their potential, they will be in a much stronger position to support their families in the future and contribute to the sustained growth of their local economy.
Banking on Change aims to be a global leader in responsibly linking poor savers to formal financial institutions. We are building an alliance of individuals and institutions who can influence, facilitate or implement this sort of linkage in a responsible way, and we want to share our model to encourage others to adopt it too. We hope other organisations who have made a commitment to the CGI can support us on this journey.