Digitizing Savings Groups for better micro credit services for low-income earners

A blend of hi-tech and high-touch in microfinance continues to improve delivery of financial products and services as well as consumer experience for group lending clients.

Micro credit has continued to play a critical role in contributing towards economic empowerment and improvement of livelihoods of low-income earners globally. The Fin Access survey has shown that informal financial services models are still prevalent especially among women. One of the most prominent being Saving Groups (SG), popularly known as Chama's in Kenya. Savings Groups are basically an improved form of the traditional ASCA (Accumulating Savings and Credit Associations). They provide members a secure place to save, the opportunity to borrow in small amounts and on flexible terms, and affordable basic insurance services. Savings Groups are composed of 15 to 25 self-selected individuals who meet regularly and frequently to save; amounts are based on each member’s ability. Groups then pool the savings to provide access to loans by members which they charge service fee or interest rate which in turn increases the loan fund. Member’s savings and loans are recorded in individual passbooks or one central ledger (some use memory-based systems that require no paper records at all).

Groups generally operate in nine-to-12-month cycles. At the end of every cycle, the accumulated savings and interest earnings are shared out amongst the membership thus providing useful lump sums to members. According to the Small Enterprise, Education and Promotion (SEEP) Network, Savings Groups are platforms used to pursue sustainable community development, especially among women and rural dwellers, and impact women's financial inclusion[1]. Despite the considerable success of Savings Groups, there are issues that limit their impact such as lack of access to a growing range of financial services (e.g., as longer-term savings, access to larger and longer-term credit) and issues of transparency among members prompted the conversation to 'digitize' them[2].

In the recent times, most microfinance institutions have adopted various digital solutions to improve the traditional savings group model hence the emergence of the term Digital Savings Group. SEEP defines Digital Savings Groups (DSG's) as systems and technologies that digitize savings group procedures, records, or transactions. Technology now allows for the community-based approach – along with its savings objectives and mutual support to be done digitally. The digitization process has not limited the human interactions, goals and social capital pillars that define Savings Groups. Additionally, it has improved the process, below is a comparison of such between traditional and digital savings group.

Table 1: Comparison between traditional and digital savings groups

Traditional Savings Groups

Digital Savings Groups

Physical meetings are required for members

Members can meet ‘remotely’ over digital platforms or reduced

Transparency based on the ability of the group to input and preserve records

Improved transparency due digital recordkeeping (increased accuracy of records)

Limited access to additional financial services

Offers linkages to a wide variety of financial services

Contributions and withdrawal are made during group meetings

Transactions such as withdrawals and collections are instant and remotely

High levels of group cohesion and accountability for lack of attendance

Low levels of group cohesion hence the tendency for disintegration

Physical analysis of group reports that compels members to be up to date with their contributions and observance of group’s by-laws

E-analysis of reports that indirectly promotes less commitment by members to remain faithful to their contributions and observation of group’s by-law

The Digital Savings Groups are a recent innovation but what is the story of Digital so far in terms of their benefits, challenges and lessons learned?

The Benefits

  1. Entry into digital economies – One of DSG's profound effects is the ability to offer its members an entry point into digital economies and possible transitions from informal to formal finance spaces. They are providing the potential to access a wider variety of financial services. Depending on the Financial Service Provider (FSP) and the digital solutions adopted, members of Savings Groups through linkages can access additional credit, pursue long-term investments, and access other service providers available in the marketplace, such as access to health insurance service providers. For example, Eazzy Chama, a group saving solution offered by Equity Bank, also provides members with the ability to operate individual accounts and borrow on those accounts. Additionally, members can also access insurance products on the same solution. Furthermore, digitized transaction records create digital financial footprints and credit history for members building their financial portfolios.
  2. Reduced meetings times 

The COVID-19 pandemic has impacted many Savings Groups' activities, which required members to meet regularly for activities such as lengthy processes of counting cash, among others. Restrictions on gatherings have meant members have to come up with new ways to conduct their meetings. But for DSG's the gathering restrictions have had minimal effects on their activities, compared to the traditional groups. For the MyWorth app offered by Pact, DSG members can meet remotely and conduct their meetings. Other solutions in the market reduce the meetings' duration because of improved accounting and bookkeeping processes saving on time

       3. Enhanced Transparency in managing funds

Digitized records of all transactions from collections to withdrawals have enabled DSG members to track all the financial activities and improve trust among members. Notifications alerts on transactions are sent to members to help them track the funds. Furthermore, money security has improved since the DSG's utilize mobile money or e-wallets to deposit/save, thus reducing the risks of theft and loss.

The Challenges experienced so far has been mostly on:

  1. Scaling and Sustainability of Business systems

The digital savings solutions have some inherent costs that need to be taken care of, such as backend, customer services, and village agents costs. Apart from costs, FSP's also need to make profits from their business ventures. So far, NGOs have been providing support in scaling some of the digital solutions in the market, but in the long run, the costs will be offloaded to the end users because NGOs are project-based. Considering saving s group members are low-income earners, sustainable business models must make the development intervention finite or risk making any long-term impacts. 

       2. Consumer Protection Issues

While DSG's present many opportunities in terms of broader access to financial services, they also introduce a new set of challenges relating to consumer protection issues. Data privacy and security risks are prone in digital platforms coupled with weak regulatory structures. DSG's members face risks of data theft and funds misappropriation from hackers. In terms of complaint and conflict resolution, traditional group savings offer a supportive environment for members to air their grievances and find solutions for their challenges as opposed to digital savings group where communication has additional cost on members.

Lessons Learned

Digital Savings Group have had an impact on other variables such as:

  • Product design needs to factor the potential differential effects between groups, for example, women and men and higher and lower incomes. In some cases, certain groups benefit more than others. For example, more men own smartphones than women, thus more potential to join and access DSG's benefits.
  • Training DSG's members on digital solutions go a long way to prevent further literacy barriers.
  • Linkages with formal financial services benefit savings group members.
  • Providing digital savings solutions to low-income clients in a sustainable way is still a work in progress. 
  • A mix of hi-touch and hi-tech works best to ensure group cohesion, management, and achievement of the desired group goals.

The digitization of Savings Groups has improved their processes and procedures as explained earlier without altering the fundamental of saving groups which are based on group sustainability and mutual support to members. Such improvements on process and procedures are welcomed to improve efficiency especially on time among other costs.


[1] See SEEP_Understanding-the-Impact-of-Savings-Groups_20180117_FINAL-0001.pdf (mangotree.org)

[2] See https://seepnetwork.org/files/galleries/SEEP_Digital-Savings-Groups_20200420.pdf


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