By Jemimah Njuki, Senior Program Specialist, IDRC & Aspen Institute New Voices Fellow and Martha Melesse, Senior Program Specialist, IDRC’s Growth and Employment program
Rose, an astute and driven business woman runs a “table banking” operation in the heart of Nairobi.
An extension of the traditional village savings and loan associations, “table banking” has gained popularity among poor women in Kenya. Women get together every month and contribute a certain amount of money. Members of the group then borrow the money at an agreed interest rate, often at about 10% compared to more than 20% charged by formal banks. If not borrowed, the money is kept in a house locked in a box under a bed or in a closet. Rose says banks earn interest from lending poor people’s money and the poor don’t benefit much from this interest. Rose and her friends prefer to keep it themselves and re-distribute the interest among the members.
Even amidst proliferation of mobile banking in sub-Saharan Africa that has made impressive strides serving those with little or no access to formal financial services, there are many like Rose and her friends who continue to operate in the fringes. According to the Wold Bank’s Global Findex report, 1.1 billion adult women are unbanked. There is a persistent gender gap of nine percentage points globally.
These informal savings systems—though incredibly resourceful—are a loss for financial institutions and for women. Financial institutions are losing out on a large network of potential customers ready to save their money. And women like Rose are missing the opportunity to be part of a formal network that provides additional benefits such as insurance and larger investment loans.
Such informal arrangements also carry risks. In the case of Rose and her friends, money from members’ contributions that is not borrowed is kept by members of the group, and exposes them to the risk of theft. When we spoke to Rose, she said they constantly think about this and as a result, they have devised ways of managing it. They keep the location of their meeting secret and rotate the money around different members’ homes, but all it would take was one untrustworthy or desperate person to crumble the system and wipe out years of hard work and savings. This has been known to happen. A village savings and loans group in Uganda lost the equivalent of $2,100 when their treasurer was robbed.
We realize that a lack of trust in financial institutions is a difficult barrier to overcome. It stems from the discrimination women experience when they are accessing services, the shame associated with seizure of assets due to default, and low literacy levels that lower their confidence in transacting with banks. Rose recently recounted the shame and embarrassment of losing household goods that some of her neighbours had undergone when they were unable to pay back loans from commercial banks on time.
The good news is that it is within reach to close these gender gaps and make financial inclusion a reality for women. But this can only happen if Rose and the millions of women like her take centre stage in informing policies and interventions.
Financial institutions need to better understand the needs of women, and create products that serve them. Studies have shown that when women obtain credit, they prioritize household responsibilities such as children’s education and housing. Men prioritize business expenses and large investments such as land. Women are more likely to work in the informal sector with lower and less consistent incomes, often interrupting their businesses to take on family responsibilities—such as caring for sick children or the elderly. Loan repayments need to be more flexible to accommodate the lower and inconsistent income earned by women.
Investing in financial innovations that work with existing informal networks in ways that enhance their benefits and reduces risk can help millions of women attain greater financial security and access other financial services including insurance, mobile banking services and others. For example, a program led by CARE International worked with over 5,000 informal savings groups to link them to banks and to develop products that meet the needs of the groups. One of the products they developed charged lower fees on new accounts to encourage groups to save with the banks. Designing such bespoke products and services that meet their specific needs could encourage more of these groups to engage with formal financial services.
And finally, financial institutions and other agencies working with women need to address the barriers that prevent women from benefiting from financial inclusion. Whether it’s gender norms that undermine women’s ability to access financial services on their own right, lack of financial literacy, or lack of information. For example, by tackling the gender gaps in financial literacy and tying the use of savings accounts to the distribution of government social transfer grants, an IDRC-supported project has helped connect two million poor women in Latin America to formal financial institutions. This increased women’s savings and allowed them to invest in assets such as livestock.
At the end of the day, financial inclusion for women is not going to be achieved by trying to make women bankable, but by ensuring that financial services, products and systems are women focused. It is in so doing that millions of women like Rose and her clients gain the trust in formal financial institutions.
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