Wele, the app digitalizing saving groups
The situation: social security spending and financial exclusion
In Africa, most countries do not have strong social protection systems, if any at all. According to the International Labour Organization (ILO):
Africa is the continent where the greatest proportion of the population does not have access to adequate health care and where the incidence of infant mortality is highest. These are only some of the social risks and adversities being faced in day to day life, but Africa is also the continent where the coverage of social security is at its lowest.
ILO adds that, in Kenya and Senegal, 45% of total health expenditures are accounted by households rather than the state. While ILO’s analysis focuses on healthcare, it equally applies to unemployment aids, pensions, schools fees etc.
Moreover, in most African countries, access to traditional banking products and services remains scarce. This is especially the case for women who are not considered worth managing family finances in still patriarchal societies. The Global Findex Database finds that 42% of women and girls worldwide remain excluded from the financial system.
Furthermore, even if they do qualify for a loan, Zambians faced, in 2017, an average interest rate charged by commercial banks as high as 44%. Reasons for this are the following : an average Non Performing Loan (NPL) ratio of 11.6% (PwC), expensive borrowing terms (1-year Treasury bill rates averaged around 21% in 2017), combined with an high inflation (7.4% in June 2018 but dropped from 22.9% in February 2016). While the Lusaka Times blames the lack of competition in the banking industry, one can hardly ignore the country’s economic volatility.
The solution: saving groups
As a consequence, the solution for most households is to group together, often within their communities, and form a saving group whereby they save for both precautionary purposes (healthcare, retirement etc.), and capital financing (machinery, fertilizers etc).
Each member deposits a certain amount every week/month into the saving group. At the end of a cycle, that member can take up a loan amounting up to three times his contribution to the group. These loans require almost no formal due-diligence as they take place within a community. Social control enforces the repayment of these loans. The latter also present the advantage of having reduced interest rates in comparison to the commercial banks.
As it has been pointed out to us by the Busara Center for Behavioral Economics Centre based in Nairobi, this phenomenon often results in even stronger social safety nets than in some developed countries (hello USA).
What is Wele?
Wele, which means goal, is the solution launched by ZedCredit, a Lusaka based startup. Where does Wele comes in? It provides a handy online wallet that can be used by all members of the saving group. The wallet is linked to existing mobile money wallets. Therefore, you can deposit your share of the group savings at any merchants accepting mobile money deposits, which means basically anywhere! They are currently targeting women saving groups. ZedCredit reimburses its platforms costs through an affordable monthly subscription to their wallet.
Why is it handy?
ZedCredit takes the hassle out of collecting money from each individual member every week or month. Most importantly, ZedCredit also reduces the risks of the unsafe handling of cash. Traditionally, at the end of a few months, a saving group can have over a $1000 at hand. The cash is often deposited in a cash box at the mercy of thieves. Thanks to mobile money, this risk no longer exists.
Moreover, ZedCredit makes it easy for members to know how much precisely they have contributed and hence how much they could potentially borrow. ZedCredit also ensures that every member pays it shares by sending SMS reminders (#nudge).
It works! Global Findex Database finds that:
After being provided with savings accounts, market vendors in Kenya, primarily women, saved at a higher rate and invested 60% more in their businesses”
