Powering WhatsApp for Savings: A Glimpse into Community Savings Dynamics in Uganda

Within the diverse landscape of Ugandan communities, the accessibility of financial services remains a significant hurdle, especially for women. To tackle this challenge, individuals for a long time — and all over the world — have come together to form self-organized groups, pooling their savings to provide essential services to one another, all fueled by the power of community bonds. These groups referred to as “tontine,” “susu,” or “chama,” and globally called saving circles, serve as beacons of hope, offering avenues for savings and credit within the community network.

Yet, maneuvering through these informal structures poses distinct obstacles, especially when it comes to accessing external capital from financial institutions or proving creditworthiness. Indeed, both groups and individual members encounter difficulties in establishing a reputation based on repayments and social guarantees due to the informal nature of documentation and the lack of digitized records. Consequently, even if a member maintains an impeccable record or consistently saves within the group, it remains challenging to convey this information to a bank to establish a credit history.

Bringing savings circles on-chain

Through a pilot initiative launched in early February, we embarked on a mission to modernize saving circles by blending traditional practices with contemporary innovation. This pilot encompassed various saving groups across urban Uganda, with women constituting 90% of the participants, among whom 70% were mothers aged between 20 to 30 years.

Our goal was very simple: to gain invaluable insights into group dynamics through on and off-chain practices. To achieve this, we leveraged the familiarity and accessibility of WhatsApp, and powered it with blockchain. Through the implementation of an AI-driven bot, we aimed to streamline operations, cultivate trust among community members, and build the group reputation.

Our pilot sought to inform the challenge of informal documentation and the absence of digitized records by gradually digitizing saving circles. By recording savings interactions within the group via WhatsApp, and transactions on-chain, we were able to capture crucial information regarding group dynamics, relationships, and transactional history. A pivotal approach in building reputation within the community.

Harnessing Group Dynamics for Community Savings Success

Understanding the dynamics within saving circles is crucial for the effectiveness and security of collective savings efforts. In our pilot study, we observed that all participants engaged in at least one group savings, with 70% of them also saving individually and within a group. This underscores the importance of group accountability in fostering consistent savings habits. Moreover, many individuals participate in multiple saving groups simultaneously, demonstrating a high level of trust in the collective savings model. For instance, one participant contributed to a friend’s saving circle to grow her business, while also participating in a family-saving circle for emergencies and other needs, highlighting the diverse purposes of these groups.

In these saving circles, decision-making is predominantly collaborative, involving friends, family, or community members who collectively determine savings amounts, currency preferences, and patterns. This collective decision-making not only instills a sense of ownership and responsibility among members but also ensures alignment with the group’s diverse needs. The inherent security of joint liability within these groups fosters confidence and safety, encouraging active participation and sustained commitment to savings goals.

Ultimately, saving circles thrive on strong interpersonal relationships, enhancing cohesion, effectiveness, and mutual support within the group. Echoing the principles of collective decision-making inherent to Web3 structures further emphasizes the communal nature of these savings efforts.

Technological Boundaries and Opportunities

Since this pilot leveraged blockchain technology — members were equipped with a wallet to deposit their savings — in our pilot initiative, we introduced a feature that allowed members to choose the currency they preferred to save. This represents a significant step forward in safeguarding the savings of individuals who are affected by high inflation rates, while also advancing our endeavor to bring saving circles on-chain.

Through the use of stablecoins, transactions were recorded on the blockchain, enabling us to establish a comprehensive history of saving behaviors within the group and facilitating the gradual building of reputation at both the group and individual levels. Ultimately, contributing to greater transparency, accountability, and trust within the saving circle.

With the introduction of the option to choose between different currencies, the community exhibited a notable trend; a strong preference for saving in USD, leveraging cUSD (Celo Dollars), with a resounding 90% majority. While participants initially favored USD for its perceived security in saving protection, they became increasingly aware of the substantial fees incurred during On and Off ramp transactions. This realization highlighted the dominant limitations of web3 adoption, particularly the lack of an easy and cheap on and off-ramps structure in a country like Uganda. As a result, participants recognized the counterproductive nature of these high fees, leading them to prefer UGX by the end of the pilot. It’s crucial to note that these shifts in preferences and perceptions are not universal and may vary across countries, as Uganda’s low currency fluctuation rate contrasts with other nations like Nigeria.

Nevertheless, these findings do not represent an immutable barrier. On the contrary, we view them as an opportunity for improvement. While they may present a setback in terms of technology adoption for securing savings, we are confident that alternative strategies can address this challenge. One such approach could involve implementing yield-generating solutions on savings, which have the potential not only to offset the fees associated with On and off-ramp transactions but also to generate additional capital within group savings. This has the potential to catalyze a shift in mindset within the community, as they recognize the advantages of embracing innovative financial solutions.

Additionally, while technology may present constraints, as illustrated in the case of USD, it also offers substantial structural advantages. Our examination of digital versus physical saving methods reveals a nuanced balance. While individuals employ various saving methods, group savings predominantly rely on physical storage overseen by designated signatories. During interviews, many participants acknowledged the risks associated with physically storing savings and expressed a preference for digital alternatives. However, challenges persist with traditional banks in terms of accessibility, leaving mobile money providers as the sole digital option, albeit lacking group wallet functionality. The requirement for three signatories remains essential for group transparency and functionality, rendering a single wallet insufficient. This underscores a clear opportunity for innovation, particularly with web3, in leveraging group wallets.

Savings utilization and alternative to credit

With all group interactions conducted through WhatsApp, tracking and monitoring the utilization of savings while gaining insight into the group dynamics, particularly in decision-making processes regarding the extension of credit, within the community became effortless.

Participants in the savings groups utilize their pooled savings as a means to access credit, one member at a time, which is then reimbursed with a monthly interest rate of 10%. However, access to credit within the group is contingent upon meeting certain criteria; individuals seeking a loan must provide two guarantors from within the group who endorse their creditworthiness. In the event of default, these guarantors assume responsibility for loan repayment, underscoring the interconnectedness and shared responsibility within the group.

Interestingly, participants perceive these credit transactions not merely as loans but rather as extensions of communal savings. Despite the formalities associated with borrowing, individuals view the credit received as contributions from friends, reinforcing the collective responsibility to repay with interest for the benefit of the group. This unique perspective is evident in participants’ responses, as none of them acknowledged having taken a loan before, despite engaging in multiple credit transactions within their group.

These observations underscore the necessity of delving into the psychological aspects of community credit practices. By exploring the intricate dynamics of trust, reciprocity, and communal financial resilience within these groups, we can inform major indicators of creditworthiness and enhance our understanding of community-based financial systems.

What’s next?

Our exploration of community-saving dynamics in Uganda has shed light on the complex interplay of cultural traditions and financial mechanisms that influence collaborative saving endeavors. Through careful examination of group dynamics and transactions, we have gained invaluable insights into the diverse needs and preferences of community members. Yet, amidst these complexities, one thing remains clear: the need to harness the power of innovation to accelerate and empower community finance.

The shift towards digitizing groups and migrating savings transactions on-chain has paved a promising path for building community-level reputations, crucial for making informed lending decisions. This aspect will take center stage in our upcoming pilot.

Indeed, while cultural practices provide a strong foundation for collective savings, innovation offers the key to unlocking its full potential. By marrying tradition with technology, we can create tailored solutions that resonate with the unique cultural and financial landscape of each community.