Promoting Inclusive Markets and Financial Systems
The MasterCard Foundation works with visionary organizations to provide greater access to education, skills training and financial services for people living in poverty, primarily in Africa. As one of the largest private foundations its work is guided by its mission to advance learning and promote financial inclusion to create an inclusive and equitable world. Based in Toronto, Canada, its independence was established by Mastercard when the Foundation was created in 2006. For more information and to sign up for the Foundation’s newsletter, please visit www.mastercardfdn.org. Follow the Foundation at @MastercardFdn on Twitter.
The poor have an acute need for savings tools to amass lump sums of money, yet the supply of useful products often falls short, in part because formal providers face barriers to entry in this market. Depository products usually come with costly regulations, and low balances among low-income savers limit profitability. However, financial institutions willing to look beyond account-level costs can still benefit from entering the low-income market. Products valued by users can boost take-up rates, strengthen brand loyalty, and lead to unique transactional datasets on consumer behavior. User fees may also be able to cover some costs.
This note focuses on the savings group as a model for delivering products to address this market failure. Reviewing recent research, the authors extract the mechanisms which make savings groups effective. The note then explores the potential to apply these factors to formal products that make sense for both providers and consumers.