Banks across African countries are introducing innovative service delivery channels, such as internet banking; bank accounts connected with mobile money platforms; links between banks and savings and lending groups; and agent banking, which can operate through shops and mobile money cash points. These channels aim to provide the last mile solutions that address common impediments to conventional banking, like geographical proximity to underserved customers, information asymmetry, and other barriers of access for low-income individuals, smallholder farmers, and micro and small enterprise operators. Additionally, a lack of personal financial identification and financial records needed to inform creditworthiness amplifies barriers to banking services access.
According to the World Bank’s 2021 Global Findex Database, approximately 25 percent of the adult population in sub-Saharan Africa, and 18.6 percent of the Tanzanian population, saves through savings groups.1 Savings groups in Tanzania include village community banks (VICOBAs), rotating savings and credit associations (ROSCAs), village savings and lending associations (VSLAs), and savings and credit cooperative societies (SACCOSs).2 Additionally, some savings mechanisms are operated by savings collectors, called kijumbes in Tanzania.3 Kijumbes operate as ROSCAs, which engage an agent to manage members’ funds collection, loan disbursement, and recovery, at a commission.4
The innovative linkage between banks and savings groups leverages the wide adoption of mobile money to accelerate banks’ outreach to underserved, low-income households, small enterprise operators, and smallholder farmers. Savings groups play an important role in building social capital among members, while gaining deeper and broader information about group members, which can be used by banks to enable informed lending decisions. Such information is typically difficult to access through conventional bank delivery channels, especially brick and mortar branches. The linkage model has potential to address this asymmetric information problem,5 which creates an access barrier in the bank credit market for small enterprises and low-income individuals. SACCOSs, VICOBAs, and other savings and lending groups have closer geographic and operational proximity with their members,6 providing them with more information about dynamics of their members’ businesses than banks have. The obtained information, if used prudently, can foster improvement in credit risk management and mitigation of consumer risks, particularly overindebtedness risk.
Digital connectivity through mobile phones and social media is reducing the salience of physical proximity in the recruitment of savings group membership. For example, social media enables former schoolmates to set up savings and credit groups that accommodate members across a wide geographical space. Some groups go beyond low-income members to include high-income segments of society. Groups’ formations are driven by diverse objectives, including shared economic activity (such as a location-specific group for “bodaboda” (motorcycle) drivers), shared events (for example, fundraising for weddings, funerals, or charity events), shared faith, shared family background (such as extended family members), shared education background (former school or college classmates), shared neighborhood, and shared employment (for example, office friends).
Additionally, data and information collected by community savings and credit organizations or providers of mobile money platforms can offer solutions to informality problems that constrain access to bank credit by group members. Informality of business and assets can be reduced through formal registration of mobile phone numbers, which in turn captures personal identification needed to support access to banking services.7 Furthermore, the linkage between banks and savings groups, facilitated by digital platforms from mobile money operators, can generate useful data to drive the innovation flywheel8—potential products innovation resulting from data collected from customers, a kind of feedback loop from customer experience. The flywheel can in turn catalyze innovation of new products for group members and new institutional arrangements, including financing products for specialized savings groups, such as technology-based startup operators. The innovation process will benefit from a diversity of group members by economic sector, geographic location, demographics, education, and other factors.
Savings groups are also employed in delivery of community development programs on account of their proximity to local communities and their potential to enhance individual and household financial management. This is achieved by linking savings and lending groups to development programs for trade and crafts, small businesses, and smallholder farming improvement. For example, the World Wildlife Fund uses community savings groups to help communities in Tanzania diversify their livelihoods as a means of reducing pressure on marine life.9 In the same vein, the World Food Programme has been supporting smallholder farmers in Zambia to form savings groups as a funding mechanism for income-generation diversification.10 Savings groups are also employed to empower low-income households in urban areas by helping them save money and offering affordable loans for businesses.11
These linkages, therefore, bear potential to attain a triple-win solution: allowing banks to develop commercially viable channels for lending and benefiting individual savers, without undermining savings groups’ sustainability.12 Such tailor-made innovations will require banks to develop a deeper understanding of the economic, social, and behavioral dynamics of the groups and group members, taking into consideration their diversity. This understanding requires the engagement of multidisciplinary teams beyond banking and finance to include economists, sociologists, psychologists, information technology experts, and big data analysts.
This article explores potential opportunities and risks of bank linkages with savings and credit groups through mobile money platforms. It considers whether the emerging mobile-money-enabled linkages will be hindered by past challenges experienced in similar linkage models implemented in Tanzania.13
This consideration is informed by the associated risks—including cybersecurity risks—arising from the mobile money platforms and networked core banking systems used in the linkage model. For example, a study of bank linkages with SACCOSs, which was conducted in Tanzania during the period 2004–2011, showed that higher linkage contributed to a decline in SACCOS sustainability owing to poor bank product designs and aggressive marketing strategies that led to the overindebtedness of the groups and the eventual failure of the linkage model. For savings groups used to lending from a pool of their members’ savings, handling loanable funds from banks created operational challenges in terms of credit risk management and governance. This was amplified by banks’ competitive urges to reap high returns by aggressive lending to groups, which led the banks to push loans without adequate consideration of groups’ governance and risk management capabilities and group members’ debt absorption capacity. The linkages generated a mismatch between groups’ saving and borrowing, an essential sustainability lesson for the emerging linkage models. In the same vein, a study conducted in Kenya and Tanzania in 2019 on linkages between community-based financial institutions and banks revealed mixed results in terms of credit performance and adverse results in overall group institutional performances.14
In leveraging a widely adopted technology—mobile money—banks have the potential to avoid the pitfalls experienced in the previous linkage models by factoring in risks inherent to linkages and digitalization, including consumer risks and cyber vulnerabilities.
Savings Groups’ Regulatory Architecture
The oversight of savings groups in Tanzania is conducted through the Microfinance Act of 2018, which created a tiered approach to microfinance regulation. Tier I covers banks and deposit-taking microfinance institutions (MFIs); Tier II covers non-deposit-taking microfinance providers, including credit-only companies; Tier III covers SACCOSs; and Tier IV covers community-based savings groups.15 Local governments are responsible for the oversight of community-based saving credit groups, under Tier IV of the Microfinance Act and through the Microfinance (Community Microfinance Groups) Regulations, 2019, which cover VICOBAs, ROSCAs, and VSLAs. On the other hand, SACCOSs are licensed and supervised by Tanzania Cooperative Development Commission under the Microfinance (Savings and Credit Cooperative Societies) Regulations, 2019.
The outlined regulatory dynamics for savings groups need to be reconsidered to accommodate expanded geographical group membership enabled by digital connectivity. Additionally, regulatory categorization needs a reframe to focus on financial services offered by financial service providers (rather than categorizing them by institution) now that savings groups can offer a wider range of financial products. Regulatory categorization by financial service type can open up more room for product innovation and regulatory oversight improvement without stifling innovation.16 The recommended regulatory reframing implies that the categorization process should start with the types of financial services offered followed by institutional categorization, an arrangement that would provide more flexibility to accommodate new players entering the financial services space from nonrelated financial sectors, including fintech. In the case of innovations emerging from fintech, regulatory analysis should first deep dive on the dynamics of service offered and the potential benefits and risks to consumers, then decide where to place the innovation in the existing menu of institutional categories in the regulatory architecture. This may require redefining permissible activities in the existing institutional categorization. For example, to accommodate banks’ collaboration with insurance companies, the banking prudential regulations were reframed to accommodate the innovative products through the issuance of bank-assurance regulations.17
Regarding banking institutions, the regulatory and supervisory powers in Tanzania are vested in the Bank of Tanzania under the Bank of Tanzania Act, 2006,18 the Banking and Financial Institution Act, 2006,19 and regulations made thereunder. The Bank of Tanzania is also responsible for regulation and supervision of all mobile money and other digital financial service providers under the National Payment System Act, 2015,20 while the oversight of communication aspects of mobile network and digital platforms operators is vested in the Tanzania Communications Regulatory Authority (TCRA).21
TCRA is also responsible for coordination of the country’s Computer Emergency Response Team (CERT). However, the growing level of digitization in the economy, including the financial sector, has created a need to set up sectoral CERTs to cater to the financial sector, in addition to the integrated countrywide CERT. This will provide financial sector–tailored mechanisms for mitigating financial cybersecurity risks and crisis management in the event that existing risk mitigation capabilities fail.
Interagency coordination for financial sector development and stability is provided through the Tanzania Financial Stability Forum, which was established in 2013 and is chaired by the governor of the Bank of Tanzania. The forum provides a mechanism for the Bank of Tanzania to collaborate with the ministries responsible for finance in mainland Tanzania and Zanzibar, as well as other financial sector regulators for macroprudential oversight and policy.
Digital Technology Supporting the Linkage
Responses to the 2017 FinScope Survey in Tanzania showed that up to 93 percent of the population above eighteen years of age had access to a mobile phone, and 63 percent owned one.22 The nationally representative survey registered lower usage of banking services (14 percent) compared to savings groups usage (16 percent). Savings groups, if successfully integrated into the banking system, have the potential to accelerate access to banking services significantly. The accelerated access could be amplified by the growing formation of savings groups supported by social media and other digital platforms. The FinScope study also reported that basic identification was not a major barrier to accessing financial services; 83 percent of respondents had voter ID, compared to 9 percent with a national ID. While voter ID is usually acceptable for know-your-customer (KYC) requirements, IDs are not often updated because they can only be acquired during election cycles; this problem disproportionately affects youth who attain the voting age of eighteen during the election cycle (every five years). Tanzania’s national ID system is relatively new, which could explain the low uptake.23 Furthermore, the internet offers an enabling infrastructure for apps-based mobile financial services access: a 2021 GSMA study on Tanzania reported mobile internet use at 18 percent.24
Mobile phone connectivity and social media such as WhatsApp provide enabling platforms for social groups’ engagement and operations, minimizing physical space constraints by allowing members to join and access the social group services virtually. Mobile money platforms accessible through phones or internet-based apps serve as digital enablers of the bank-group linkages.
Tanzania Commercial Bank is implementing the linkage model in partnership with Vodacom Tanzania through the M-Koba product.25 Group leaders (chair and vice chair, allowing for dual control) provide online information on procedures for digital savings group registration, individual group members’ onboarding through mobile wallets, funds transfer (saving or credit repayment), credit application, and disbursement. While funds movement is done digitally, member meetings are organized virtually or physically. The mobile money platforms allow group leaders to open group accounts and individual group members (if they have national or voter registration ID) to open personal accounts online. Funds in a mobile money wallet can be withdrawn as cash through mobile money agents and distributed widely in both urban and rural areas. Mobile money platforms are also used for making digital payments for goods and services.
Linkages between banks and savings groups allow group members to deposit funds into group accounts as contributions (savings) or credit repayment, with all group members receiving notification of such transactions. Digital devices allow group members to lodge online credit applications, while facilitating dual approval (as the group’s chairperson and secretary or assistant chairperson must both sign off on applications). The credit disbursement is processed digitally through transfer of funds from the group bank account to the credit applicant’s personal bank account, with all group members receiving notification.
Potential Benefits of Bank-Group Linkages
The linkages between banks and savings groups enabled by mobile money platforms have the potential to offer benefits to banks, savings groups, and group members.
Banks
Banks gain opportunities to tap into the social capital and local, contextual insights derived from savings group members’ close proximity to each other, a key element to driving financial inclusion for banks’ unserved and underserved markets.26 Linkages can reduce the cost of retail outreach to customers residing in remote areas can be reduced, while mobilizing a large volume of savings for banks to tap into. Group membership is motivated by members’ wider financial goals, many of which fall outside traditional banking business models. Groups serve as enablers of bank retail outreach, a lower-cost solution compared to setting up and maintaining brick-and-mortar bank branches. Banks can also use groups to channel some business development services, especially for small enterprises and smallholder farmers. Additionally, groups can serve as a source of data and information to drive innovation from the demand (members’ economic activities) and supply sides (group and bank financial services).
The challenge for banks is to provide added value to savings groups and group members as compensation for the time and effort groups invest in formation and maintenance. This requires, among other things, development of financial products appropriate to meet the needs of group members. Such innovations can be driven by the employment of data analytics and artificial intelligence tools to discern group dynamics across region, economic sector, age, and other variables to inform the development of tailor-made products and services that foster inclusive finance and development. However, access to and usage of data from groups needs to comply with personal data protection regulations and best practices as stipulated in the National Payments Systems Act, 2015, and the Bank of Tanzania (Financial Consumer Protection) Regulations, 2019.27 This compliance requirement creates a need to put in place responsible AI protections as financial service providers accelerate development of big data analytics and artificial intelligence tools for collecting and using personal data. Skewed or biased data can manifest in biased or incorrect credit profiles, leading to systemic exclusion risks. The linkage innovation can also be catalyzed by collaboration between banks and other financial service providers to offer a broader range of financial services, including insurance, investment in financial securities, affordable housing mortgages, equipment financing, and pensions. Data generated from bank–savings group linkages can be used for product design and delivery of other financial products. For example, the relational proximate and social capital built by the linkage model can provide information needed to design products for small enterprises, smallholder farmers, and housing finance.
Savings Groups
The benefits that the groups receive from the digitalization of their processes include mitigation of group cash handling risks and enhancement of group outreach to complement in-person meetings (which are the long-standing practice in traditional microfinance groups). Virtual platforms offer members additional avenues to join meetings, while mobile money platforms allow for digital funds transfers.28 Digital platforms provide savings groups with digitized recordkeeping solutions.
However, the growing volume of data collected by bank-group linkages, combined with growing digitization of group operations, heightens the level of cybersecurity risk. Thus, it is imperative to develop cybersecurity risk management capabilities for digitally connected groups, including basic cybersecurity literacy for group members, and to require banks to put in place appropriate cybersecurity risk mitigation measures for linkages. Additionally, given banks’ advantage in terms of technological know-how, groups could benefit from receiving capacity-building from banks to improve group governance, financial literacy, information technology awareness, and individual and group cybersecurity practices.
Group Members
The linkages provide group members with potential improvement in savings and credit solutions in terms of mitigation of cash loss risks; transparency through notification of funds movement in a group account; mitigation of administrative risks through digital recordkeeping; convenience through digital funds transfer for savings, credit disbursement, and repayment; and room for an expanded range of financial services, including insurance, investment, and pensions. For some group members, a linkage provides an opportunity to access banking services for the first time. Group members can benefit from business development services offered by banks and development agencies partnering with banks or savings groups. The development services can be broadened to include services relating to group members’ economic activities, such as agriculture, food vending, crafts, mobility, startups, and other services.
Potential Risks of Bank-Group Linkages
While savings groups’ linkages with banks offer several benefits to stakeholders, the linkages also raise several risks, including consumer and cybersecurity risks.
Consumer Risks
Consumer risks are triggered by the imbalance of power between banks and groups,29 can allow banks to set unfair pricing or push surplus liquidity to savings groups, leading to group members becoming overindebted.30 MFIs in India experienced a major crisis in 2010 when they employed aggressive lending strategies, creating widespread household overindebtedness and even leading to several borrowers committing suicide in the Andhra Pradesh State.31 Linkages between MFIs and banks and capital markets contributed to the growth of liquidity, which funded aggressive lending in the market without an adequate financial consumer protection regulatory framework.32 South Africa also experienced an overindebtedness crisis, resulting from aggressive lending practices by multiple credit suppliers.33 As a result of the debt crisis, the National Credit Regulator was established in South Africa; among its regulatory measures is one that puts in place a credit reference mechanism to mitigate the risk by combining market conduct regulations and enforcement structures. The convenience of funds access in digital financial platforms can also create overindebtedness risk and undermine efforts to foster a saving culture. The easy access to funds in digital wallets, including digital credit, can complicate savings culture if intentional design measures are not deployed to encourage saving through self-imposed liquidity constraints.34 In comparison, saving in a bank account that is not digitally connected—because the physical access component creates some friction in funds access—is more likely to catalyze responsible spending and saving. The constraint imposed on access to group funds, particularly rotating savings and credit associations, is part of the incentive for joining savings groups, including for members with bank accounts; this is worth keeping in mind when digitizing these last-mile banking solutions.
Behavioral economics studies can provide some useful insights for improving saving among members of savings groups that use digital platforms.35 The studies show that appropriate choice architecture needs to be considered in financial products design to create a balance between expenditure, savings, and investment. This finding was also supported by a study in Tanzania that highlighted a need for effective savings mechanisms to enable credit repayment in MFIs.36 In financial products design, providers need to understand the role of customer behavior and digital technology in financial services.37 Furthermore, changing customer behaviors in a hyperconnected financial services environment driven by digitization of financial services and other services needs to be taken into account.38 The findings call for improvement in the design of digital products. For example, to promote savings, banks and other financial service providers that employ digital platforms should introduce some friction in access to digital wallets (such as self-imposed liquidity constraints). Constraints could also involve creating more than one pot for a digitally connected account or digital wallet, with one pot designated for longer-term savings purposes, such as school fees payment—introducing friction associated with accessing the funds, linked to the timing of the school fees obligation.
Transparency on rights and duties of digitally delivered financial services can also help reduce consumer risk. The Alliance for Financial Inclusion’s (AFI) Policy Note on Digitally Delivered Credit,39 which covers African, Latin American, and Asian countries, identifies limited transparency on loan contracts as one of the risks facing users of digital financial products. Limited transparency impairs responsible borrowing because of limited information provided through mobile devices, such as detailed terms and conditions on a website, which may not be readily or easily accessible to many low-income individuals and are often not translated into local languages. A follow-up study observed growing consumer risks associated with expanding innovations in digital financial services, particularly the limited disclosure of terms and conditions for digital credit offered by mobile network operators (MNOs).40
Cybersecurity Risks
The financial sector is a prime target for cyber criminals, both individuals and state actors, who threaten financial inclusion initiatives and the stability of financial systems in developing countries. Risk management systems are needed to address the growing cybersecurity risks that accompany the rapid digitization of financial services. The design of country cybersecurity risk management architecture can draw lessons from emerging international good practices disseminated by global standard-setting bodies such as the Bank for International Settlements (BIS), the International Monetary Fund, and the International Telecommunication Union in conjunction with global financial sector development agencies such as AFI, the Consultative Group to Assist the Poor, and the World Bank.
Role of Regulators
Central banks play a role in steering the development of cybersecurity capabilities in developing and emerging markets in line with the growing digitization of financial services.41 Central banks and other financial sector regulators can use their cybersecurity capabilities to support small banks and MFIs that operate with limited resources. The regulators can develop affordable cybersecurity frameworks and put in place appropriate regulatory and enforcement mechanisms, essential components for cybersecurity resilience.
Interagency Cooperation
Growing financial digitization and deepening interconnectedness among actors in the financial system heightens cybersecurity risk while amplifying the effects of cyber attacks, raising the level of systemic risk. This makes interagency cooperation an essential component for building resilient cybersecurity.42 The need for multisectoral coordination in Tanzania is covered by Section 3.7 of the 2016 National Information and Communications Technology Policy,43 which recognizes growing cybersecurity risks as information and communication technology continues to play an ever larger role in transforming Tanzania into an information- and knowledge-based economy and society. The policy highlights measures taken to mitigate potential cybersecurity risks—including establishment of the CERT, steered by the Tanzania Communication Regulatory Authority, which also provided a framework for developing sector-tailored CERTs.
Role of Banks
In the bank–savings groups linkage model, banks and MNOs have a significant role to play in cybersecurity risk management given their stronger technological capabilities compared to savings groups. While banks operate on the back end of linkage operations, groups have direct links with mobile money operators through mobile money platforms. Banks need to put in place risk mitigations against potential cybersecurity threats originating from the new connectivity nodes, especially mobile phone devices that operate on unstructured supplementary service data (USSD) technology.44 Regulations should put in place a requirement for banks to collaborate with MNOs to complement savings groups’ cybersecurity risk management capabilities.
Role of Mobile Network Operators and Other Payment Service Providers
Cybersecurity risk mapping by key actors in financial services delivery, including payment service providers is essential with a view to mitigating the potential risks across the ecosystem.45 In the case of savings groups, MNOs play a central role in connecting group members to the banking system through mobile money platforms, which are mainly delivered through USSD, with potential usage growth for internet-based apps as smart phone adoption increases. MNOs will need to develop adequate cybersecurity risk management across their operations, with regulators playing the role of testing their effectiveness.
Savings Groups
To create resilient financial systems, banks and MNOs (which have more cybersecurity risk management capabilities) must provide savings groups linked to their services with accessible digital and nondigital frameworks that foster responsible use of electronic devices to mitigate cyber threats under the AFI Guidance Note on Cybersecurity for Financial Inclusion, 2019,46 which covers the role of financial service providers and third-party service providers. Regulators and development agencies involved in savings groups promotion can complement these efforts as part of their financial education programs. Additionally, cybersecurity regulatory tools and enforcement mechanisms should be put in place to ensure that cybersecurity risks are mitigated for end users, such as savings group members. Effective cybersecurity risk mitigation mechanisms will contribute to trust and in turn catalyze inclusive finance in the economy.
Third-Party Risk
Technology solutions from third parties such as hardware and cloud service providers carry cybersecurity risks of their own. As financial institutions increase reliance on diverse information technology providers, cybersecurity risks are present in more domains.47 This trend is expected to increase as outsourced technologies move beyond infrastructure to include cloud services, which are evolving from infrastructure as a service to software as a service. This development is also redefining regulatory oversight coverage, with some jurisdictions, such as the United States, allowing supervisory oversight to cover third parties offering core banking applications, payments, accounting, and critical data systems.48 In the EU,49 coverage is extended to cloud service providers.
During the coronavirus pandemic, financial institutions faced increasing risks from third parties, particularly cloud services, driven by growing adoption of cloud solutions that allowed for shared software, hardware, and vendors.50 Shared cloud infrastructure amplifies potential cybersecurity risks by making cyber attack incidents spread more quickly, leading to higher losses for financial institutions and stress in the financial system. Additionally, increased homogeneity in the financial sector and single points of failure increase risk due to a high concentration in the market for cloud services. To mitigate the risk of a single point of failure, financial service providers can use hybrid cloud solutions, distributing workloads across on-premises infrastructure, public clouds, and private clouds.51
For savings groups connected to banks through mobile money platforms, cybersecurity risks from third parties are expected to be handled by banks and MNOs, considering the resource requirements. However, implementation of the proposed cybersecurity risk management requires regulators of banks and MNOs to put in place regulatory and supervisory enforcement tools. Regulatory tools can be included in digital financial services regulations while supervisory tools can be covered in supervisory manuals and procedures.
Conclusions and Recommendations
Savings groups offer a wide range of opportunities for banks to extend last-mile financial services, catering to low-income individuals, small enterprises, smallholder farmers, and other underserved groups. To tap low-cost funds managed by the savings groups, banks need to develop innovative products, services, and business models that mitigate potential consumer and cybersecurity risks while simultaneously providing value adds to savings groups and group members. The potential opportunities of the linkage model can also be used by development agencies working on social and economic interventions. But to make the most of these possibilities, regulators need to develop supervisory tools to address the potential consumer and cybersecurity risks.
Banks need to further explore savings group dynamics to design appropriate products that cater to diverse groups’ needs, particularly the financially underserved. This exploration demands an interdisciplinary approach that goes beyond traditional banking and finance to include sociology and behavioral economics to understand the behaviors of individuals and groups. This will contribute to designing digital financial offerings based on trust, an essential building block for savings group formation and success, and will even inform the design of cybersecurity solutions. Additionally, banks need to collaborate with other financial service providers to foster financial deepening by expanding access to basic financial services beyond savings and credit, such as insurance, assets acquisition, affordable housing finance, financial investment schemes, and pensions.
An innovative regulatory framework is needed to protect consumers and mitigate cybersecurity risks associated with the linkage model while allowing room for market-based innovations to flourish. In this regard, Tanzanian regulators need to devise accessible and low-cost consumer protection and regulatory oversight arrangement. Emerging regulatory technology innovations can offer solutions to the growing regulatory complexity driven by larger volumes of data.52 Regulatory technology automates some elements of regulatory oversight, taking into account growing digitization of financial services and the emerging complexity of captured, real-time transactions data across growing financial service value chains, including bank–savings groups linkages. Regulatory technology can employ machine learning and big data analytics to analyze the growing volume of data generated by increasing digitization of financial services to address the emerging regulatory oversight gaps outlined in this article.53 However, the effectiveness of the digital tools will depend on the level of development in the financial sector ecosystem, including affordable access to mobile devices and the internet, which are essential to the digitization of financial services and the bank-group linkages. Regulators will also need to play some developmental role to support savings groups’ digitization journeys, including building the groups’ necessary internal capabilities to mitigate consumer risks and cybersecurity risks though financial education, enforcement of transparency in digital financial services, and digital infrastructure development. For example, the Bank of Tanzania is implementing the Tanzania Instant Payments System to foster interoperability of digital payment platforms, an initiative expected to improve efficiency and reduce digital funds transfer costs.54
Lastly, development agencies involved in social and economic development can apply the linkage model as a tool for intervention to meet their goals. Savings groups can serve as a crucial node to foster a saving culture, responsible borrowing to support livelihood activities, skills development, technology transfer (including clean energy technology adoption), knowledge transfer, and economic and social wellbeing, as well as addressing other developmental concerns.
Taken together, advancement in digital technology offers growing oppprtunities for achieving inclusive banking services—provided appropriate measures are taken by all actors in the financial ecosystem to harness the innovation opportunities while mitigating the associated consumer and cybersecurity risks. To that end, central banks such as Bank of Tanzania need to enact the necessary regulatory reforms to ensure the stability and integrity of the financial system, while collaborating with other development agencies at country and international levels and standards-setting global bodies to foster financial systems development that supports inclusive and sustainable economic growth.
Notes
1 “ Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, and Saniya Ansar, “The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19,” World Bank, 2022, https://openknowledge.worldbank.org/entities/publication/b74e1909-3ecf-5009-b51c-8527fc4eefeb.
2 Alison Brown, Peter Mackie, Alastair Smith, and Colman Msoka, “Financial Inclusion and Microfinance in Tanzania,” Cardiff School of Geography and Planning, March 2015,
https://www.cardiff.ac.uk/__data/assets/pdf_file/0010/592129/Tanzania-Feb-2015-FINAL.pdf.
3 Kijumbes are observed, though not by name, in Akosua Koranteng et al., “Linking Informal Savings Mechanisms to Formal Financial Services: Learning Brief,” Genesis Analytics, Oxford Policy Management, and Mastercard Foundation, June 2022, https://www.opml.co.uk/files/Publications/a0600-savings-at-the-frontier/genesis-final-evaluation-satf-programme-final-learning-brief-july-2022.pdf?noredirect=1.
4 “Banking Best Survey: Saving More Safely and Longer,” Financial Sector Deepening Trust, Oxford Policy Management, Mastercard Foundation, and Savings at the Frontier, May 2021, https://www.fsdt.or.tz/wp-content/uploads/2021/05/Banking-Best-Survey-Saving-More-Safely-Longer.pdf.
5 Joseph E. Stiglitz and Andrew Weiss, “Credit Rationing in Markets With Imperfect Information,” American Economic Review 71, no.3 (June 1981): 393–342, https://www.jstor.org/stable/1802787.
6 ”Savings at the Frontier,” Oxford Policy Management, accessed November 8, 2023, https://www.opml.co.uk/projects/savings-frontier.
7 Hernando de Soto, “The Mystery of Capital,” Finance and Development, Quarterly IMF Magazine 38, no.r 1 (March 2001): https://www.imf.org/external/pubs/ft/fandd/2001/03/desoto.htm.
8 Charles Gildehaus, David Allred, Euvin Naidoo, and Anil Podduturi, “Powering the Innovation Flywheel in the Digital Era,” Boston Consulting Group, March 12, 2021, https://www.bcg.com/publications/2021/driving-business-impact-with-the-innovation-flywheel-approach.
9 The Tanzanian use of savings groups for environmental projects is available online at “Community Savings Groups, Helping to Save Nature,” World Wildlife Fund, January 13, 2023, https://www.wwf.or.tz/?42402/COMMUNITY-SAVINGS-GROUPS-HELPING-TO-SAVE-NATURE.
10 A description of World Food Programme employment of savings groups is available online; see Victoria Kamara, “The Savings Group Transforming the Lives of Smallholder Farmers in Zambia,” World Food Programme, January 16, 2018, https://www.wfp.org/stories/savings-group-transforming-lives-smallholder-farmers-zambia.
11 Uganda City Alliance Programme, details are available online at “How Savings Groups Work,” Cities Alliance, 2013, https://www.citiesalliance.org/resources/publications/cities-alliance-knowledge/how-saving-groups-work#:~:text=This%20process%20is%20designed%20to,or%20to%20start%20a%20business.
12 “Savings at the Frontier,” Oxford Policy Management and Mastercard Foundation, August 2019,https://www.opml.co.uk/files/Publications/20-03-23-satf-brochure-redraft-draft-final.pdf?noredirect=1.
13 A study conducted in Tanzania showed that financial linkages resulted in poor outcomes to SACCOSs’ performance. Benson Otieno Ndiege, Xuezhi Qin, Isaac Kazungu, and Josh Moshi, “The Impacts of Financial Linkage on Sustainability of Less-Formal Financial Institutions: Experience of Savings and Credit Co-operative Societies in Tanzania,” Journal of Co-operative Organization and Management 2, no. 2 (December 2014): 65–71, https://www.sciencedirect.com/science/article/abs/pii/S2213297X14000263.
14 Esther K. Ishengoma, “Financial Linkages, Institutional Factors and Loan Repayment Performance: The Case of Microfinance Cooperatives in Tanzania,” African Journal of Finance and Management 21, no. 2 (2012): 12–31, https://www.researchgate.net/publication/280084243_Financial_Linkages_Institutional_Factors_and_Loan_Repayment_Performance_The_Case_of_Microfinance_Cooperatives_in_Tanzania.
15 The Microfinance Act, 2018, United Republic of Tanzania, November 23, 2018, https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Acts/en/202002130644421418.pdf.
16 Brett King, BANK 3.0: Why Banking Is No Longer Somewhere You Go but Something You Do (Wiley e-book, 2012).
17 Bancassurance Guidelines for Banks and Financial Institutions, 2019, Bank of Tanzania, available at https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Guidelines/en/2020031901555169.pdf.
18 Available online at “Bank of Tanzania Act, 2006,” Parliament of the United Republic of Tanzania, June 8, 2006, https://www.bot.go.tz/BOTAct2006.pdf.
19 “Banking and Financial Institution Act,” Parliament of the United Republic of Tanzania, 2006, https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Acts/en/202002130644421316.pdf.
20 “ The National Payment Systems Act,” United Republic of Tanzania, May 22, 2015, https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Acts/en/2020030902433783.pdf.
21 Details of the regulatory oversight provided by the Tanzania Communication Regulatory Authority are available online at “Know TCRA,” Tanzania Communication Regulatory Authority, https://www.tcra.go.tz/pages/know-tcra.
22 An overview of the survey results is available online at “FinScope Tanzania 2017,” Financial Sector Deepening Trust, September 2017, https://www.fsdt.or.tz/wp-content/uploads/2017/09/FinScope-Tanzania-2017-Insights-that-Drive-Innovation.pdf.
23 Patricia Bosche, “Digital Identity in Tanzania,” Research ICT Africa, Centre for Internet & Society and Omidyar Network, November 2011, https://researchictafrica.net/wp/wp-content/uploads/2021/11/Tanzania_31.10.21.pdf.
24 “Tanzania: Driving Social and Economic Value Through Mobile-Sector Tax Reform,” GSMA, March 2021, https://www.gsma.com/publicpolicy/wp-content/uploads/2021/04/GSMA_Mobile_taxation_in_Tanzania_2021.pdf.
25 “M-KOBA,” Tanzania Commerical Bank, accessed December 7, 2023, https://www.tcbbank.co.tz/page/en/m-koba; and “M-Koba,” Vodacom, accessed December 7, 2023, https://vodacom.co.tz/mkoba.
26 A number of studies have shown benefits associated with social capital produced by group-based microfinance schemes in terms of promoting savings habits and peer influence in credit repayment around the world. See Carol Newman, Finn Tarp, and Luu Duc Khai, “Social Capital and Savings Behavior: The Impact of Group Membership on Household Formal Savings in Rural Vietnam,” manuscript accessible athttps://web2.econ.ku.dk/ftarp/Publications/Docs/social%20capital%20and%20saving%20behavior.pdf.
27 Regulations available online at “Bank of Tanzania Act, (Cap.197),” Bank of Tanzania, November 22, 2019, https://www.bot.go.tz/Publications/Acts,%20Regulations,%20Circulars,%20Guidelines/Regulations/en/2020031802343226.pdf.
28 Experience from savings groups in Tanzania supported by Aga Khan Foundation showed groups that were linked to banks had a reduced frequency of weekly meetings as members were given digital solutions. “From Cash to Digital Savings Groups: Reflections From a Pilot in Tanzania,” Aga Khan Foundation, Financial Sector Deepening Trust, Selcom, Bill & Melinda Gates Foundation, and BFA, March 2018,
https://bfaglobal.com/wp-content/uploads/2018/09/Digital-Savings-Group-pilot-report-April-2018.pdf.
29 The World Bank provides a conceptual framework for financial consumer protection available online at https://elibrary.worldbank.org/doi/pdf/10.1596/26861. See also Stephen Lumpkin, “Consumer Protection and Financial Innovation: A Few Basic Propositions,” OECD Journal: Financial Market Trends 2010, issue 1 (2010), prepublication version accessible at https://www.oecd.org/finance/financial-markets/46010844.pdf.
30 “Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector,” Reserve Bank of India, January 2011, http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/YHMR190111.pdf.
31 “Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector,” Reserve Bank of India.
32 Ghiyazuddin M.A. and Shruti Gupta, “Andhra Pradesh MFI Crisis and Its Impact on Clients,” MicroSave and Centre for Micro Finance, June 2012, http://www.microsave.net/files/pdf/AP_MFI_Crisis_Report_MicroSave_CMF_Ghiyazuddin_Gupta.pdf.
33 “A Safer Financial Sector to Serve South Africa Better,” South Africa National Treasury, February 23, 2011, http://www.treasury.gov.za/documents/national%20budget/2011/A%20safer%20financial%20sector%20to%20serve%20South%20Africa%20better.pdf.
34 Richard H. Thaler, “Anomalies: Saving, Fungibility, and Mental Accounts,” Journal of Economic Perspectives 4, no. 1 (Winter 1990): 193–205, https://doi.org/10.1257/jep.4.1.193. Thaler provides a conceptual discussion on the role of self-imposed liquidity constraints to foster savings based on U.S. consumer behavior in individual retirement accounts and life insurance, where the products’ strucrural design make them less liquid. The same argument is made in this essay that one of the drivers for group membership, particularly for ROSCAs, is the liquidity constraint.
35 Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (Penguin, 2009).
36 Alison Brown, Peter Mackie, Alastair Smith, Colman Msoka, and Emmanuel Mung’ong’o, “Inclusive Growth and Microfinance in Tanzania,” in Dirk Willem te Velde, Sam Wangwe, and Steve Wiggins (eds.), “Shaping Economic Transformation in Tanzania: Current Policy and Research Debates,” Growth Research Programme, Policy Essays, October 2015,https://assets.publishing.service.gov.uk/media/5c483f6ae5274a6e71c6a286/DEGRP-Shaping-Economic-Transformations-Tanzania-DIGITALcompressed.pdf.
37 Brett King, Bank 2.0: How Customer Behaviour and Technology Will Change the Future of Financial Services (Marshall Cavendish Reference, 2010).
38 King, Bank 3.0.
39 Consumer Empowerment and Market Conduct (CEMC) Working Group, Responsible Lending Sub-Group, “Digitally Delivered Credit: Policy Guidance Note and Results From Regulators Survey,” Alliance for Financial Inclusion, Guideline Note no. 17, September 2015, https://www.afi-global.org/wp-content/uploads/publications/guidelinenote-17_cemc_digitally_delivered.pdf.
40 AFI Consumer Empowerment and Market Conduct (CEMC) Working Group, Responsible Lending Sub-Group, “Digitally Delivered Credit: Consumer Protection Issues and Policy Responses to New Models of Digital Lending,” Alliance of Financial Inclusion, Policy Guidance Note and Results From Regulators Survey, November 2017, https://www.afi-global.org/sites/default/files/publications/2017-11/AFI_CEMC_digital%20survey_AW_digital.pdf.
41 David Medine and Silvia Baur-Yazbeck, “Developing Country Central Banks of the Future as Cyber-Security Champions, Coordinators and Cheerleaders,” CGAP, March 2020, https://www.findevgateway.org/sites/default/files/users/user331/CyberSecurity%20Paper%20-%20Central%20Banks%20of%20the%20Future%20_0.pdf.
42 “ITU National Cybersecurity Strategy Guide,” International Telecommnication Union, September 2011, https://www.itu.int/ITU-D/cyb/cybersecurity/docs/itu-national-cybersecurity-guide.pdf.
43 “National Information and Communications Technology Policy,” Tanzania Ministry of Works, Transport and Communication, May 2016, https://www.ega.go.tz/uploads/publications/sw-1574848612-SERA%202016.pdf.
44 Medine and Baur-Yazbeck, “Developing Country Central Banks of the Future as Cyber-Security Champions, Coordinators and Cheerleaders.”
45 Tamas Gaidosch, Frank Adelmann, Anastasiia Morozova, and Christopher Wilson, “Cybersecurity Risk Supervision,” IMF, Departmental Paper No. 2019/014, September 24, 2019, https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2019/09/23/Cybersecurity-Risk-Supervision-46238.
46 “Cybersecurity for Financial Inclusion: Framework & Risk Guide,” Alliance for Financial Inclusion, Guideline Note no. 37, October 2019, https://www.afi-global.org/wp-content/uploads/2020/07/AFI_GN37_DFS_AW_digital_0.pdf.
47 “Financial Sector’s Cybersecurity: Regulations and Supervision,” World Bank Group, 2018, https://documents1.worldbank.org/curated/en/686891519282121021/pdf/123655-REVISED-PUBLIC-Financial-Sectors-Cybersecurity-Final-LowRes.pdf.
48 Federal Reserve Guidance on Managing Outsourcing Risk, 2013 available online at https://www.federalreserve.gov/supervisionreg/srletters/sr1319a1.pdf, archived May 30, 2023 at the Wayback Machine, https://web.archive.org/web/20230530091240/https://www.federalreserve.gov/supervisionreg/srletters/sr1319a1.pdf.
49 “Guidelines on Outsourcing Arrangements,” European Banking Authority, updated April 9, 2021, https://www.eba.europa.eu/regulation-and-policy/internal-governance/guidelines-on-outsourcing-arrangements.
50 Iñaki Aldasoro, Jon Frost, Leonardo Gambacorta, and David Whyte, “Covid-19 and Cyber Risk in the Financial Sector,” Bank for International Settlements, BIS Bulletin no. 37, January 14, 2021, https://www.bis.org/publ/bisbull37.pdf.
51 Nicholas Fearn, “Cloud Computing Dependence Imperils Banks,” Financial Times, November 8, 2022, https://www.ft.com/content/bd0c82b0-994c-40d0-87a8-090028964594.
52 “BIS Innovation Hub Work on Suptech and Regtech,” Bank for International Settlements, accessed December 8, 2023, https://www.bis.org/about/bisih/topics/suptech_regtech.htm. This research aims to share emerging good practices that can be tapped by regulators.
53 “RegTech for Financial Services,” PwC, accessed December 8, 2023, https://www.pwc.com/us/en/industries/financial-services/regulatory-services/regtech.html.
54 Bank of Tanzania is implementing a number of payments and settlement initiatives including the Tanzania Instant Payments System, commonly known as TIPS. “Payment Systems Initiatives,” Bank of Tanzania, accessed December 8, 2023, https://www.bot.go.tz/PaymentSystem/Initiatives.
