This last week was spent working from CARE’s head office in Maputo, a fairly typical developing-country capital city with slums, trash laden streets and crumbling infrastructure.   It is not unpleasant though as is sits on the ocean and usually catches a nice fresh-air breeze and is not yet completely swamped by polluting traffic.   Indeed, you can sense that the potential is there to make it special.  There is culture, some attractive colonial-time buildings and wide avenues.   There is a good music scene and some fun art galleries and bars as well.   While there was a little bit of time to check the city out, the week was spent meeting with a number of financial institutions and consultants relevant to our VSLA linkages project as well as working in the office.  

As you all know, the pleasure of going to work every day greatly depends on a few important things such as working on something that is an interesting challenge and feels personally meaningful, having good colleagues, and feeling rewarded emotionally and/or monetarily.   I have been lucky.   The bigger task at hand—helping people help themselves escape poverty, even if in a very small way—at time feels like an insurmountable challenge, but working on such puzzle can’t help but make one feel humbled but also being part of something that just has to be important.   The colleagues at CARE are also great, most  all of the ones we have been in touch with positive and very helpful with this project—having robust infrastructure and “industrial scale” capacity is essential in providing ongoing assistance.  I often puzzle how smaller organizations/NGOs (in places such as Mozambique in particular) can get more complex things done in anything approaching and economical fashion.  

I have also been lucky to get Alessandra as my colleague on this project.  Alessandra is a consultant hired in from Accenture (the big global consultancy firm some of you may have heard of that used to have a certain Tiger as their poster boy—now replaced by an elephant on a surfboard…hmm).  She is extremely capable and energetic and a pleasure to work alongside on an everyday basis.   She joined me on this project here in Maputo and we share the responsibility to get this work done by mid-December but will of course take all the blame if it doesn’t go well J.   One interesting dimension of Accenture’s involvement is that they have something called Accenture Development Partners (ADP) which is the non-profit consultancy arm of the organization and bill out—and also pay their consultants who “volunteer”—half of what they ask of commercial clients.   

Our work here involves a couple of key components.  The first and most essential, is to determine the VSLA groups’ need for access to the formal financial services sector and if so, develop the criteria used to identify which groups should be linked.  Additionally, we need to figure out how the VSLA group methodology should be “tweaked” to make the link happen while doing  no harm.  After three weeks here it is clear to us that there is a need among a number of the groups and we are finding a general interest in using banks among group members—a few are fearful of them but seem in  a great minority.  CARE has been implementing the VSLA methodology—initially developed in Niger by Moira Eknes (a fellow Norwegian)—in 33 countries in Africa over the last two decades.   One of the key sources of success of this approach has been that each group is a “closed system” meaning all the saving and lending is done within the group and that once trained, the groups become self-managing.  This allows this methodology to be scaled up and implemented just about anywhere.   The “downside” is that with the success of some groups and a modicum of prosperity, the VSLA group has clear limitations—i.e. the savings in the “box” become a real security risk for robbery or fraud and the availability of funds within the group’s resources fall short of members’ borrowing needs.   So up against these constraints, what do you do?   The key hypothesis is that while these groups may have outgrown the basic VSLA structure, the inpiduals in the group are typically not ready or in a position to approach the formal financial services sector on inpidual basis.  Here the “linkages idea” comes in—using the VSLA methodology but making some important changes to make the connection with the formal financial sector.   Figuring out how this bit should be done is a work in progress at this stage.

A second key component is to understand what financial service “delivery channels” can work in a cost efficient manner so that the implementation becomes sustainable.    What seems to make the most sense to us is to use technology as a key ingredient in linking VSLAs with the formal sector.   In countries like Kenya a mobile phone payment system where you “trade” pre-paid airtime for cash in or out, has taken off.   More than 14 million people now move money “safely” around using the M-PESA service there and tens of thousands of small shopkeepers or other “agents” effectively become “bank branches” where you can go and “deposit” or withdraw cash, and basic “banking” can thus be made available except perhaps in the most remote areas.   At this point such a service is not yet operable here, but mCel, the largest mobile phone operator in Mozambique will launch its M-KESH product over the next couple of months and Vodacom, the second operator (and sister company to M-PESA in Kenya) is not far behind.    Cellular usage is taking off and “penetration” is now well over 50%.   Indeed, one of the questions we ask of the VSLA groups we meet with is how many members have a mobile phone.  Even in the poorest groups there will typically be a handful of members with phones—in the ones we think could fit the “linkage ready” profile, the majority have them.   If this could work and the phone based payment system can be connected to the IT system of the banks, it could potentially be a very low cost option.  Another strategy (or maybe a combination thereof) may be to use very low cost branch networks and biometrics (finger print recognition and photos allow even the illiterate to be banked)  to facilitate the services connection.  BOM (Banco Opportunidad Mocambique), part of Opportunity International (a multinational charity focused on financial services for the poor), is probably the furthest along in developing such a low cost network, including using very small branches—effectively a 40-TEU container that can be put down anywhere there is a road and internet connectivity (could be mobile broadband).  These branches have as many as five networked PCs, six employees, a safe and a toilet inside.  There is an armed security guard outside.

Above: So excited about low cost banking we can hardly contain ourselves—inside a branch in the BOM network

Above: Illiterate in both Xitsua and Portuguese, this customer can still make his deposit!

The third main piece is to figure out what financial institution(s) we should be using for linkage and what products they possibly should and would be capable of delivering in a sustained fashion.  Given the regulatory framework and expertise available, VSLA group deposits can probably be taken by most banks and Microfinance Institutions (MFIs).   We think the credit piece will be more difficult, and it is already clear commercial banks simply are not in a position to deliver.   Unfortunately, there are less than a handful of MFIs in Mozambique of reasonable size and the last year was very difficult for many of them.  The global financial market  turmoil due in part, there has been lots of turnover among the top management in just about all of these institutions and one of the things we have to worry about is also finding  partners that we have confidence are financially viable.  There is also very little experience with, and willingness within these institutions to do group loans—understanding the creditworthiness of groups, while well developed in places such as Bangladesh by Grameen Bank and others, is not really something that is a very well understood here.   Some creative thinking and further research is in the works to figure this bit out.