Challenges and opportunities in promoting savings among low income individuals in Lesotho, Malawi and South Africa

, ,

Johannesburg, 26 February 2014: FinMark Trust, in partnership UNCDF, UNDP in Malawi and through the ‘Support to Financial Inclusion in Lesotho’ (SUFIL) recently conducted a study to comprehensively document the savings landscape in Lesotho, Malawi and South Africa. The aim of the study is to understand the challenges and opportunities in promoting savings among low income individuals in these countries.

According to the study, Lesotho has a significantly higher savings rate in formal products (bank and non-bank) than South Africa, but a lower overall formal access rate (particularly in banking services), in part driven by differences between the types of institutions offering savings in the two countries. A wide range of instruments (financial and non-financial) are being used by low income individuals to meet their needs.

Malawi, the poorest of the three countries and with the highest rate of financial exclusion (55%), has a significantly higher overall savings rate than the other two countries. This is partly an indication that the poor can view even the short-term storing of money to be used for transactional purposes, such as savings at home, as a form of savings, which may not be the case in the more affluent countries.

Informal savings mechanisms are important throughout the three countries, with group savings models recently expanding in all. Formal institutions are still being used and are aspired to, despite low/negative real interest rates and the affordability challenges that formal accounts present (fees, minimum balances and costs of transport). The perception of the value proposition of banks as a safe place to store money was present throughout the three countries, as was the indication that interest rates mattered less than fees when choosing a bank.

Savings accounts in both formal and informal sectors are often used in a transactional manner (lots of small deposits and transfers), rather than for building lump sums or to earn a return. When households are building lump sums they are usually doing so based on saving for an identified project (e.g. school fees, farm inputs etc.). These ‘project’ funds are, however, often used for emergencies if and when they are required.

Savings through non-financial instruments (e.g. livestock, property), whilst quite prevalent, were generally viewed as inferior options, with drawbacks including the risk of theft and their relative illiquidity in times of emergency. There is an increasing ‘third adult’ (young adult within household that is not the household head) phenomenon in South Africa and Lesotho (although the evidence suggests this is less prevalent in Malawi). These third adults tend to have less direct access to financial services, including savings, but may be accessing these services indirectly through the head of the household.


From a supply-side perspective, the study found that banks as a whole have made few inroads into providing savings products to low income households. Despite improvements in the enabling environment (e.g. permitting MFIs to take deposits), there appears to be a limited prospect that Microfinance Institutions (MFIs) or Savings and Credit Co-operative (SACCOs) will become major providers of low income deposit services in the near future. All three countries have seen significant expansion in the number and types of informal savings and credit groups which have changed the landscape of low income savings provision.

Furthermore, the overall low level of savings in the formal sector, particulary when compared to the overall incidence of savings, offers the prospect of a better supply response in the lower and middle-income SADC economies. For example the number of Malawians currently using formal saving options is low and represents only a small proportion of all adults actively saving.

For the countries in the study, mobile phone/agency based banking is an opportunity for low income savers, although it is struggling to take off as rapidly when compared to Kenya and other East African countries. Mobile phone and agency based banking tends to be used as an additive rather than transformational service and is therefore not yet having a significant impact on increasing financial inclusion.

Macro-economic climate

In all three countries under study, the macroeconomic climate has a significant impact on people’s ability to save. According to the study, the low income savings culture appeared to be significantly stronger in Lesotho than Malawi or South Africa. Financial literacy – in respect of how formal savings (and other risk mitigation/developmental) products operate – was low across all three countries, and identified by all three governments as a key reform area. While, social grants are potentially a significant driver of savings in South Africa, these are not so significant in the other two countries. Significant improvements have taken place in the regulatory enabling environment in Lesotho and Malawi, particularly with respect to the provision of services by non-bank financial institutions (NBFIs). However there are concerns about the required level of supervisory capacity and the ability of the sector to adjust to and absorb so many changes in a short period.


Editorial contact

FinMark Trust
Nitha Ramnath (Ms)
Communication Manager
Tel: 011 315-9197 / 0829214769