Formal savings and responsible borrowing can help increase financial wellbeing
Savings are consistently shown to be the most reliable source of extra money for those who have them for weathering a financial emergency or addressing the expenses that cause financial stress. To increase financial wellbeing, therefore, adults in Sub-Saharan Africa need a safe and affordable place to save. Accounts provide that safe place. Mobile money accounts in particular are motivating more savings to transition from less formal methods, such as saving at home or with a rotating savings and credit association (ROSCA), to saving with an account. As of 2022, slightly half of all savers were using accounts to do so, the first time that formal savings dominated over less formal methods.
The increased safety of accounts coupled with the greater availability of mobile money accounts suggests an opportunity not only to grow mobile money account ownership but also to build incentives into these accounts to promote resilience (see the accompanying note on mobile money in Sub-Saharan Africa for details on the data). Further benefits could come from adding design features that make saving easy and rewarding, so that even people with very low incomes will save.
Financial providers can also design savings accounts to address specific sources of financial stress. For example, 12 percent of adults in Sub-Saharan Africa already save specifically to prepare for old age. That share is higher in Ghana at 22 percent of adults, and much lower in Zambia at just 6 percent. Specially designed “retirement” savings accounts offering higher interest rates or matching rewards could encourage this type of savings. Mobile money accounts can also be leveraged to offer auto-deposit into a mobile or bank savings account.
Borrowing is also an option for increasing resilience when used appropriately and with proper controls to avoid exploitation or borrower over-indebtedness. Given the high amount of worrying over medical expenses, for example, it should come as no surprise that 20 percent of adults in the region on average have borrowed to pay for medical bills. That is just slightly above the developing economy average of 17 percent. In some economies such as Côte d’Ivoire, where 20 percent of adults have borrowed to pay for medical expenses and 46 percent say medical bills are their biggest source of financial stress, the rate of borrowing makes sense given the share of adults who worry about it. In other places, such as Zambia, 23 percent of adults have borrowed to pay for medical bills, and medical bills are biggest worry for only 22 percent of adults. These discrepancies suggest that complex factors are likely at play in borrowing habits related to medical bills, such as the availability of credit and health insurance, and the structure of the public health system.
Such complexity is the norm when talking about resilience and worrying, which can be influenced not only by the social support systems in place within an economy, but also by cultural practices around social resource sharing and about expressing worry.
Endnotes
1. This note includes data from African economies surveyed in 2021 (which are included in regional, developing economy, and global averages reported in the Global Findex 2021 report and related deliverables) as well as 11 surveyed in 2022 due to COVID-19 related delays. The 2022 economies include Botswana, Chad, Comoros, the Democratic Republic of Congo (DRC), Eswatini, Ethiopia, The Gambia, Lesotho, Madagascar, Mauritania, and Niger. In total, this regional note includes data from 36 Sub-Saharan African economies.
2. Gross national income per capita 2020, Atlas method (World Development Indicators). Dollar amounts based on foreign exchange rates on February 7, 2024.
3. The Global Findex defines an account as any transactional account with a bank or similar financial provider, such as a credit union, a cooperative, or a microfinance institution (MFI), or with a mobile money provider. Throughout this regional note, we use the term “bank” to refer to any financial institution that offers similar services to traditional banks, including credit unions, cooperatives, and microfinance institutions (MFIs). These financial institutions have historically operated through primarily physical channels but may now offer banking apps that allow customers to access traditional banking products through the internet or using a mobile phone. This is in contrast to mobile money operators and other fintechs who offer accounts that are supported by a network of mobile money agents independent of the traditional banking network. Typically, 100% of the cash in mobile money is held in a fully prudentially regulated institution such as a bank.