The IDEA Project

Savings groups have proven to be effective platforms for improving economic self-reliance, resilience, and overall wellbeing in many contexts, especially for women. They can be an on-ramp to more formal financial services, including digital financial services, and UNCDF has experience using savings groups as an entry point for this and various interventions in East and Southern Africa.

With funding from the Directorate General for Development Cooperation of the Italian Ministry of Foreign Affairs, UNCDF is currently implementing the Inclusive Digital Economies Action in Ethiopia: Refugee Response project (the IDEA project) in the Somali region of Ethiopia. With the second-largest refugee population on the continent and a growing digital economy, the project aims to strengthen the existing culture of informal savings in the region to help refugees and host community members better manage their money, save for future investment, and become more resilient.

The project is implemented through a consortium of UNCDF grantees including Stichting ZOA, an international NGO and the anchor partner, the Women and Pastoralist Youth Development Organization (Wa-PYDO), a local Somali NGO, and Jamii.one, a social enterprise and technology company, the project aims to include refugees and host community members in Ethiopia’s growing digital economy through three key activities:

1. Promoting a savings-for-investment culture through strengthening and digitalizing savings groups

2. Enabling access to finance through savings-led, digitally enabled services

3. Enhancing a community of practice and cooperation through ecosystem level debates related to inclusivity bottlenecks and opportunities in the digital finance sector

Promoting a Savings-for-Investment Culture

By the end of 2021, 18,000 beneficiaries in 897 savings groups had been enrolled in the project. A training of trainers (ToT) approach was used to train individuals on key financial literacy topics such as basic budgeting, borrowing, bookkeeping, and repayment strategies—with the goal of equipping learners to make sound financial decisions and effectively interact with financial service providers. ToT participants and local stakeholders provided UNCDF and implementing partners with positive feedback on the training.

In addition to training on financial management, the project uses digitization to promote a culture of savings-for-investment. Jamii.one’s group application enables savings groups to digitally record savings and loans activities. The theory is that because digital ledger books are more accurate, time-efficient, and transparent, they strengthen group operations and management, leading to improved outcomes. Moreover, digital ledger books aim to provide a digital identity and credit history that FSPs can use as a form of collateral.

At the end of 2021, about 40% of all IDEA groups were digitized. While group engagement with the app was initially quite low due to low levels of group activity and digital literacy/training, as well as limited access to smartphones and poor internet connectivity, the focus in 2022 has been on providing more intense support to select groups. An offline version of the app is also planned for testing and roll-out this year.

Enabling Access to Finance

The second objective of the project is to enable access to finance by linking select to a local MFI. Facilitating access to formal loans would be an achievement given low engagement with formal financial services at baseline, which is driven by constraints on the supply and demand side. On the supply side, many beneficiaries live prohibitively far from the nearest FSP (there are only two MFIs in the region), and FSPs are limited in their ability to reach and serve clients as a result of infrastructure and financing challenges. On the demand-side, while many people are interested in obtaining loans from MFIs, there is some distrust in formal financial institutions, which implementing partners are working to address.

Enhancing a Community of Practice

The third objective of the project is to enhance a community of practice and cooperation through eco-system level debates related to inclusivity bottlenecks and digital opportunities in the digital finance sector. Workshops can provide a platform for discussing the regulatory frameworks on digital and financial services, as well as the key constraints and opportunities for communities’ digital and financial inclusion. Thirty-two stakeholders attended a regional workshop held in September 2021, including members of the refugee and host communities, representatives from the cooperative development office, woreda administrators, banks, MFIs, ARRA, and UNHCR. Participants reported that the workshop was engaging, with active discussion and reflection among participants on the challenges affecting project implementation and potential solutions.

What’s Next

With the project closing in June 2022, UNCDF is continuing to support implementing partners with ongoing digitization and access to finance activities. Members of the UNCDF team are also planning to visit the project area later this quarter, with a focus on deepening insights into the challenges and opportunities for including refugees and host communities in Ethiopia’s growing digital economy, ensuring no one is left behind.