Informalizing Financial Services

Recently, Fidelity Bank announced that they are using susu collectors in Ghana to improve service delivery and reach, and equipping them with point of sale terminals for real-time reconciliation. This is a prime example of how a formal financial service provider can tap into informal networks.

Susu collectors are one of the oldest financial services in Africa. They are traditionally trustworthy people who visit clients in their communities to collect very small deposits over the course of a month. At the end of the month, the susu collector returns the accumulated savings to the client but keeps one day’s savings as commission. Susu collectors occasionally provide advances to their clients. The formal financial sector in Ghana became interested in susu collectors years ago, and private-sector banks such as Ghana Commercial Bank and Barclays used susu collectors to mobilize savings and disburse microfinance loans.

In other parts of the world, formal institutions are exploring linkages with informal services. In the Philippines and Bolivia, formal financial institutions extend credit to informal lenders such as self help groups or non-regulated NGOs to reach a segment of customers they cannot otherwise reach, for lack of infrastructure and/or local knowledge. In other settings, formal institutions such as Rwanda Peoples Bank have hired less formal institutions to act as local agents on their behalf. And large international insurance companies, like Aviva in India, can gain thousands of clients simply by bundling their life insurance product to loans from local less regulated microfinance institutions.

Why embrace informal services?

In a forthcoming study that Reboot conducted in China with the Institute of Money, Technology, and Financial Inclusion (IMTFI), we explored these dynamics to try and understand the types of financial services people use and how the user experience compares between formal financial services(1) and informal financial services(2).

The full results of this investigation will be published soon, but in general terms, we found that informal services are more convenient. They are offered nearer to where the customer works and lives, especially for rural citizens and migrant workers who often have to travel long distances to visit a formal bank. Informal services are also sometimes more inclusive, given that the paperwork required by formal financial institutions bars many of China’s marginalized populations from being able to use their services. And finally, informal services are believed to be more secure in China, as informal service providers are typically trusted members of the communities in which they operate.


Banks are scarce in China’s rural areas — more than 30,000 branches like
this one have closed over the last few years.


These observations are not just true in the case of China. In addition to their reach and convenience, informal services are often cheaper, once transaction costs, relative risks and time cost have been accounted for. According to a CGAP-commissioned study by Bankable Frontier Associates, in India informal products are 49 percent cheaper, in South Africa 73 percent cheaper and in Bangladesh 80 percent cheaper than formal services or microfinance institutions. In addition to being more expensive, consumers feel that they “lose” money in their formal accounts due to unexpected charges. Perceived losses lead to a high perceived risk, for lack of consumer awareness and/or clearer product design.

From the point of view of low-income consumers, formal financial services are not inherently better than informal ones. But clearly, there is demand for lending, savings, and insurance products. To meet this demand, formal financial service providers could try to build extensive delivery networks from scratch. Then they could try to overcome the perception of their services as being risky. Finally, they could try to create services that are dramatically cheaper than the informal instruments in the market(3). But these steps would be a massive undertaking.  Instead of trying to compete against informal services, why not embrace them and work with them to improve convenience, lower cost, and reduce the perception of risk?


Even if formal service providers wanted to work with less formal groups, how would they do it? In all the examples above, there was some form of documented organization even if the institutions themselves were unregulated. This means established NGOs, self help groups, and even susu collectors are organized into unions (like the Ghana National Association ofSusu Collectors). This makes it easier for regulated service providers to vet these potential partners and measure risks associated with fraud or reduced service quality. However, even these organized groups can struggle to reach the poorest and most remote citizens.


A Rotating Savings and Credit Association for women in Pakistan.

Is there a way for service providers to extend their reach to the last mile? How about partnering with more emergent networks within a community, such as juntas in Peru (group savings), tontines in Senegal (rotational interest-free credit), or arisans in Indonesia (community lotteries)? These might not be appropriate agents, but they could be used for referrals or customer acquisition. They might not have existing infrastructure, but they could be used for marketing and promotion, if given the right incentives.

While these ideas seem appealing, I have not been able to find many examples in my own research. If you have an example or would just like to discuss how to better build linkages between formal service providers and the most embedded informal networks, please follow up with me via email ( or twitter (@SFath).


  1. Credit, savings, insurance, or payment products from regulated financial service providers such as commercial banks, state development banks, insurance companies, or money transfer firms.
  2. Credit, savings, insurance, or payment products from unregulated or less regulated service providers, such as family and friends, rotating savings and credit associations (hehui), money houses (qian zhuang), pawnshops, or loan sharks (gao li dai).
  3. In South Africa, we already know that marginal reductions in cost and time by formal sector providers may not have a big impact.


Futher reading.