UNDP signals grassroot innovation as levers for advancing sustainable development and resilient society.
The Sundans' ''Sanduk'' Concept - The Untold Community Bank
July 7, 2023
The Impact of Digital Sanduk and Reduced Interest Rates on Financial Inclusion
The South Sudan – Sudan border has been hit hard by multiple shocks, ranging from floods, border insecurity, currency instability and a lack of infrastructure - contributing to rural unemployment and instability. And to thrive within these difficult conditions, communities have leveraged on informal cross border trade.
However, with a lack of financial institutions and high interest rates, loans are a significant challenge to these informal cross border traders, especially for the youths and women who have no assets. On - the - other - hand, a groundbreaking social innovation experiment was identified in Warawar, South Sudan, which has shown that innovations can solve our challenges.
Nestled at the border area of South Sudan lies a bustling market known as Warawar Peace Market. For years, this market has been a hub of cross-border trade, attracting informal cross border traders from Sudan and South Sudan. Despite its importance, the market has lacked access to formal financial institutions, leaving the traders with no or few options for accessing capital or social emergency fund.
Traditionally, cross-border traders in Warawar Peace Market have relied on a unique form of financial association known as the Sanduk. For generations, the Sanduks have played a vital role in South Sudan, serving as a form of social capital and financial security.
The sanduk functions by pooling the savings of members and lending the funds to those in need at an interest rate that is agreed upon by the group. However, traditional sanduks have faced numerous challenges, including high-interest rates and limited access to credit, making it difficult for entrepreneurs and informal cross border traders to thrive on the limited available funds in circulation.
Sanduk is a “box” in Arabic, members of a sanduk contribute small amounts of money on a regular basis, with the funds held in the Sanduk until a member needs a loan. In Warawar, the loans are typically granted at high interest rate, making them an accessible source of credit for informal cross border traders who do not have access to formal financial institutions.
The high interest rates charged by Sanduks have posed a challenge for many ICB traders, leading to mounting debt and financial strain to the already vulnerable community. That’s where the Africa Borderlands Centre and UNDP Accelerator Lab of South Sudan come in.
At the beginning of the innovation experiment, in December 2021, sanduk interest rates in Warawar Peace market were averaging at a staggering 30%, by April 2023, the interest rates were ranging between 15-20%. So, what happened?
Traditional Meets Digital: the Experiment
The Africa Borderlands Centre and the South Sudan Accelerator Lab implemented a social innovation experiment aimed at digitizing the traditional sanduk to enhance saving, transparency and improve access to capital. The experiment aimed to digitize the sanduk by mapping the traditional concept onto a mobile digital paltform to enhance the accessibility and efficiency of the traditional system which will create group financial profile that eventually can be used in accessing bank loans.
The sanduk groups were divided into two groups: the experimental and the control group. The experimental groups were created for a mobile digital wallet mimicking the traditional analog concept, to facilitate their transactions, , which enabled them to access these services of m-Gurush, a private mobile money system in South Sudan. The digital sanduk system allowed members to save and borrow money with ease, using the created application on their mobile phones. This system enhanced digital financial inclusion, particularly for women who traditionally have limited access to financial services
Results from the experiment:
The results were remarkable. One of the key benefits of the experiment was the reduction of interest rates charged by the sanduks to members. At the beginning of the experiment in December 2021, the interest charged on loans was a staggering 30%. By the end of the experiment, the interest had dropped to between 15% and 20%. Members of the sanduk’s attributed this drop to competition from the experimental sanduk groups which benefited from interventions of the experiment.
This reduction in interest rates has had a significant impact on the community, with more new members joining the sanduks than before, but also increase their lending power as more members were able to access emergency loans for medical and school fees. This is particularly important for those who are financially excluded and have limited access to formal financial services.
The story and impact of the experiment interventions is reflected in Bakita’s story, the chairlady of Akut Ci Mat, a sanduk at Warwar Peace Market, is a dynamic cross-border trader who operates a tea kiosk and provides lodging services to cross border traders. Before the innovation experiment, when we visited her in November 2021, her hotel had 14 rooms. Today, with the benefits arising from the experiment, she managed to secure more loans and expanded her hotel from 14 to 22 rooms!
Bakita in her own words, "This experiment has been a game-changer for me. It has enabled me to access more loans, which I used to increase my hotel capacity. I now have more rooms, which means more business for me. My fellow traders can now have a comfortable and affordable place to stay while conducting their business at Warwar Peace Market and the digital money has provided security for my money.”
Bakita's success story is a testament to the positive impact of the innovation experiment on the livelihoods of cross-border traders at Warwar Peace Market.
The control group sanduks also recorded significant success in savings, new members, and an increase in the resource pool of capital that members can access. The intervention created healthy competition between the sanduk groups, promoting innovation, and resulting in better outcomes for all members. The digitization of the sanduk has revolutionized the traditional system, enabling members to access credit with ease, promoting financial inclusion and empowering individuals, particularly women.
Overall, the impact of the experiment has been significant, both in terms of access to micro loans, reducing interest rates, and enhancing digital financial inclusion. The experiment has demonstrated that innovation can play a critical role in improving financial services in Africa, particularly in rural areas. By digitizing traditional financial services such as the sanduk, communities can gain access to the financial tools they need to improve their livelihoods and build a better future for themselves and their families.
The experiment in Warawar has demonstrated the potential of technology and innovation to enhance financial inclusion, promote access to credit, and reduce interest rates. The success of the experiment in Warawar provides a blueprint for the digitization of traditional financial systems in Africa, and beyond, and highlights the potential of innovation and technology to enhance financial inclusion and promote economic development.
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