Bank for your Buck: Increasing Savings in Tanzania Second-year Policy Analysis Client: National Microfinance Bank (NMB) Advisor: Professor Jay Rosengard Section Leader: Michael Walton Aneth Kasebele and Anne Ong Lopez Written in fulfillment of the requirements for the degree of Master in Public Administration in International Development, John F. Kennedy School of Government, Harvard University Picture credit: NMB Table of Contents Acknowledgement .................................................................................................................................................................................... 0 Executive Summary ................................................................................................................................................................................. 0 1. Introduction ............................................................................................................................................................................... 1 Motivation ...................................................................................................................................................................................... 1 Context ............................................................................................................................................................................................ 4 2. Introduction to the National Microfinance Bank ............................................................................................................... 7 Benchmarking NMB ..................................................................................................................................................................... 7 NMB Product Portfolio and Take-up ....................................................................................................................................... 9 3. Conceptual Framework and Rationale for Savings Product Innovation ...................................................................... 10 4. Proposed savings products .................................................................................................................................................... 15 Option 1: Saving my Future Income Today (S-FIT) ............................................................................................................ 16 Option 2: Goal-savings card ..................................................................................................................................................... 18 Option 3: Save&Play Prized-Linked Savings (PLS) account ............................................................................................... 20 Proposed Product Delivery Channels ..................................................................................................................................... 23 5. Analysis of Policy Options .................................................................................................................................................... 25 Technical Correctness of the Proposed Options .................................................................................................................. 25 Administrative Feasibility for Implementing the Product Options ................................................................................... 29 Political supportability of proposed options .......................................................................................................................... 33 Summary of Policy Options ...................................................................................................................................................... 34 6. Implementation Roadmap ..................................................................................................................................................... 35 Stakeholder Engagement and Planning ................................................................................................................................... 36 Products Testing and Evaluation ............................................................................................................................................. 36 Launch and Marketing Strategy ................................................................................................................................................ 38 Monitoring and Evaluation ....................................................................................................................................................... 39 Conclusion ............................................................................................................................................................................................... 40 Appendix.................................................................................................................................................................................................. 41 Appendix 1: About NMB ................................................................................................................................................................ 41 Appendix 2. NMB Distribution ..................................................................................................................................................... 42 Appendix 3. Who are likely to take-up formal savings: Econometric Results ....................................................................... 43 Appendix 4: Descriptive Statistics, of January 2016 Survey Interview on NMB Clients ..................................................... 45 Appendix 5: Correlation Analysis of January 2016 Survey Interview on NMB Clients ...................................................... 46 Appendix 6. Cluster Analysis of Interviewed NMB Clients ..................................................................................................... 47 Appendix 7. Comparing Net Benefit of Savings Product Options to a Customer .............................................................. 48 Appendix 8. Cost Framework of Proposed Savings Products ................................................................................................. 48 Appendix 9. List of Branches, by Savings Performance (2013-2015) ..................................................................................... 50 Appendix 10. Sample Size Calculations with Randomization at the Branch level with Equal Group Sizes .................... 51 References ................................................................................................................................................................................................ 52 Acknowledgement We would like to extend our enormous gratitude to a number of people without whom this project would have not been possible. To our Professors at the Harvard Kennedy School, especially Professor Jay Rosengard and Professor Michael Walton. Thank you for your guidance, for encouraging us to think creatively and for your comprehensive feedback during the different stages of this research project. We are also indebted to the ASH Center for Democratic Governance and Innovation as well as Degree Programs Student Affairs (DPSA) for their generous funding support for our research travel to Tanzania in January 2016. Special thanks to the National Microfinance Bank PLC (NMB) in Tanzania and its staff, especially to James Meitaron and Beatrice Mwambijje. Thank you for sharing with us your expert knowledge on retail banking business at NMB, providing access to NMB client database, arranging our branch visits in Dar es Salaam and Pwani and for offering the working space at the NMB headquarters. We would also like to thank our MPA/ID Director, Carol Finney for her encouragement, motivation and support throughout our time in the program. Most importantly we extend our thanks to our individual families, this process would have been painful without their continuous encouragement, positive energy and support. Executive Summary Formal saving is an important feature of financial services, given its impact on both the individual and country’s macroeconomic factors. In Tanzania, the proportion of adults saving cash in formal financial institutions has been decreasing since 2011 despite the increase in proportion of people claiming to save any money. For retail commercial bank such as the National Microfinance Bank (NMB), mobilizing savings is important for maintaining their loan-deposit ratios. Even though savings account values have been increasing at NMB, the increase has been achieved at a decreasing rate. Motivated with the aim of addressing the question of how to incentivize Tanzanians to save their money in formal institutions, we developed prototypes for three behavioral economics inspired savings products and tested them with 59 NMB customers and staff. We recommend the implementation of all three products: two in the short-term and the third one in the medium term. These first two products are the following: Saving my Future Income Today , which requires committing saving a proportion of future earnings increase, and a Goal-savings card, which modifies the existing goal oriented savings accounts to reflect the specific saving needs of Tanzanians. The third is Save&Play, a savings product with lottery-like features that make savings a fun activity with expectations of winning. These recommendations consider the following: (1)