Figure VI.3: Savings Behavior in African and Non-African Fragile States

Figure VI.3: Savings Behavior in African and Non-African Fragile States

Burundi Formal Saving Account (%) CAR ChadComorosCongoDjibouti Community-Based Savings (%) DRCGuineaLiberiaSierra LeoneSomaliaSudan TogoZimbabweAfrican FS - LICnon - African FS - LICAfrican FS - LMICnon - African FS - LMIC

Source: Demirgüç-Kunt and Klapper (2012) and Global Findex. Note: Acronyms are: LIC (Low Income Country), LMIC (Lower Middle Income Country), FS (Fragile States), CAR (Central African Republic) and DRC (Democratic Republic of Congo).

According to the 2012 Global Findex, less than 30% of formal account holders in African fragile states, report having borrowed from formal financial institutions. In all fragile states, adults rely more on loans from friends and family members, as these could be obtained without the collateral and paperwork required by formal financial institutions. In Zimbabwe, although account penetration is as high as 40%, only 4% of adults could access loans from formal financial institutions compared to a reported 57% of adults that borrow from friends or family members. This is significantly higher than the African average (40%). The lack of credit information systems is certainly one of the reasons why only a limited share of adults reports a loan from a formal financial institution. None of the fragile states in Africa has established a credit bureau or formal mechanism to obtain loan information on borrowers. Although a credit bureau would help in some countries at an advanced recovery stage, the general lack of skilled resources required to establish a credit bureau is potentially a major handicap. To increase their volume of loans, financial institutions should improve their loan granting mechanisms with proven tools to reach out low income clients in fragile states.

Given the instability in fragile states, emergency, health and funerals are the most common reason why people borrow money. In Guinea, 31% of adults report having an outstanding loan for health or emergencies, whereas the African average stands at 15%. Paying school fees is another major reason for borrowing in fragile states, with 10% of adults in Zimbabwe reporting having borrowed money to pay for school fees. Interestingly, Africans living in fragile states are more likely to have an outstanding loan to pay school fees than non-African fragile states for countries within the same income level group.