Savings 4 Transformation Cost-Benefit Analysis

S4T has two main components or steps:

1. Community mobilization that prepares the community to implement the savings groups through community assessments and workshops.
2. S4T group implementation, which involves creating, training and monitoring the savings groups.

S4T groups are community-based and member-owned groups of 15-25 people who meet regularly (typically weekly) and communally contribute to a savings fund for a mutually determined period called a “cycle.” S4T members can take out a loan from the fund during their assigned turn. At the end of the cycle, each group member receives their share plus a portion of service fees charged to those who take loans. Share sizes and loan balances are tracked using member passbooks that are only available to be updated by S4T members during meetings. A secondary fund, known as the social fund, is also created within each S4T group. The social fund provides small grants for members experiencing emergencies and, in some cases, can support vulnerable children within the community.

S4T groups aim to build resilient and sustainable livelihoods through three main channels:

1. Developing the financial skills of their members through experiential education during participation in savings and borrowing transactions within S4T groups.
2. Providing members access to funds to cope with household emergencies and effectively meet their own or their children’s educational, health/nutrition and child protection needs.
3. Empowering communities by generating a social safety net for members as well as connecting individuals from traditionally vulnerable groups who are often financially excluded.

This economic analysis models two benefits channels: consumption smoothing and increased income and economic growth. The consumption smoothing benefit captures the welfare gains associated with savings, which allow greater flexibility in the timing of expenditures by, shifting spending to when it is needed most. For example, having the funds to purchase a meal is much more valuable during times of scarcity, like a natural disaster or personal financial shock, than during times of abundance. The model estimates the value of the consumption smoothing benefit by calculating the equivalent cash transfer that increases well-being by as much as savings group participation. The increased income and economic growth benefit captures the additional income that participants earn from increased capital accumulation.

The model considers only a single cost stream attributable to World Vision Canada’s (WVC) costs of implementation. Due to concerns about the accuracy which with available cost data can be attributed to the S4T CPM, this analysis draws on alternative, external estimates of the cost to implement a VSLA program.

Overall, the WVC-funded S4T portfolio reached an estimated 171,348 participants, creating $48,013,771 USD in benefits at an estimated cost of $8,545,144 USD using an external estimate of the cost-per-participant. Using World Vision’s data, we estimate the cost to be slightly lower at $8,310,787 USD. The benefit-cost ratios (BCR) using the external cost estimate and WVC’s cost data are 5.62 and 5.78, respectively - meaning that every dollar spent on S4T programs generates $5.62 or $5.78 in benefits.

Table ES1: Aggregate Results of S4T Model (2023 USD)

Figure 1 breaks down the net present value (NPV) of the portfolio’s cost and benefit streams. Consumption smoothing accounts for 94.6% of the program’s benefits, while increased income and economic growth accounts for 5.4%.

Figure 2 presents the estimated benefits-per-participant for each country included in the analysis. The benefits-per-participant can be interpreted as the maximum level of per-participant costs above which the program is no longer economically feasible. Of the 21 countries in the analysis, nine countries have benefits-per-participant greater than the externally reported cost-per-participant (upper bound), suggesting an effective use of WVC funds. However, when the lower bound of the externally reported cost-per-participant is used, 20 of 21 countries have benefits-per-participant greater than the cost-per-participant.

Table ES2 contains the median and average project-level results for the portfolio of WVC-funded investments in the S4T CPM. Ranked by NPV, the median project generates an estimated $66,536 USD in benefits, at a cost of $84,871 or $45,800 using WVC’s cost estimate and the external cost estimate, respectively. Using WVC’s cost estimate, the median project is not cost-effective, with a BCR of 0.74. The median project using the external cost estimate is cost-effective, with a BCR of 1.97. The unweighted average results are significantly higher, with $615,561 USD in benefits for $106,549 or $109,553 in costs, using each cost estimate.

Note: The median and average aim to display the same information, the results of a representative individual implementation of S4T. The median is our preferred representation as it removes the effect of potential outliers. The average, while much simpler to explain, can be skewed by very large or small results thus reducing its meaning when values are not normally distributed.

Table ES2: Median and Average Project Results

Some of the differences in BCR across projects can be attributed to variation in the cost data. Figure ES4 shows the number of participants and the cost-per-participant using  WVC’s reported cost data, compared to the external cost estimate (upper bound). This figure reveals two main findings: first, cost-per-participant has an inverse relationship with the number of participants; as programs reach more participants, the cost-per-participant gets lower, suggesting economies of scale in project implementation. Second, for most implementations, the estimate of cost-per-participant from WVC data is significantly higher than the external per-participant cost estimate, which is assumed constant across projects. The red bar represents the median project, where the cost-per-participant is approximately $84 compared to the upper bound of the cost-per-participant estimate of approximately $52 based on WVC data.

Overall, the analysis finds that at the portfolio level and for the average project, S4T has created significant economic benefits for its participants. This analysis suggests that S4T projects have generally, though not universally, generated social benefits that exceed their total costs, suggesting that S4T is a cost-effective use of WVC funds across many countries. Sensitivity analysis reveals these results are robust to different assumptions and parameters. We found no evidence that our assumptions have significantly changed the major conclusions of the model. However, our analysis finds that the program’s cost-effectiveness rises significantly when the financial exclusion rate of participants is assumed to be 100%. We note that the logical conclusion of this result is that targeting and only serving the financially excluded would raise the cost-effectiveness of the program. However, we caution against this interpretation as this analysis holds the costs constant and may not reflect the true cost of reaching the financially excluded.

This analysis further identifies areas to improve current and future estimates of the impact of S4T. Collecting more detailed data on costs and S4T activities would enable more granular and accurate project analysis. Data collection might target the following:

• Disaggregated Cost Data: Future iterations of any WVC programming should disaggregate cost data to at least the CPM to allow for a more in-depth analysis of the cost-effectiveness within different contexts. This would increase the precision of project cost and impact estimates. Implementations of S4T should aim to report the fixed and overhead costs associated with the implementation of the program as well as the variable cost per creation and operation of a savings group.
• Savings Group-Specific Data: Future iterations of S4T should collect data on the characteristics of the savings group to allow for more precise calibrations of the model from Tremblay (2021), which we use to estimate consumption smoothing benefits from the groups. Helpful data would include the number of participants per savings group, the average wage of participants, the price of the savings group’s shares, the interest rate on borrowing, the average time of each meeting, and the baseline financial inclusion amongst participants.
• Collect Women’s Empowerment Data: While we could not include the benefit of increased women’s empowerment due to a lack of monetization strategies around women's empowerment, it is possible to conduct a cost-effectiveness analysis (CEA) on this measure. Future programs should collect data on measures of women's empowerment to allow for CEAs on S4T’s ability to impact this measure.