It’s nearly noon on a Friday, and Faith (not real name) sits in front of her open shop at the Article section of the Trade Fair Complex, a popular market in Lagos, patiently waiting for patronage.
Soon, a familiar face stops by to deliver goods he carries in bags the size of 50kg sack bags mostly used for holding rice and garri. But just as her transaction with this person ends, another one begins.
A young man stops by the narrow shop, holding a long, hard-cover notebook. He is wearing a green and white T-shirt, and black trousers—the ones they call joggers. Faith quickly notices his presence and immediately hands him a squeeze-free N500 note and a card.
He receives the cash and writes on the card and his notebook. This marks the end of their transaction as he moves to the next shops adjacent Faith’s. No words spoken.
What has just happened is an old savings system known as ‘Ajo’, and Faith, a 30-year-old seller of umbrellas, toys, and exercise books, has been saving through it since 2019, two years after she started her business in 2017.
“I’ve gained a lot from it,” she says to this journalist. “If I need money, I can call them and my money will be made available fast.”
Ajo is an old informal savings system common in Southwest Nigeria. Many women interviewed in this report loosely describe it as a daily contribution that helps them to save in small amounts instead of spending it.
Usually, the Ajo service provider (normally an individual known as Alajo) provides two cards: one for clients interested in saving with him and one for himself. This card has 31 columns and rows, which represent 31 days which the saver is expected to make deposits with the service provider, although the saver and service provider can agree upon the saving cycle.
The service provider goes around to collect the money from the clients and then ticks off a box in the client’s card and also in his own card to indicate payment for that day. This continues for a month after which the total amount saved is given back to the clients, while the service provider gets a commission of the amount saved.
For example, this reporter finds that Faith pays N500 daily to her service provider, Rex-Apex Multiventures that is also located in the market—few blocks away from hers. The organisation, known as ‘Apex’, gets a commission of N500 for helping her keep money. By month-end, she gets a total of N15,000.
A researcher, Sayedi Ndagi Shuaib of the Department of Business Administration, Ibrahim Badamasi Babangida University, examined the roles of Daily Contribution Collectors (DCCs) or Mobile Collectors (MC) as informal sources of financing on the growth of MSMEs in terms of the number of employees and annual sales turnover.
The study found that daily visits for savings collection is the main reason why MSMEs operators saved money with DCCs. More importantly, the correlation coefficient results show that DCCs contributed to the growth of MSMEs in terms of increase in the number of employees and annual sales turnover.
This system has been existing for a long time and has also faced threats of extinction by banks and technological innovations by FinTech companies now providing multiple internet-enabled savings options.
For instance, Access Bank tried to ‘eliminate’ the old Ajo system through its PayWithCapture app. Sterling Bank Plc added rotation savings and peer-to-peer lending feature to the available options on OneBank, its digital banking platform.
The new feature was called Ajo Scheme, a digital construct of Ajo. The bank said Ajo Scheme would allow members that are OneBank users to make an agreed monthly contribution with funds accessed on an agreed rotating basis. Other companies in the battle are Wema Bank’s Alat, Piggyvest, and many others.
But, Ajo is still thriving and growing more popular among low-income earners despite many tech-based options and financial innovations. In their research, Informal community-based savings scheme, Evans Osabuohien, and Oluyomi Ola-David, citing Oloyede 2008, note that many Nigerians are reluctant to subscribe to formal financial services.
According to the research, street traders resort to informal means of credit and savings mobilisation because they do not trust most formal microfinance institutions.
Uche, a 40-year-old business owner who started contributing a daily sum of N500 a year ago, says it helps her save conveniently and she gets her money at the end of the month.
“When I get the money, I use it to restock. It’s basically helping me to grow my business. I don’t bank [often] because of the convenience I get from saving with them (Alajo),” she says.
As the reporter observes, the system also serves as funding for their business. But Ajo is not as secure as formal financial platforms. A major risk is that the Alajo could elope with the contributions.
According to Uche, this happens when they do not know the Alajos well enough; where they live nor their family members. In such cases, it could be easy for them to “run away” with people’s monies.
A simple way to mitigate this risk, as the reporter learnt, is to check with other people into it and ask for reliable ones. According to the women, this gives confidence, because if anything happens to their money, they know where to go.
Even with the risks involved, the women still prefer it to banks. Many of them do not know about digital saving platforms like Piggyvest and hardly go to the banks, at least not frequently.
The women say they only go to the banks when they have huge sums of money to deposit. Moreover, Ajo takes away the stress of going to the banks, especially in terms of accessing funds.
“I don’t know about them,” one woman said, when asked if she uses online platforms. “I don’t like them and sometimes you could have network issues.”
Explaining her choice of Ajo over banks, a seasoning trader, Magdalene Anegbe, says that the old system allows her to save in smaller amounts.
Anegbe said she does not use the banks because of their numerous issues. She says sometimes you cannot get your money because of documents like national I.D or utility bills, and when you go to the ATM galleries, there could be long queues. But with the Ajo, Anegbe can get her money at any time.
“I can start with them today, the next day, I can tell them I need my money. Banks don’t do that,” she adds.
According to Akinloye Ayorinde, associate investment analyst, United Capital, trust is a strong term associated with Ajo schemes. He said there is an inherent lack of trust in banks particularly from the older age group.
In addition, the interest cost of loans as well as the documentation/logistic process by Fintechs and banks continue to deter their interest.
“Another case can be made for lack of knowledge on banking services. Clearly, this means banks and Fintech businesses are still lagging significantly in achieving the financial inclusion target. Also, it’s a potential huge revenue pool that the financial system may be missing,” said Ayorinde. He however, noted the continued use of the scheme presents opportunities for financial institutions and Fintech as it represents a huge revenue pool for financial institutions who can successfully create products attractive enough to this market segment.
In the view of Anino Akperi, CEO, Money Mall, the Ajo system will remain relevant because people who participate in it want convenience as the collectors go from shop to shop to collect from people.
“We may not be able to eliminate them,” he said, but they can be formalised by being encouraged to be part of the formal financial sector. In the end, there is someone at the centre of the scheme, who collects the monies every day. “When he collects all of that money, where does he take it to?” Akperi remarked.
To bridge this gap, financial institutions that are forward-looking need to begin to work with those in the Ajo scheme to make sure that all monies collected are brought into the formal financial services space.
“If you have a financial institution that is backing him, then it also builds confidence. So, we should be looking more at formalising that space instead of thinking of how to remove it,” Akperi insists.
Asked if banks and Fintechs are missing out on the opportunities, he said they may not have optimized the opportunities in the space because they may not have really looked at the totality of the available opportunities there.
The Fintechs can now begin to draw up products that can satisfy that market. While at the same time, the banks can liaise with those that are already practitioners there. Convenience is what they are looking for.
