Econet Life’s Dura/Isiphala to stimulate informal sector savings
ECOCASH Life’s recently launched Dura/Isiphala Pension Fund, mainly targeting employees in the informal sector, such as carpenters, taxi drivers, house maids, gardeners, welders, cobblers and traders among others, has all the ingredients necessary to encourage a savings culture and provide a social safety net for the elderly.
Zimbabwe, according to the international Monetary Fund, has the second highest informal sector in the world, after Bolivia.
However, this important sector, which houses more than 60 percent of the country’s workforce, has no savings or retirement funds to back them up.
The introduction of Dura/Isiphala Pension Fund is changing all that. This innovative programme from EcoCash Holdings life assurance business, provides workers in the informal sector with a voluntary mechanism for pooling and investing their savings.
Signing up for Dura/Isiphala is quite easy for any Zimbabwean aged between 18 and 55 years. Registration and contributions towards retirement start from as little as US$10, and this can all done at Econet Shops, Steward Bank, AFC Bank and EcoSure bases across the country.
Soon after registration, beneficiaries will be in a position to use the investment as collateral to access short term loans, earn interest and access a portion of their investment after 12 months.
The key to the success of this innovation is the realisation that low-income earners can easily make small contributions towards retirement savings at a relatively low cost, with flexible withdrawal conditions and ease of participation.
Dura/Isiphala has struck a delicate balance between the need for long-term savings and imminent demands of life that necessitate early withdrawal in certain circumstances.
Econet Life said it came up with the idea of Dura/Isiphala because it understands that addressing the concerns of old-age financial security among workers in the informal sector is important due to its large size.
“Old-age financial security is of particular concern for women as they generally outlive their male counterparts. This concern is heightened by the fact that women tend to have lower labour force participation rates than men, have less access to property, and have weaker ownership rights than their male counterparts,” the company said.
“Women also tend to rely more on informal employment. Even when employed in or retired from the formal sector, women face disadvantages relative to men in ensuring old-age income security. They tend to have lower earning capacity than men and often exit the labour force to bring up children.”
Benefits of Dura/Isiphala
The fact that members can make such small contributions towards pension saving without the risk of penalties is helping to demystify the notion that saving for later in life is only for people with disposable income.
Moreover, the fact that there is no need to engage directly with formal financial institutions removes a common barrier to participation for informal-sector workers.
The scheme’s design has a number of attributes that contribute to its effectiveness. A key advantage is that all contributions from informal-sector workers are pooled together.
This creates economies of scale in the investment of funds and there is one reference point for the worker’s retirement planning needs.
A second benefit is that members are allowed the flexibility to contribute what they want every month and from anywhere in the country.
The fund is also helping to increase financial literacy by raising awareness of the importance of saving for the future to ensure income smoothing across the lifecycle. This includes education regarding the importance of insuring against longevity risks and emphasising that there is a possibility that people will live longer than expected, which could become costly.