Africa holds abundant private savings, but much of it remains informal. As a result, its contribution to development financing is limited.
Researcher Florian Léon is one of the authors of a recent report on the potential of the “Caisse de dépôt” model – a financial management framework designed for long-term investment that bridges the gap between public funds and economic development. We asked him how this kind of public savings and investment fund could capture and channel these resources into productive investment, alongside development banks.
He outlines the institutional barriers, the reforms needed, and the paths forward for mobilising both local and diaspora savings.
What’s the main obstacle to mobilising private savings for development finance in Africa?
First, we need to separate two distinct issues: mobilising private savings; and directing those savings to development financing. African economies have untapped potential on both fronts.
Africa does not lack savings. World Bank data show that household saving rates in the continent are broadly similar to other regions. However, only a small share of these savings is formalised in Africa. Households often prefer informal saving methods, such as hoarding cash.
There are a variety of reasons for this. They range from the cost of using banking services (such as opening an account), to a lack of trust in banks. As a result, much of these savings remains outside the financial system and can’t be put to work for African economies.
That said, even private savings that flow through the banking system rarely fund development in Africa. African commercial banks are often reluctant to grant loans to new clients. Among many factors, financial intermediaries see lending as unprofitable or too risky.
Africa therefore faces a twofold challenge. The continent needs to mobilise more savings and also make better use of the resources already in the financial system.
Our report highlights that if Africa as a region were to catch up with the average developing country in these two areas, it could unlock an additional 10% of the continent’s gross domestic product (GDP) per year.
How do funds like this differ from development banks when it comes to long-term investment?
National development banks and Caisses de dépôt share a common mission. Both aim to finance development and support long-term strategic projects.
The differences between them lie in how they operate. Development banks borrow at low rates. They borrow either on the markets or through loans from other development banks (World Bank, African Development Bank). They then lend at better terms than those available on the market (in terms of rate, duration, or amount).
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Caisses de dépôt collect private third party funds. These include consignments (funds deposited for temporary safekeeping before restitution, such as prisoners’ savings or unclaimed funds), mandatory deposits, or a portion of regulated savings. They use part of these resources to invest in domestic companies through equity investments. Some of the largest institutions also provide loans.
In short, a fund like this channels domestic private savings into development projects. As for development banks, they rely mainly on borrowed funds – often from external sources.
These two institutions complement each other, as they mobilise different resources and financing tools.
It should be noted that in some countries, including France, Italy and Mauritania, public savings and investment institutions also act as national development banks.
What reforms could make them more effective?
Caisses de dépôt in Africa face a basic problem. They struggle to access the funds they are supposed to manage, such as legal professional deposits or pension reserves. Without them, these can’t play a meaningful role in financing the economy. This situation reflects a lack of political support, depositor mistrust and the reluctance of financial intermediaries (banks) to transfer their resources. Our report identifies three priorities to fix this.
- First, these institutions must build trust with stakeholders, including governments, depositors and financial institutions. This requires strong legal frameworks, sound governance and transparency. They must demonstrate that funds are secure and properly managed.
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Second, they must broaden their funding base. This involves having a frank discussion with the depositors and custodians of these resources and with the state, which must provide backing. They can then diversify their resources, for instance by developing regulated savings tools.
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Finally, when they have sufficient resources, they can step up as development finance actors. However, they should focus on filling market gaps rather than competing with existing financial intermediaries.
In addition, they can support the development of local financial systems by helping grow segments such as private equity.
How can informal savings and diaspora savings be better harnessed to finance development?
There is no silver bullet, but some lessons can be learned from past experiences. As early as the 1800s, European countries created innovative solutions to offer savings products to the “working population”. By offering liquid, safe savings options backed by the state and providing returns, financial inclusion expanded significantly.
That same formula explains the success of products such as livrets A in France or postal bonds in Italy.
African countries can draw on these models. The practical details must be adapted to the local context, especially to target people living far from urban centres. Digital solutions and mobile money networks could help. If such products existed and were accessible, they could increase the formalisation of public savings.
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Mobilising funds from the diaspora raises different challenges. The amounts involved are significant (African diaspora savings are estimated at nearly US$35 billion) and some of these Africans living elsewhere in the world are willing to invest back home. However, mobilising these savings is more complex for various reasons. The diaspora may be spread across many countries. Each group may require tailored solutions that comply with regulations and offerings in host countries.
Currency risk adds another layer of complexity. Diaspora members earn and save in foreign currencies (dollars, euros), but their savings end up in their home country’s currency, which can be weaker and lose value over time. On top of that, diaspora members have different expectations. The offer must be carefully designed to match their preferences.
Efforts are already underway. DiasDev by Expertise France, for example, is working with several African Caisses de dépôt to overcome these challenges. But turning diaspora savings into a real engine for development finance will take time.
