access to finance

For Africa and Asia, Headway in Branchless Banking

Leila Seradj — Fri, 13 Feb 2009 21:29:00 -0500

They may take their tea with milk and pronounce "tomato" wrong, but here's something on which we can agree with our friends across the pond.

Yesterday, the UK's International Development Secretary Douglas Alexander an no unced DFI D's ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST). Working with CGAP and GTZ, FAST's aim is to "lay the foundations for financial services to be ma de available through new and emerging technology across Africa and Asia."

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints. With that in mind, FAST aims to explore the possibilities and extend the reach of "branchless banking" using new technologies and innovative methods.

Its three-pronged strategy is to:

1) Test pilot projects to extend the reach of technology-based branchless banking in mass markets in countries in Asia and Africa, including government-to-people (G2P) payment services;
2) Carry out research on the use of new technologies (mobile banking, smart cards, biometric banking) in increasing access to financial services, and extending their reach;
3) Work with governments to develop a policy and regulatory framework that embraces the use of new technologies to increase access to financial services in a secure and low-cost manner.

In countries where FAST will be working, like Pakistan-- where only 25 million people have a bank account, but 75 million individuals own a mobile phone-- the potential for increasing access to remittances (fewer than 10% of remittance recipients have bank accounts), wage payments, and government social benefits is enormous. And it's cheap: there's no need to set up costly infrastructure (it uses the existing mobile phone network), and transaction costs are much lower than through traditional banking channels, which could mean over 1 billion extra dollars reaching the poor each year, according to some estimates.

DFID predicts that mobile banking could add a billion banking customers to the system in five years. If this is the case, the ramifications for poverty alleviation are significant, and FAST's work over the next three years should be interesting to follow.

Savings and Asset Building at CGI Part II: Working Group Session II – Financial Services for the Poor

Jamie Zimmerman — Wed, 24 Sep 2008 20:09:00 -0400

There is still much to learn about the financial tools needed to help the world's poor mitigate risks and build assets in order to build an economic base and contribute to long-term economic development. This session primarily focused on "building assets in the developing world."

Sylvia Matthews , director of Global Development at the Bill and Melinda Gates Foundation opened the second working group session stating that 2.3 billion with no access to financial services for the poor, even though evidence suggests they would make perfect customers. She asked her panelists: "What do people need, what works, what are some solutions and how do we reach scale?" Again, asset building and asset protection products reigned supreme:

Bob Rubin, the first Director of National Economic Council, then Secretary of the Treasury, and now a Director at Citigroup, Inc remarked on the health of the financial system and impact on financial services for the poor. "We need to stem the crisis of confidence in the US now, but we also need to put into place effective responses to longer-term problems the country faces, like healthcare, education and economic opportunities for the poor."

Fazle Abed, the Founder and Chairman of BRAC, spoke about BRAC's ability to reach the poor at scale. Abed described a simple model of success for BRAC, which now reaches millions of clients and has collected 200 million in savings deposits of the poor: "We started small, then tried to make it effective, then efficient, then expanded." Savings coupled with lending is a critical part of their model, which he says "happens like clock-work." It gives clients discipline and regularity, and loans repaid weekly in small sums. In his view, the biggest challenge faced to provide financial services in most countries, is that MFIs cannot mobilize savings -- a huge regulatory hurdle to reaching the poor with savings and other financial services. When financial institutions can't take savings, they lose out on that access to capital and have to borrow equity from capital markets, stifling the growth of some institutions. Abed called for a structure permits these organizations to take deposits so that they can expand programs in un-reached areas quickly.

James Mwangi, CEO of Equity Bank, Africa's largest microfinance institution and now large regulated bank, described the sweeping success of the bank's pro-poor model. Equity holds 52% of all bank accounts in Kenya. Equity's client base also doubled since their last CGI visit, from 1.4 million depositors to 2.8 million. Equity has been able to scale (7 of 10 accounts opened in Kenya today are opened at Equity) because they tried to remodel the bank to meet the needs of the poor. For instance, they structured a low-cost, simple savings product to be more competitive than otherwise available to population (typically under than mattress). Getting the product right, as well as the system to deliver it, has helped Equity become one of the most innovative, fastest growing, pro-poor financial institutions in the world, none of which would be possible, he says, if the bank were unable to collect savings in Kenya.

At the end of the panel, the Working Group was asked: Given the challenges and needs of the poor, what do you believe are two to three actions that different sectore should take in order to meet the financial needs of the poor?

To the global asset building community, I ask: What do you think?

The Next Big Thing in Microfinance: Savings

Jamie Zimmerman — Wed, 06 Aug 2008 16:18:00 -0400

Last month, I argued that USAID inaptly named a three-day virtual conference on savings as "The Forgotten Half of Microfinance." Instead, I posited:

"As someone working on asset building and financial inclusion for the poor (and/or their cross-fertilization in the development field), I would contend that the hosts got it wrong when chose the title for this event. Indeed, "savings" is not "forgotten" at all. Though perhaps traditionally underemphasized, I would argue that, on the contrary, savings is the in fact the "next big thing" in financial interventions."

Looks like I got this one right.

Probably to the surprise of the organizers, the USAID/Microlinks Speaker's Corner on savings was overwhelmingly active, with 324 participants from 53 countries. For those who didn't attend this virtual, email-based conversation, you missed out on the experience of 72 full hours of non-stop emails (we're talking hundreds) from both the novice and the seasoned, from non-profit, public and private sectors, all eager share their many ideas and experiences and learn from others how to expand opportunities for savings for the poor, marginalized and excluded around the globe. It was an inspiring and educational experience. You can access the entire forum at www.microlinks.org/sc/savings. Or you can download the compilation document, which contains all postings from the forum. Its 200 pages long.

Not only is savings indeed not forgotten, but a recent article in the Wall Street Journal confirms my contention this is in fact "the next big thing." On July 31, the WSJ published Robert A Guth's piece, "Giving a lot for savings a little," which announced the Bill and Melinda Gates Foundation intention to "donate hundreds of millions over the next few years to programs to spur savings in poor countries." In the article, Bob Christen, Director of the Financial Services for the Poor division of the Foundation, says the foundation intends to invest heavily to get savings back on the world agenda. So, if it's not already there (as I claimed it to be), then it will be soon-and in a big way.

The Global Assets Project is working inform this new movement towards savings and financial inclusion by promoting savings products, policies and programs that facilitate asset building and wealth creation for these populations. Indeed, the WSJ article was printed one day after the Global Asset Project's launch of its newest report: Global Savings, Assets and Financial Inclusion: Lessons, Challenges and Directions. The report addresses emerging global trends, opportunities and collaborations across the fields of asset building, microfinance, policy and financial education. It describes lessons, challenges and opportunities for thinking about how the poor, in developed and developing countries, can build their assets and wealth. Finally, it includes possible next steps that the diverse range of actors working within these fields should take to move this emerging body of work forward.

As this next big thing grows ever bigger, my hope is that the insights, challenges and recommendations in this report can help inform those policymakers, funders and practitioners in the drivers seat.