Gates Foundation Grants Signal New Movement Toward Savings Accounts for the Poor
Seattle, United States, January, 13 2010 -
The Bill & Melinda Gates Foundation today announced $38 million in new grants designed to help some of the world's leading microfinance institutions (MFIs) provide the poor with safe, affordable places to save their money.
Six grants will help 18 MFIs, which currently focus on microcredit, expand their portfolios and make savings accounts available to an initial 11 million poor people across 12 countries in Africa, Asia, and Latin America over five years. The grants will create new ways for the poor to make deposits and withdrawals, expand the availability of existing savings products, and fund savings-focused marketing campaigns.
"This signature package of grants represents our first bold effort with the microfinance community to provide poor people safe places to save their money," said Bob Christen, director of Financial Services for the Poor at the Bill & Melinda Gates Foundation. "We see it as a major step to drive change and help broaden the microfinance business model to include savings."
Microfinance has improved the lives of millions of poor people by offering small loans. Few of these institutions have offered savings accounts, and more than 90 percent of the world's poor still lack access to financial services and resort to risky, expensive, and inefficient ways to save. A National Bureau of Economic Research report suggests that poor households with access to savings accounts are more likely to invest in education, increase productivity and income, and reduce vulnerability to illness and other unexpected events.
Providing access to safe, affordable savings accounts has been a challenge because of the high costs for both banks and customers. For banks, the costs of physical buildings, with dedicated bank tellers, are expensive, especially in remote areas or where there is a limited number of clients with small deposits. Poor clients often live far from banks so the cost to reach a branch may exceed the amount of their deposits.
"Despite conventional wisdom, poor people actually do save, even if it's just pennies each day, but there have been very few accessible and safe options available to them until recently, when breakthroughs pioneered by the Grameen Bank have shown what is possible," said Alex Counts, president of Grameen Foundation. "Microfinance institutions, because of their established relationships in these communities and ability to bring the transaction to the client, are well-placed to provide safe access to formal savings accounts."
The grants will use a variety of approaches to offer savings accounts to poor people. ShoreBank International, for example, will broaden its reach by sending staff on motorbikes with handheld devices to rural clients in India. Women's World Banking will revamp its savings products to make them better fit the needs of the poor and fund marketing campaigns in the Dominican Republic. The Grameen Foundation will work with its partner MFIs to ensure they have the business systems and staff to manage emerging client savings programs.
This announcement follows the foundation's one-year review of proposals from leading microfinance networks worldwide. Applicants were evaluated on a range of criteria, including institutional ability to work in multiple countries, previous success in providing microcredit, and willingness to make savings a priority. Lessons from each project will be documented and shared with grantees and the microfinance community.
"The poor have surprisingly sophisticated financial lives and present a rapidly emerging business opportunity for banking in the developing world," said Jonathan Morduch, professor at New York University and co-author of Portfolios of the Poor. "Savings initiatives like these help strengthen and expand financial institutions, enabling them to overcome significant barriers and provide affordable savings accounts to the poor in a sustainable manner."
To date, the foundation's Financial Services for the Poor initiative, which is part of the Global Development Program, has committed $470 million to make financial services widely accessible to the poor and help break the cycle of poverty. The initiative works with a wide range of public and private partners to harness technology and innovation to bring quality, affordable savings accounts and other financial services to the doorsteps of the poor in the developing world. The foundation believes that setting aside small sums in a safe place allows people to guard against risks, build assets, and provide opportunities for the next generation.