Microfinanciers plan formal saving system for the poor

The Bill and Melinda Gates Foundation has announced $38 million (Sh2.8 billion) in new grants designed to help some of the world’s leading microfinance institutions provide the poor with secure, affordable places to save their money.

One of the beneficiaries, the Kenya Women Finance Trust, is a microfinance institution specifically focusing on women’s access to capital for business.

The KWFT, together with two other institutions, will share Sh637 million ($8.5 million) that is part of the grant channelled through the Women’s World Banking.

The grants announced at the weekend  in Seattle, Washington, will help 18 microfinance institutions, which currently focus on micro-credit, 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.

The financial package will help KWFT, which until last year was a credit-only institution, conduct market research and product development to create services and products tailored to the poor.

“This signature package of grants represents our first bold effort with the micro-finance 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 per cent the world’s poor still lack access to financial services and resort to risky, expensive, and inefficient ways to save.

In Kenya only 22 per cent of those eligible have access to banking services. Rural folks lack access to financial services, save for the mobile phone money transfer services that has lately connected the areas to money transfer firms.

Finance minister Uhuru Kenyatta, in an effort to deepen the penetration of financial services, said the Banking Act would be amended to allow commercial banks to give financial services through agents.
That arrangement would allow non-banking institutions to offer financial services to the unbanked — especially in rural areas where it remains commercially unviable for banks to run branches.

It would also allow banks to tap into the large networks of Saccos and micro-finance institutions to reach the millions of Kenyans without a bank account.

Early last year, KWFT became the first microfinance institution to be allowed by Central Bank to start accepting customer deposits under the Microfinance Act 2006.

Before the Act came into force in May, 2008, microfinance institutions operating in Kenya other than commercial banks had been prohibited by law from taking deposits from the general public.

These institutions have been funding their loan books largely from donor funds and loans from commercial institutions.