Microfinanciers plan formal saving system for the poor

The Act now provides them with an opportunity to take deposits, to be regulated and to provide a wider range of financial products including savings and deposits, lending and money transfer.

With the latest grant, KWFT, which has 144 field offices countrywide, is likely to deepen its countryside presence with more branches.

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,” he added.

The grants 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.