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Thursday, July 31, 2008

Beyond Microcredit: Savings, Assets and Financial Inclusion

By Francisco Noguera

citi_fininclusonLast night I attended a reception to launch Global Savings, Assets and Financial Inclusion, a new report issued by Citi Foundation drawing on the conclusions of last year's Global Symposium on Savings, Assets and Financial Inclusion organized, among others, by New America Foundation.

CGAP's Kate McKee, who collaborated in the report, offered some very interesting insights on the symposium and the report based on her experience designing asset building strategies. Especially interesting were her remarks on the fact that the microfinance movement and the BoP community in general must go beyond credit and transaction mechanisms --i.e. mobile banking, which have predominated in the debate about financial services for the poor so far-- and offer the poor real and practical alternatives to walk the "financial ladder" towards greater economical security through asset building mechanisms like savings and insurance.I couldn't agree more. One of the things that used to impress me the most about my microfinance clients in Bogota was their creativity when it came to find ways to save, "stretch" their income and increase their liquidity. One of the mechanisms was what they called cadenas (Spanish for chains). Here's how a cadena works: A group of, say, five people comes together to save $20 each every month, which means that every month $100 are collected for the whole group. Each month, one of the members of the group is allowed to take the whole $100 pot on the condition of remaining part of the cadena and contributing the monthly $20. Being part of the cadena gave them access, not only to increased liquidity in the months they were allowed to take the whole pot, but also to a group that encouraged saving discipline and supported them in case help was needed. These groups are regulated by? informal agreements?among the members, who this way find a solidary way to build assets and protect them over time.

Citi's report offers several case studies of similar programs implemented financial institutions that?are providing affordable saving vehicles with the additional benefit of, for example, life insurance for the beneficiaries. One of the most interesting examples in this regard is Namibia's Bank Windhoek and their GoupSave product. Also noteworthy are the efforts aimed toward fostering a savings culture from an early age, like that of?Hatton National Bank in Sri Lanka and the Global Financial Education Program, all profiled in the report. ?

I encourage you to read the report and learn about innovative approaches that are allowing the BoP to use their income to build assets and more sustainable livelihoods.??????????????????

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