Microfinance Unlocks Potential of the Poor
Monday, June 9, 2008
Drawn by their corporate responsibility agendas and the promise of profitability, commercial banks have been entering the microfinance market, with Credit Agricole and JPMorgan among recent entrants. But when it comes to serving the 4bn people living on less than $2 a day, traditional microfinance models are not the only means of expanding access to financial services.
In Ghana, for example, Barclaysoffers deposit accounts to traditional “Susu” collectors, who form part of an ancient system of saving. Some institutions are starting to expand into insurance and savings, while some banks are delivering services through mobile phones.
The microfinance industry has been prominent in offering banking services to the poor. Microfinance hit the headlines in 2006, when the Nobel peace prize was awarded to Muhammad Yunus, a Bangladeshi banker who pioneered the idea of providing small loans to villagers.
Meanwhile, microfinance has become one of the main instruments through which the poor access financial services. In Bangladesh, ASA, the microfinance group, operates a decentralised model in which simplified accounting and record keeping removes the need to have separate accountants and cashiers in branches.
In India, ICICI Bank offers a range of products to rural and low-income customers, including savings and life insurance services. Its micro-savings product allows clients to maintain a zero opening balance, while other products include insurance to help protect clients from illness and crop failure.
Increasingly, organisations are recognising that these savings and insurance options are as important for poor customers as micro-loans.
Opportunity International Bank of Malawi (OIBM), for example, has moved away from traditional microfinance to focus on savings accounts. “The poorest people are not often able to run a small business, which is what micro-credit organisations focus on,” says Deborah Foy, international programmes director at Opportunity International UK. “Usually poor people do save, but they tend to save in a tin pot.”
OIBM, which has also developed a weather-indexed insurance product, based its model on biometric technology. No formal identification documents are needed to open a savings account and, for those who are illiterate, no forms need to be filled out.
Moreover, the system helps women in Malawi, where a wife whose husband dies has to surrender her possessions to his family. “Because these savings accounts are biometric, only the widow can access the assets,” says Ms Foy. “That’s really empowering for these women.”
Some institutions are serving poor markets through banking models. In Brazil, Banco Bradesco’s Banco Postal service operates in post office branches and now has more than 6m clients. “The numbers demonstrate the success of the initiative,” says Lincoln Cesario Fernandes, social-environmental responsibility manager at Banco Bradesco. “Five thousand new current accounts in the Banco Postal are opened daily.”
Technology plays a role in broadening access to banking. Mobile networks are accelerating the uptake of financial services throughout the developing world. The concept of mobile banking has taken root in the Philippines, South Korea and Africa.
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