The Ladder

A Blog from New America's Asset Building Program

Savings and Asset Building at CGI Part II: Working Group Session II – Financial Services for the Poor

Published:  September 24, 2008

There is still much to learn about the financial tools needed to help the world's poor mitigate risks and build assets in order to build an economic base and contribute to long-term economic development. This session primarily focused on "building assets in the developing world."

Sylvia Matthews , director of Global Development at the Bill and Melinda Gates Foundation opened the second working group session stating that 2.3 billion with no access to financial services for the poor, even though evidence suggests they would make perfect customers. She asked her panelists: "What do people need, what works, what are some solutions and how do we reach scale?" Again, asset building and asset protection products reigned supreme:

Bob Rubin, the first Director of National Economic Council, then Secretary of the Treasury, and now a Director at Citigroup, Inc remarked on the health of the financial system and impact on financial services for the poor. "We need to stem the crisis of confidence in the US now, but we also need to put into place effective responses to longer-term problems the country faces, like healthcare, education and economic opportunities for the poor."

Fazle Abed, the Founder and Chairman of BRAC, spoke about BRAC's ability to reach the poor at scale. Abed described a simple model of success for BRAC, which now reaches millions of clients and has collected 200 million in savings deposits of the poor: "We started small, then tried to make it effective, then efficient, then expanded." Savings coupled with lending is a critical part of their model, which he says "happens like clock-work." It gives clients discipline and regularity, and loans repaid weekly in small sums. In his view, the biggest challenge faced to provide financial services in most countries, is that MFIs cannot mobilize savings -- a huge regulatory hurdle to reaching the poor with savings and other financial services. When financial institutions can't take savings, they lose out on that access to capital and have to borrow equity from capital markets, stifling the growth of some institutions. Abed called for a structure permits these organizations to take deposits so that they can expand programs in un-reached areas quickly.

James Mwangi, CEO of Equity Bank, Africa's largest microfinance institution and now large regulated bank, described the sweeping success of the bank's pro-poor model. Equity holds 52% of all bank accounts in Kenya. Equity's client base also doubled since their last CGI visit, from 1.4 million depositors to 2.8 million. Equity has been able to scale (7 of 10 accounts opened in Kenya today are opened at Equity) because they tried to remodel the bank to meet the needs of the poor. For instance, they structured a low-cost, simple savings product to be more competitive than otherwise available to population (typically under than mattress). Getting the product right, as well as the system to deliver it, has helped Equity become one of the most innovative, fastest growing, pro-poor financial institutions in the world, none of which would be possible, he says, if the bank were unable to collect savings in Kenya.

At the end of the panel, the Working Group was asked: Given the challenges and needs of the poor, what do you believe are two to three actions that different sectore should take in order to meet the financial needs of the poor?

To the global asset building community, I ask: What do you think?

 

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