A couple of weeks ago the Bill & Melinda Gates Foundation announced they would give some $38 million funding in grants to encourage microfinance institutions (MFIs) to establish an array of savings products presenting clients with safe and affordable places to save money.
“We see it as a major step to drive change and help broaden the microfinance business model to include savings,” said Bob Christen, the Foundation’s Director of the Financial Services for the Poor unit.
The support for microsavings is a relatively new activity for the Gates Foundation, which has mostly been working in global health, agricultural development and US education.
While microcredit has been progressively gaining attention and funding, specialists are now encouraging efforts to experiment ways for poorer people to save small sums that are less hazardous, costly and inefficient.
Research has shown that promoting savings induces people to invest in education, increases productivity and income, and reduces vulnerability to illness and other unanticipated events.
Joyce Lehman, a Program Officer at the Financial Services for the Poor unit, considers that “savings is the most neglected financial service available to the poor. Because the poor save in small amounts, transact frequently and maintain low balances, commercial banks cannot cover the cost of serving the poor through their traditional bank branches, which are expensive to build and maintain”.
The Gates Foundation’s grants will enable 18 institutions to create savings accounts for up to 11 million people in Africa, Asia, and Latin America over the next five years. The challenge will be met with the help of motorcycles, mobile phones and even soap operas.
The largest grant, $9.8 million, will go to the Grameen Foundation in order to start the Microsavings Initiative with partners in Ethiopia, India and the Philippines, which will implements savings models adapted to people living in extreme poverty – with little more than $1 a day. Even at that level, people try to save small amounts but the informal savings methods often lead to financial losses.
An $8.5 million grant will go to Women’s World Banking (WWB), a network of MFIs and banks dedicated to the economic empowerment of women.
The grant will help WWB to create new savings products and services for nearly seven million people in Latin America, Africa and Asia.
WWB’s network members will invest in market research, product design and service delivery methods. WWB will even be launching a soap opera in the Dominican Republic as part of a financial literacy campaign. WWB President and CEO Mary Ellen Iskenderian claimed: “Loans or credit were the model for the first 30 years of microfinance, savings is the future.”
RESULTS UK welcomes this major step forward in addressing the specific financial needs of developing countries’ populations and looks forward to the Gates Foundation continuing its support of microinsurance as well as microsavings.