Savings Groups and the MDGs

> Posted by Alice Allan, Head of Advocacy, CARE International UK

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Today marks the start of an important meeting in Monrovia, Liberia, where the UN High Level Panel will look at what might replace the current Millennium Development Goals (MDGs) when they expire in 2015. With a focus on economic transformation, the panel hopes that any future framework to reduce poverty includes increasing “jobs and growth,” and “tackling inequality.”

Those of us focused on financial inclusion believe increased access to finance can help achieve these admirable aims. But would the UN High Level Panel agree?

Last week the Banking on Change partnership between Barclays, CARE International, and Plan UK produced Banking on Change: Breaking the Barriers to Financial Inclusion, a report which, amongst other things, makes the case compellingly enough that we believe the UN High Level Panel should take note.

The Banking on Change partnership is committed to achieving financial inclusion by helping poor people access tailored services and products that match their level of economic development. Banking on Change is the world’s first savings-led program that combines the deep understanding of poor communities among two leading NGOs with the financial expertise of a global bank in order to encourage extremely poor people to begin their path to financial inclusion through savings-led microfinance.

Banking on Change has reached 513,000 people in 11 countries* in just three years. On average, each member has saved $58 per year through savings groups. Multiplying this figure by 2.7 billion unbanked people worldwide would represent $157 billion in potential savings annually. Where savings groups are then linked to the formal financial system, people are increasing their regular savings as they have the guarantee of its security. The expectation is that this will provide an influx in banking deposits, which could in turn be used to finance businesses and households.

After establishing a savings culture, the most entrepreneurial and active of savings group members go on to receive business skills and financial training and establish micro-enterprises before additional access to credit or more formal banking is considered. The partnership is paving the way for future NGO/private sector partnerships that can improve the lives of poor people, and also have a business benefit by opening up a new customer base at the bottom of the pyramid. The program has also had impressive social impacts. In Uganda for example, women increased their ability to influence their husband’s decisionmaking by 33 percent. And in Ghana savings groups, people regularly put money aside each month into a “social fund” which enabled them to buy National Health Insurance cover, even when they did not have access to a regular income throughout the year.

The report sets out the immense potential that this pool of savers represents, both economically and socially.

It therefore seemed obvious to us to question why financial inclusion had not and is not being talked about as part of the discussions surrounding the MDGs. We felt that the MDG process offers an opportunity to call for a new global partnership that commits governments, donors, and the private sector to take financial inclusion to scale. The MDGs would also provide a focus on including the very poorest, thereby complementing other emerging international efforts including the Maya Declaration on financial inclusion.

The report doesn’t argue that a new goal be created, but suggests that perhaps financial inclusion be used as a potential indicator of inclusive economic growth, with equity tracker measures that capture how far women and young people are financially included.

At the launch of the report, the Department for International Development’s (DFID) Chief Economist Stefan Dercon questioned the need for another MDG goal on this issue and felt that by putting too much emphasis on reaching targets, poor people might end up being forced to accept inappropriate products and services.

What is clear is that it is a missed opportunity that 2.7 billion people globally do not have access to formal financial services. This is a development challenge and an opportunity that the High Level Panel could embrace as they strive to achieve more inclusive economic growth. As the Governor of the Central Bank of Kenya has said, “Financial inclusion is no longer something that is ‘nice to do’ but is an essential part of the global economic development agenda.”

We welcome your views as to whether the MDGs should consider financial inclusion. You can also add your voice to the debate here.

For more information on Financial Inclusion 2020, sign up for campaign updates.

*Egypt, Ghana, Kenya, Mozambique, Tanzania, Uganda, Zambia, India, Indonesia, Vietnam, and Peru

Image credit: Banking on Change

Have you read?

Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor

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“Can we make savings a little more interesting for people, please?”

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