The Gates Foundation has made some major investments in the area of finance over the past few years. Now, based on their findings and experiments, they are making a big push into the area of micro-savings. Traditionally rural finance has focused on providing micro-credit services to the poor. Only recently have some of the micro-finance organizations started extending their services to include savings and insurance. In most cases the issue has been local regulations and banking controls.
In a recent article in the Wall Street Journal – Giving a Lot for Saving a Little – the author points out several issues why savings schemes for the rural poor have not taken off. Among the issues identified:
- Strict regulations on entities that hold deposits
- Lack of remote branches that allow easy access to money
- Too costly for traditional banks to provide services for the size of accounts
The article states that the funding from The Gates Foundation, formally known as its “Financial Services for the Poor” program, will be used to support programs that set up rural savings programs, for research, training and new technologies. They are also trying to influence policy with programs to educate central bankers on the need to change regulations to make savings accessible to a wider group of people.
The article then goes on to cite the examples of M-Pesa in Kenya, run by Vodafone, and Opportunity International’s mobile banks run out of armored vans costing $250,000 a piece. In trying to replicate the experience of a bank branch in rural areas, I am concerned it pushes a technology focused approach instead of looking at the real needs of the customer.
I think the issues that are stated to be holding back microsavings have already been addressed by the infrastructure that MFIs have put in place. Other than the regulatory framework around deposit institutions, what is preventing using the established MFI networks from offering savings?
On the surface microcredit and microsavings seem like two sides of the same coin. MFIs have an established channel, a formalized relationship between the credit borrower and the MFI field agent and a regular contact with the customer. I feel the assumption on Gates’ part that rural people, like urban folks, want instant access to credit and savings is incorrect and will result in over-engineering a technical solution.
Several examples support the contention that for rural folk safety and regular access to their savings is more important than immediacy of access. Market research conducted in Ethiopia has shown that clients were less interested in the interest rate earned. They were more concerned about having affordable low minimum balances and how far the bank was from their home. For a farmer, having to travel to a distant location often means giving up half a day’s potential income or productive work on their farm. The convenience of having an agent to come to you even if it means giving up easy, immediate access is more important when you are making less than $4 a day. In the words of a Kenyan customer in an article on M-Pesa “It is cheaper to wait”.
With the enormous financial resources and the global impact of its actions, one hopes the Gates Foundation will do the right thing and not try to invent a solution that is technology for technology’s sake.