Expanding Financial Inclusion: Microfinance

By Fermin Vivanco, Maria Luisa Hayem and Andrea Reyes, Access to Finance Unit, Multilateral Investment Fund, Inter-American Development Bank April 29, 2013 01:30 AM

Access to reliable and affordable financial products is critical when it comes to saving money for education, protecting against setbacks, or borrowing to start a business. Globally, more than 2.5 billion people are unbanked or underbanked, lacking access to the financial services necessary to engage in the local economy and safely conduct basic transactions. Solutions to many of these challenges come in the form of microfinance institutions (MFIs) that help provide access to specialized financial products.

A common dilemma faced in the sector is how to offer savings products that are both attractive to and appropriate for the most vulnerable populations, but that financial institutions can also support from a business perspective.

The ProSavings Program, created in 2011 by the Multilateral Investment Fund (MIF) at the Inter-American Development Bank (IADB) with support from the Citi Foundation, checks both boxes. The innovative program works with financial institutions to create tailored savings products for recipients of government payments, upon which many low-income families rely, in Latin America and the Caribbean.

One of the challenges that financial institutions face is the operational costs associated with offering liquid and planned savings products for small deposits. ProSavings' participating financial entities are developing different business strategies that include an important technology component to address this challenge, making it easier to connect the unbanked with the financial mainstream.

How ProSavings is making a difference:

• In El Salvador, a network of small business owners is serving as banking agents by installing bank terminals in their businesses, making it easy for government payment recipients to conduct withdrawals, deposits, payments, and other transactions using mobile banking services.
• In the Dominican Republic, recent regulation on banking agents will allow the ProSavings projects to expand their reach and lower the cost of offering savings products. Additionally, establishments that currently process payments through the Progresando con Solidaridad Program's subsidy cards will receive an upgrade to banking agent status, allowing rural women who receive government payments to conduct other financial transactions without having to travel to a bank branch.
• Cooperatives participating in a ProSavings project in Colombia will develop "mini-branch" service points through which they will offer customized assistance to clients and provide all the services that are normally offered at a bank branch.

In each of these examples, government payment recipients will be able to seamlessly dedicate part of those payments or other cash flows that they have to their savings, helping them build their financial resiliency while creating a financial profile that is critical to accessing additional resources to improve their lives. The Citi Foundation's work with IADB in creating the ProSavings Program is opening up opportunities in areas such as business, housing, and education for people who were previously excluded from the formal financial system.