Financial Services for the Poor

Everyone needs safe ways to manage their money—especially people with little to spare.

Poor people in developing countries engage in financial transactions on a daily basis. They need to pay for food and medical care, invest in schooling and small businesses, and protect themselves against risks such as illness and drought. Just like people in the developed world, they need a range of financial services, from savings accounts and loans to insurance and remittances.

Billions of poor people lack safe, affordable ways to save, borrow, and send money.

High transaction costs make it expensive for banks to accommodate frequent, small financial transactions by the poor and to provide financial services in accessible locations. Without these services, the poor resort to informal methods of managing their money—such as hiding cash at home, converting savings into livestock and jewelry, and borrowing from money lenders. These methods are risky, expensive, and inefficient.

Safe places to save are highly demanded by the poor.

Saving is key for poor people to get and stay out of poverty. Most already save money informally but want better, safer options. Setting aside money in a safe place will allow poor people to weather setbacks, build assets and financial security, and invest in opportunities for the next generation. Formal savings accounts also help them keep more of what they earn and easily access their money when they need it.

The success of microcredit has paved the way for offering more financial services to the poor.

Microcredit—the extension of small loans—has helped millions of people in developing countries improve their lives. It has also shown poor people to be reliable customers who want, and will pay for, financial services. The success of microcredit has helped make it possible to extend a range of financial services—including loans, savings accounts, insurance, and remittances—to many more people in the developing world.

We're working to dramatically expand the availability of savings accounts and other financial services for poor people in the developing world.

Next: Our Approach

We work with public and private partners to expand the availability of safe places to save and other financial services for poor people in the developing world. We support the following strategies:

Seek ways to lower transaction costs for people and providers.

High transaction costs of traditional banking models make it too expensive for banks to serve the poor and too costly and time-consuming for the poor to reach bricks-and-mortar banks. Technology and innovation are providing ways to reduce costs and increase convenience for everyone. For example, we're exploring how to make savings accounts widely available in post offices, neighborhood shops, and other places close to where the poor work and live.

Support innovations in the design and delivery of financial services.

We’re funding new approaches that can lower costs for both banks and savers. Some examples include:

• Mobile phone banking, a promising way to reach the poor quickly, cheaply, and safely.
• Savings accounts that encourage saving for specific uses, such as education, health care, and retirement.
• Products such as crop and health insurance to protect against two major causes of poverty.

Help effective approaches reach many more poor people.

We're working with many groups to expand effective approaches to providing savings accounts for the poor. For example, we help commercial banks and retail stores develop viable business models that bring financial services into stores the poor can reach. We also help link credit unions together to make banking more efficient, and we assist microfinance institutions which offer savings.

Strengthen underlying systems needed to provide financial services.

We support efforts that help make it possible for banks and other financial institutions to provide and expand financial services to the poor in developing countries. For example, we are working to:

• Link financial service providers to payment systems and credit bureaus.
• Support the design and development of financial instruments that help banking institutions mobilize and manage the capital necessary to deliver services to the poor safely and soundly.

Support the development of policies that provide safety and convenience for savers and banks.

Effective policies make it easier for financial institutions to provide—and the poor to obtain—low-cost savings accounts and other financial services. To support this work, we:

• Invest in research, data collection, and policy analysis that shed light on promising approaches.
• Link policy makers in developing countries with peers who have identified best practices in similar circumstances.
• When appropriate, we support advocacy efforts that highlight the importance of financial services for the poor.