Connecting the World’s Poorest People to the Global Economy
The importance of expanding access to financial services for the world’s poorest people is increasingly recognized. But despite the growing international attention to the issue, numerous barriers remain. An estimated 2.5 billion people do not have an account with a bank or other financial institution, severely limiting their ability to save, invest and plan for their future.
One cause for hope is the “savings revolution” taking place in many developing countries, which has seen millions of people join informal community savings groups. These groups fill some of the gap left by the absence of banks by allowing members to save flexibly, access small loans to invest in small businesses, and build a social fund to strengthen their ability to cope financially with unexpected events such as an illness in the family. CARE’s Village Savings and Loan Association (VSLA) group model has proven to be one of the world’s most effective, with over three million members in Africa alone.
But savings groups are not a panacea. Many poor people remain desperate for a safe place to store their money and for larger, affordable loans that only financial institutions can provide. To help respond to this need, CARE has tested eight innovative models for linking informal savings groups with financial companies in five African countries, with exciting results that could help connect the developing world’s remaining “unbanked” populations with the formal global economy.