Gates grant to help world's poor build savings

In many developing countries, it's easier for poor people to take out a loan than to open a savings account.

The world's richest man wants to change that.

When it comes to reducing poverty, the Bill & Melinda Gates Foundation is betting that savings plays just as important a role as credit.

In fact, the foundation is shifting its own focus to emphasize savings over other kinds of financial services for the poor.

It announced a $35 million grant Monday, its largest so far in the financial-services arena, to a new coalition working to make savings and a range of other services available to people living on less than $2 a day.

Microcredit, or making very small loans to poor entrepreneurs, has captured the world's attention and billions of dollars a year in donations and investment. Nobel Peace Prize winner Muhammad Yunus, the father of microcredit, has helped popularize the concept.

Yet not everyone is an entrepreneur. Among the poor are legions of maids, day laborers, factory workers and others who don't run their own businesses, said Bob Christen, a microfinance expert who directs the Gates Foundation's financial-services initiative.

To get by, people juggle complicated systems to stretch their income, such as a food seller in South Africa who joined eight different lending circles to support her family of five.

"We believe virtually everyone could use a deposit account," Christen said, but "savings gets practically no funding at all from the international community."

Establishing even a small safety net can help people avoid disaster when something like a medical emergency or crop failure hits. But more than half the world's adult population does not have access to savings accounts or other financial services, according to the Alliance for Financial Inclusion, a global network of bankers and policy makers from dozens of developing countries.

Banks don't consider it cost effective to process the tiny amounts the poorest people are able to save. Most microcredit organizations operate as nonprofits and are not licensed to offer savings accounts.

Without a safe place to put their money, people store savings in the form of jewelry, animals or cash and rely on pawn shops.

Some of the most innovative ideas to improve financial security have come from the developing world, such as M-PESA, a system to transfer money via mobile phones in Kenya, or "agent-banking" in Brazil, where thousands of shopkeepers, pharmacy workers and postal employees perform basic bank-teller functions in poor regions.

The Gates Foundation grant announced Monday funds the Alliance for Financial Inclusion, which aims to share the best solutions and policies from around the world to expand savings accounts, insurance and other financial services to people in poverty.

The alliance is based in Bangkok, Thailand, and managed by the German development organization Deutsche Gesellschaft für Technische Zusammenarbeit, the recipient of the Gates grant.

The Gates Foundation has invested $350 million so far in financial services for the poor, one of the newest endeavors for the world's largest private philanthropy. A few years ago Gates started with a broad approach that included credit and insurance, but it has narrowed its focus over the past 12 months to promote savings.

When the foundation invested in new banks in Africa, it started seeing demand for savings accounts outnumber loans. "Savings was this great big unmet need," Christen said.

By 2004, Christen started noticing the amount of money going into savings deposits exceeded the amount going toward loans at the Grameen Bank.

"The quintessential microcredit institution of all time — the Grameen Bank — is now mobilizing more in deposits than they're making in loans," said Christen.

The newly funded alliance aims to diversify the range of financial services offered. Agent and mobile banking will help move financial services to villages, which strengthens the rural economy, Christen said.

"A schoolteacher who lives in a village and gets paid in the village is more likely to spend money there," he said.

Kristi Heim: 206-464-2718 or kheim@seattletimes.com