Gates Foundation to focus on helping the poor build savings

Melinda Gates isn't sure if she'll see an AIDS vaccine in her lifetime, but when it comes to helping poor people around the world save money, "You will see real results very quickly," she said.

Speaking in Seattle Tuesday, she made a pledge of $500 million over the next five years from the Bill & Melinda Gates Foundation to expand savings programs for people living on less than $2 a day.

The move narrows the mission of the world's largest charitable foundation from funding a variety of financial services for the poor to focusing exclusively on savings.

Microcredit, the system of giving small loans to poor entrepreneurs, has seen explosive growth as both a development strategy and, increasingly for investors, as a way to make money.

The foundation had backed microcredit programs for several years, but Gates, its co-chair, said she believes that loans are "only one piece of the puzzle."

"Loans for the poor in some ways may be more intuitive for people to understand," she said, addressing more than 200 experts from 38 countries at a Global Savings Forum. "I think people don't as easily grasp the concept that the poor actually need to save."

Without any savings to fall back on, families are wiped out after one poor harvest or a medical emergency, Gates said.

The funding is aimed at spreading knowledge about how to make savings available in some of the poorest and most inaccessible places in the world.

Gates told the story of a family she visited in rural Malawi who started saving money through a mobile bank trucked weekly to the village in a shipping container.

Women depositing between 75 cents and $2 told her they used to hide cash in their homes which would be spent by family members or eaten by rats. With the mobile bank, they felt they had a safer way to store funds.

Millions of people in Kenya are transferring their money through cellphones with the help of an agent, while people in Mexico are using a network of 22,000 rural stores to collect and deposit money.

Dean Karlan, a professor of economics at Yale University, said saving holds promise, but there aren't many scientific studies of its impact on poverty. Without sufficient evidence, many people jumped on the microcredit bandwagon earlier.

"It has that lure of 'teach a man to fish,' " he said. "It hits on so many clichés. Giving out money does not."

Some bankers in the audience said serving people who save in small increments has high costs for both sides. Technology might be the only way to drive costs down to a point where a program makes sense for both the saver and the bank.

Princess Maxima of The Netherlands, the U.N. special advocate for inclusive finance, said that along with a focus on savings, financial literacy and consumer protection are also important for the two-fifths of the world living on less than $2 a day.

"People need an array of financial services," she said. "It is not only households that need financial services but enterprises, the ones that are the biggest job creators."

Gates announced six new grants worth $40 million, including $11.4 million to the World Bank to track data on banking across 150 countries; $10 million to ShoreBank International for a mobile-money platform in Bangladesh; and $4.8 million to Vodacom Tanzania to expand M-PESA mobile money in Tanzania to reach 2 million people in 18 months.

Janamitra Devan, who heads network, financial and private-sector development at the World Bank, said the global economic crisis has not slowed demand for financial services among the poor.

To increase financial literacy, the World Bank is looking at creative approaches such as entertainment from Hollywood or Bollywood to reach more people, he said. Devan noted an episode of "Grey's Anatomy" that boosted public awareness of HIV/AIDS.

One project seen as a model is Kenya's M-PESA, a mobile-banking program used by almost 13 million people. The program, which lets people send and receive money over mobile phones, is reaching 50 percent of the country's poor, Gates said.

After seeing the system in action, Gates said, she came home and told her husband, "You aren't going to believe this." About that cashless society he described in his book "The Road Ahead," she said, "Kenya might just get there ahead of the developed world."

Kristi Heim: 206-464-2718.