Banking on Savings for the Poor

Chances are, you own one of the most powerful solutions to global poverty. I bet you have it with you as you read this. It may be on your desk, or in your pocket or purse. No, it's not your wallet.

It's your cell phone.

Technologies, including cell phones, have the potential to help millions of poor people out of poverty by enabling access to a range of safe, affordable financial services -- most importantly savings accounts -- that have long been out of reach. Exciting endeavors from the developing world are showing incredible promise, one of the most innovative proving that a cell phone can actually function as a wallet of sorts, enabling people to store, and move their money with ease and security.

If we can scale up financial service innovations like "mobile money," we can bring savings and other financial services beyond the bank's four walls to the doorsteps of the poor.

That's the vision behind the Global Savings Forum that the Bill & Melinda Gates Foundation is hosting in Seattle, November 16 and 17. The forum will bring together, for the very first time, government officials, regulators, bankers, telecommunications executives, and international development organizations to focus collectively on how to provide the poor with safe places to save.

Why focus on savings? Because this long-neglected financial tool is sorely needed, and demanded, by poor people worldwide.

The 2.5 billion people living on $2 a day are vulnerable to crisis -- especially since their income is far less predictable than "$2 a day" suggests. Farmers must labor to stretch harvest income beyond the growing season. Mothers must scramble to accumulate the cash to pay school fees. An illness or crop failure can push a family over a financial cliff, forcing them to sell belongings to survive.

Those who have the fewest resources must work the hardest to manage them. As the authors of the path-breaking book Portfolios of the Poor explain, "At any one time, the average poor household has a fistful of financial relationships on the go" -- such as sending money to relatives for safekeeping or paying a "money guard" to hold their cash.

Savings is an important tool because it can help the poor deal with the ups and downs of irregular earnings, and help them build reserves for a rainy day. Why haven't these services taken off? Because it doesn't make economic sense. Banks can't recoup the costs of serving customers who save in small amounts and transact frequently. Clients can't afford the fees involved, or the time and cost of traveling to a bank branch miles away.

But now, exciting innovations are lowering the cost and increasing the value of delivering financial services to the poor. In Mexico, a network of government-operated rural convenience stores is offering banking services to rural communities. In Malawi, a bank is reaching thousands of first-time customers by mounting banks on trucks.

Meanwhile, in Kenya, a mobile money service called M-PESA is transforming millions of lives. Customers can deposit, and withdraw cash with the same agents who sell airtime minutes for their phones, and then send their money, via their phones, to family members, or pay their bills. And now, a new service called M-KESHO is linking people's M-PESA mobile money service to a bank account.

In little more than three years, M-PESA has managed to capture nearly 57 percent of the Kenyan adult population, some 12.6 million people, and do more money transfers domestically than Western Union does globally. More than 80 percent report using M-PESA as a savings vehicle. These are amazing results, and we believe this model, and other new ways of harnessing technology, can be replicated around the world.

The challenge for the global community -- and for participants at our forum -- is to identify what needs to be done, and then put that into action to make affordable, safe, and convenient financial services for the poor a reality.

Learn more about the foundation's work in bringing savings to the poor.