Gates Foundation to Invest in Savings Programs for World's Poor

Gates Foundation to Invest in Savings Programs for World's Poor

The Bill & Melinda Gates Foundation plans to donate hundreds of millions of dollars over the next few years to programs designed to spur savings in poor countries, the Wall Street Journal reports.

The venture represents the foundation's first focused effort in financial services and is part of a broader push targeting basic infrastructure needs in developing countries. The foundation, which already has awarded $11.7 million to Oxfam International to start training and group-savings programs, plans to fund programs, research, training, and new technologies in a number of countries that possess much of the infrastructure needed to establish savings programs. Eventually, the foundation will focus a significant portion of its funding in Africa.

A review of existing microfinance programs (in which the foundation has invested some $300 million to date) persuaded foundation officials to focus on saving, which has become an important measure of the health of developed economies. Banks focused on the poor in the Philippines, Thailand, Indonesia, Benin, Uganda, and Colombia have found that demand for savings accounts typically outstrips demand for loans by a six-to-one margin, according to a 2006 study by the Consultative Group to Assist the Poor, a World Bank-funded think tank that advised the foundation on its financial services strategy. Given the Gates Foundation's size and influence, some experts predict its efforts could have a broad impact on the field of microfinance, which has largely focused on microcredit rather than savings.

Still, while there have been success stories involving the collection and aggregation of deposits from the poor in Indonesia, Bangladesh, and elsewhere, the complexity and cost of delivering banking services in developing countries could pose challenges. Strict banking regulations, for example, often govern which organizations are allowed to hold deposits, and a lack of bank branches in rural areas could make it difficult to provide convenient access to accounts.

One organization that has experienced such challenges is Opportunity International, which holds some $15 million in 150,000 accounts. The organization, which uses armored trucks equipped with ATMs to travel to rural areas, is profitable and growing but is limited by the cost of reaching the rural poor. "It's very expensive to introduce financial services to someone for the first time," said Francis Pelekamoyo, chairman of the group's Malawi bank. "[With more funding] I would go deeper into rural areas."

Robert A. Guth. "Giving a Lot for Saving a Little." Wall Street Journal 07/31/2008.