The Gates Foundation hosts experts from 38 nations this week to work on how to help those who live on as little as $2 a day save for the future.
For more than 2 billion of the world’s poorest people, every penny counts.
The problem is, no bank wants their pennies.
The Bill & Melinda Gates Foundation is bringing financial leaders from 38 countries to Seattle with the aim of changing that.
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This week the world’s richest private foundation is hosting a Global Savings Forum, its first event connecting experts from banking, government, technology and other industries to devise new ways to offer savings to the poor.
Rather than bury cash under a bed, for example, savers could store it electronically on a mobile phone.
Melinda Gates is to speak Tuesday, and participants include Princess Máxima of the Netherlands, the United Nations special advocate for inclusive finance for development.
The Gates Foundation is also expected to make a major grant pledge representing its biggest commitment in financial services to date.
For the 2.5 billion people who live on about $2 a day, a good day’s wages might equal the price of a latte in Seattle, while a bad day would net the cost of black coffee, said Ignacio Mas, deputy director of the foundation’s financial services for the poor program.
“They have to manage between latte days and black-coffee days,” he said.
The millions of small-holder farmers, casual laborers, low-wage workers and micro-entrepreneurs need some savings as protection against economic shocks. If they keep cash on hand, it’s often stolen, lost or spent.
Only about 10 percent of the world’s poor have access to a bank account. If they do, they often pay half a day’s wages just to make a deposit or withdrawal, Mas said.
For banks, it’s also harder to recoup the costs of frequent small transactions.
The forum will be a place to mix and discuss new methods to provide banking services in rural areas. Taking advantage of the proliferation of mobile phones to a billion people, services such as M-PESA in Kenya use a phone’s SIM card to store banking information.
Mas, a former executive at interTouch and Vodafone, said dozens of different mobile-banking programs are being tested worldwide.
And local retail terminals are taking the place of bank branches. In Brazil, for example, new accounts can be opened at grocery stores, post offices and gas stations.
The Seattle event comes at a time when loans to the poor have grown dramatically, but savings has been neglected, Mas said.
Among advocates for the poor, the rapid commercialization of microcredit has raised serious questions: Should banks and other large investors be getting rich on the backs of the world’s poor? And even if those investors make more capital available to more borrowers, is there enough solid evidence that loans by themselves pull people out of poverty?
Billions of dollars from commercial investors have flooded into microfinance institutions, which provide loans to the poor while at the same time seeking profit for shareholders.
One proponent of that model was Seattle-based Unitus, which received $1.5 million from the Gates Foundation in 2006.
Unitus backed an Indian company, SKS Microfinance, with investments, donations and guidance. Three months after its initial public offering raised $350 million and made its CEO rich, SKS is at the center of turmoil in India, where the state of Andhra Pradesh has been overrun by aggressive lending that has driven some debt-laden borrowers to suicide.
After pressure from the Indian government, microfinance institutions agreed to cap their interest rates at 24 percent.
In Seattle, Unitus dissolved its nonprofit operations in July.
After first supporting microcredit programs, the Gates Foundation has moved away from lending to focus exclusively on savings. One program it has backed is Oxfam America’s Saving for Change, which trains community groups in the poorest places to save, pool their funds and rely on their own resources for loans instead of a bank, credit union or microfinance institution.
The foundation will share research that shows demand for savings accounts outstrips loan demand 12 to 1. Being able to pay for large expenses with savings is cheaper than taking a loan.
While microfinance institutions may charge more than 50 percent annual interest on loans, deposit accounts help earn interest for savers.
“Savings is an option everyone should have, which is not true for credit,” Mas said.
Kristi Heim: 206-464-2718 or firstname.lastname@example.org