By Daniel Hunter

The global economy, and particularly developing nations, could receive a yearly savings boost of up to $157bn if the 2.7bn adults worldwide who are ‘unbanked’ participate in savings-led microfinance programmes.

The figure is part of a new report released today that finds the ability to make real progress in financial inclusion, including linking participants with the formal financial system, will not be possible without closer cooperation of banks, NGOs and Governments.

The report also calls on members of the UN High-level Panel, including David Cameron, who are currently identifying a new international framework to replace the current Millennium Development Goals after 2015, to ensure financial inclusion is on the agenda.

Banking on Change: Breaking the Barriers to Financial Inclusion’, produced by Banking on Change partners Barclays, CARE International and Plan UK, examines the barriers to financial inclusion in developing countries and the potential boost to the global economy that large scale financial inclusion represents.

Banking on Change is the world’s first savings-led programme that combines the deep understanding of poor communities among two leading NGOs with the financial expertise of a global bank, in order to encourage extremely poor people to begin their path to ‘financial inclusion’ through savings-led microfinance.

After establishing a savings culture, most people go on to receive financial training and establish micro-enterprises before additional access to credit or more formal banking is considered. The partnership is paving the way for future NGO/private sector partnerships that can improve the lives of poor people and ultimately have a business benefit by opening up a new customer base ‘at the bottom of the pyramid’.

The Banking on Change partnership has reached 513,000 people in just three years. On average, each member has saved $58 per year* through savings groups. Multiplying this figure by the 2.7bn** unbanked people could represent $157bn in savings annually. Where these savings groups are then linked to the formal financial system this could provide an influx in banking deposits, which could in turn be used to finance businesses and households.

Antony Jenkins, Group Chief Executive, Barclays, said: “That financial inclusion stimulates economies and improves lives is undeniable; the question is how sustainable, savings-led financial inclusion can be scaled up to make a real difference. While the Banking on Change programme does not have all the answers, it is making major headway in this area. Having experienced the programme first hand I can certainly attest to the incredible impact it has on the personal lives of so many.”

One of the report’s key recommendations is that for any financial inclusion programme to be ultimately sustainable, it must offer a formal financial linkage model with the banking sector, and that this requires much greater co-operation from local and global financial institutions.

Geoffrey Dennis, Chief Executive of CARE International UK said: “This report proves that no-one is too poor to save. It cannot be right that 2.7bn people are ignored by the current financial system for being too poor. These people are full of potential, and are desperate to work their way out of poverty and invest in the future of their families. Barclays has acknowledged there is a future, viable market in these 2.7bn people, but collective action is needed to truly address the scale of this problem.”

While huge development advances have been made to improve the lives of people living in extreme poverty in the last decade, 2.7bn people remain locked outside of sustainable human development until they can be integrated into the global channels of buying and selling, including having access to finance and a bank account. The report calls on governments, banks and NGOs to realise the un-tapped potential of the funds unbanked people have trapped in the informal sector.

Tanya Barron, Chief Executive of Plan UK, said: “The success of Banking on Change so far tells us that even the world’s poorest people have the ability to lift themselves, their families and their communities out of poverty.

“They have incredible ambition, they just need the tools to help them realise their vision. By giving people a safe place to save and access loans, we’ve seen thousands of people and communities gain the skills and confidence to set up or expand their own businesses, but this is just the tip of the iceberg.”

The other key recommendations in the report are:

- National governments, donors and financial services providers should recognise, and support, the scale-up of savings-led microfinance solutions as part of an overall strategy for tackling poverty.

- Governments should invest in, and extend, access to financial education, with a particular focus on women and young people, whilst also increasing provision of training in business skills and entrepreneurship.

- Financial institutions and regulators should recognise community-based savings models and support the development of appropriate, transparent products that protect poor people’s money, whilst opening up access to outreach banking and mobile technologies that can facilitate group banking.

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