Poorer households tend to have irregular and unpredictable incomes and expenses. They need financial services to help them cope – but often have to use informal mechanisms that offer little protection and which charge far higher prices than we would accept. Where we go to a bank for a loan or use a credit card to manage unexpected expenses they go to the moneylender for credit and the pawnbroker for liquidity.
We will help more than 50 million people access savings, credit and insurance through programmes to “deepen” the reach of the financial sector, to serve the needs of poor people. DFID supports and encourages innovative financial sector deepening trusts that work in partnership with governments, regulators and financial service providers ranging from multinational banks to rural cooperatives to support financial sector development. One of these trusts: Enhancing Financial Innovation and Access in Nigeria will help 10 million people get access to finance by 2015.
We also support countries to reform and strengthen their financial sectors. The Financial Sector Reform and Strengthening Initiative (FIRST) gives targeted specialist help. To date, the scheme has supported over 300 projects across 80 countries.
We help poor people protect themselves from financial abuse and use financial services responsibly. Through innovative approaches to financial education pioneered by the Financial Education Fund across Sub-Saharan Africa, we are working to build the financial capability of poor people, empowering them to manage their finances effectively and understand their consumer rights.
Over a billion people own a mobile phone but do not have a bank account. DFID support for the Consultative Group to Assist Poor (CGAP) Technology Programme alongside the Bill & Melinda Gates Foundation aims to harness mobile phones and other technology to help 30 million people get better financial services. M-PESA is the revolutionary mobile banking platform launched in Kenya with DFID support.
This short video produced by CGAP shows how mobile money is changing the face of banking in Kenya. Four million Kenyans have bank accounts, but ten million people in the country now use the M-PESA money transfer service.
By promoting innovation we can deliver at a scale that makes banking affordable for poor people. In Pakistan, we are supporting the mobile banking service easypaisa. In just two years easypaisa now has a larger footprint than all the banks in Pakistan combined and has processed over 10 million transactions.
DFID is supporting Small and Medium Enterprises (SMEs) by collaborating with commercial banks and multilateral partners to address the funding gap and perceived risk and high transaction costs faced by SMEs. This Initiative is designed to help over 200,000 SMEs and create over one million new jobs.
We recognise microfinance as one of the established options for delivering financial services to the poor. Building on the lessons learned from microfinance (and in particular from micro-credit), we will continue our work to strengthen microfinance institutions and the development of new products including micro-savings and micro-insurance. DFID, in partnership with the World Bank, is developing the microfinance capacity building facility (MICFAC) for Sub-Saharan Africa. It aims to increase access to affordable and quality micro-finance services for the poor by strengthening the institutional, organisational and human capacity of microfinance institutions.
Finance is a critical ingredient for fostering SME development which is constrained by high transaction costs and perceived risks. DFID believes that the development of financial market infrastructure and new financial instruments are critical for attracting commercial players in to SME financing and achieving scale. In collaboration with other multilateral and bilateral agencies, we will:
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A customer using a cash transfer point in Dowa, Malawi. Picture: Department for International Development
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