Financial inclusion and poverty reduction: the role of ... - uncitral

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19. The propensity to save out of remittances has been consistently found to be nearly 40 per cent across studies. In West Africa, in most savings‐based MFIs such as credit unions, village banks or savings and credit cooperatives, nearly six times as many people make deposits as take out loans at any one time. Despite the prevalent recognition that the poor have a high propensity to save and that there is a considerable demand for savings instruments as a result of increased remittances, even in Latin America fewer than 10 per cent of remittance recipients are estimated to have access to savings accounts, loans or other financial services. Access to commercial banks by low‐income and rural populations is limited in terms of physical distance to the closest branch of the bank, thresholds in account fees or minimum required balances, and a lack of assets and collateral opportunities for entrepreneurs. 20. What do we have to do to leverage remittances to make financial services inclusive? That poor people are bankable and creditworthy is an important lesson learned after nearly three decades of micro‐credit activities. Despite the progress of micro‐credit initiatives, real involvement by the world’s largest financial institutions in this market or in leveraging their successes is anecdotal. There are currently examples of large private sector banks entering into risk‐sharing partnerships with non‐governmental or state‐run MFIs that merge social mobilization skills and a rural presence with the capital resources and financial credibility of a bank. 21. Remittances provide a seamless opportunity to leverage such partnerships. The larger banks diversify their market opportunity by venturing into micro‐finance at lower transaction costs by partnering with MFIs that know their customers very well. Simultaneously, the existence of larger numbers of recipient households provides profitable prospects for MFIs, which can diversify their product platform by leveraging the expertise of larger institutions into tailored products to meet the needs of their clients. 6
22. Along with the enhanced availability of savings and credit options, equally important are the terms on which these services are available and whether they are within the reach of the clients and entrepreneurs. With remittance‐led increases in income levels, households have demand for services that allow them to manage their livelihood risks better – through, inter alia, access to micro‐insurance products – while reducing their vulnerabilities to external shocks and stresses. 23. Additionally, MFIs would also have an opportunity to meet emerging demands for taking micro‐enterprises to a bigger scale, particularly by using evidence of remittances available to finance such ventures. This would strengthen the niche of MFIs, since a good number of small and medium‐sized enterprises (SMEs) need small loans, which banks, in general, are either unable or unwilling to provide because the transaction costs are relatively higher and result in lower profits per loan. 24. Even though savings products, home financing, insurance and small business loans are identified as financial services that generate these benefits and have been offered alongside remittances to either remitters or recipients, the practice has been limited. There are barriers to entry in this market segment that represent significant challenges for the private sector including (i) unfamiliarity with the products required by the poorer segment of the population (ii) inadequate expertise to interact with this new client base, (iii) an inability to leverage new technologies for the provision of financial goods and services, and (iv) emerging regulations in the money transfer market. 25. Increasingly, MFIs are participating in the remittance market through their branch network as remittance payment points for money transfer operators. Because the recipients are part of their core target consumer segment, this provides an opportunity for MFIs to cross‐sell other services in addition to generating additional income through fees and foreign exchange. The lower cost structure of the MFIs’ branch operations and 7
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Financial inclusion and poverty reduction: the role of ... - uncitral

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