Earlier this month, the Bill & Melinda Gates Foundation (full disclosure - the Foundation co-funds the CGAP Technology Program) announced a suite of grants to “give $38 million to help 18 micro-lenders explore ways to make savings accounts available to 11 million poor people across 12 countries in Africa, Asia and Latin America over the next five years.”  Joyce Lehman is a Program Officer at the Financial Services for the Poor unit at the Bill & Melinda Gates Foundation, and she explains in this interview how the Foundation is trying to foster microsavings with technological innovation.

We hear a lot about microcredit, but very little about microsavings. Why? How will this series of grants try to change that?
Savings is the most neglected financial service available to the poor, and despite what most people may think, the poor do need a safe place to save money. Most microfinance institutions  (MFIs) are non-governmental organizations (NGOs) with a mission to serve the poor, and typically don’t have either the organizational ability or the regulatory status to take deposits. Because the poor save in small amounts, transact frequently and maintain low balances, commercial banks cannot cover the cost of serving the poor through their traditional bank branches, which are expensive to build and maintain.

This series of grants will support microfinance institutions that already have the regulatory status to offer deposit accounts, but for a variety of reasons have not been able to scale up savings services to the poor. The activities for each grant depend on the specific needs of each MFI. The grants will include creating new ways for the poor to make deposits and withdrawals, expanding the availability of existing savings products, funding savings-focused marketing campaigns, and helping organizations expand their ability to manage this new set of services.

What is the one thing you’d tell someone about the impact technology is having on access to finance?
There are two key constraints that technology is addressing, both equally important: proximity and cost. For a bank-sponsored savings product to be useful for a poor family, the service needs to be easily accessible and at low cost. Poor people will not walk for hours to the nearest branch of a bank or MFI just to save a dollar, and even if they did, they would likely not be welcome because of the small size of their deposit. Front-end technology solutions can bring low-cost financial services to the doorsteps of the poor.

How would you define success for this set of grants?
We’ll define success two ways. First, millions of poor people will have access to a savings account that is convenient, safe and affordable. Second, the MFIs providing the services will develop a sustainable business model. For this to happen, each MFI will need to change its institutional culture and update the skills of its staff. With credit services, the MFI has to trust the client to repay. With savings, it’s the client who must believe in the institution. This is a huge change that requires not only new internal systems and trained staff, but a different approach to marketing and product development so that clients have access to the services they need and will use.

There are some industry experts who think microfinance and mobile banking are not compatible. What is your view?
We need to broaden our definition of microfinance to include the full range of financial transactions that poor people need to manage their financial lives. Mobile banking is an emerging field and to make it successful, we must find sustainable business models, address regulatory constraints, and design appropriate products. Mobile banking has enormous potential for offering small banking transactions at the lowest possible cost.

-Jim Rosenberg