By the time he has donated the rest, he may well have the elimination of polio and drastic reduction of child malaria on his epitaph.
Yet, providing access to financial services to the one-third of the world’s people who are currently unbanked might just be on there, too.
Banks are hardly the most popular institutions in Western developed countries right now among both individuals and small businesses. Insurers don’t rank much higher.
However, the 2.5 billion people who do not have access to bank accounts, loans and insurance might think differently – especially if the access that they do gain is much more benign than the way that banks and insurers in the West have traditionally treated their customers.
That is probably not how the Bill & Melinda Gates Foundation would describe it, but it is nonetheless ploughing $65 million into the Alliance for Financial Inclusion (AFI), an organization it helped set up to tackle the problem.
Alfred Hannig, AFI’s executive director, says: “This started as an idea in 2006 when I was working in Indonesia in a financial development co-operation organization and got an email and then a call from the Gates Foundation.
“They asked me a very simple question that I had never heard before. If there was no funding constraint, what would I do to leverage what I knew about financial inclusion from the national level to a global level?”
Hannig came up with proposals to model provision of financial services for the unbanked in developing countries on best practice in other emerging economies.
“What was missing was a mechanism to share this knowledge so others could follow suit and replicate what was working,” he says.
The model was approved in 2008 and AFI was launched in September 2009, structured as a project of Germany’s GIZ ministry for development.
From the outset, AFI was given the status of implementation partner for financial inclusion of the G20 group of developing and emerging countries.
The Gates Foundation provided an initial five-year grant of $40 million, partly matched by $9 million from the German government.
“The Gates Foundation explained to me that for them this was a bet,” Hannig recalls.
“If the bet didn’t work out at least they would have learned a lot and perhaps they wouldn’t do it again but they were hoping the bet would be successful. They were ready to take a risk and this is important because for the Gates Foundation in 2007-2008 was not at all familiar with policy projects. It was involved with health projects like malaria by vaccinations and HIV/Aids treatments that could produce tangible results. The policy area is much more complicated but AFI took off in a way that we never thought it would. And while the funding we receive sounds like a lot, we are providing real value for money.”
Compared to the amounts that the Gates Foundation is devoting to fighting Aids, malaria and polio, of course, the funding sounds like very little, while the foundation’s Financial Services for the Poor (FSP) team employs only 25 of the foundation’s 1,211 staff
Like all the foundation’s other projects, however, AFI’s funding has been dependent from the start on success, measured in terms of membership and other criteria.
AFI now has 42 staff and 180 members from 94 countries. It calculates that its Gates Foundation funding has enabled it to provide financial inclusion to 20 million people who would otherwise have remained unbanked.
The proportion of people in Tanzania who are excluded from financial access have fallen from 70% of the population to 50% over the past three years, while the proportion in Nigeria has gone down from 47% to 39% in over the same period.
AFI is now in the second year of a second five-year grant of $25 million to take it to the status of an independent organization in 2018.
Core activities will start to be funded by its members in 2016 with the Gates funding expected to change to some kind of project funding after 2018.
As part of that process, the alliance is moving from its current Bangkok headquarters to a new domicile, with Turkey, Mexico, Malaysia and Brazil on the shortlist and a decision set to be announced in September.
“Our goal is to see concrete policy changes in 60 of the countries we are working with, as a result of our activities,” says Hannig. “Our overall vision of AFI is poverty reduction and inclusive growth. And inclusive growth starts with sustainable financial inclusion.”
Indeed, Sacha Polverini, senior programme officer for regulation and policy at the FSP team, says financial inclusion is an official Gates Foundation priority.
The FSP team works with governments and other stakeholders to develop national financial inclusion strategies and with the financial industry to develop micro-financial products specifically aimed at poor people.
It targets people living with less than $2 a day who have no access to financial services and are therefore unable to protect themselves against life shocks like disease and find it difficult to pay for education and health services.
“People need to lead a healthy life to be able to work, develop a family, study and develop a business,” says Polverini. “But once they are able to have that life, they need financial services to help the, build on that life. That’s why the FSP strategy touches upon all the other strategies of the foundation from agriculture to health and education. Having the ability to access to financial services connects people to all the other things that are necessary in our lives.”
Bill Gates himself agrees. “Innovations like vaccines and high yielding crops have changed the future for billions of people.” he says. “We’re at the cusp of another breakthrough innovation: including the poorest in the financial system that increases, instead of limiting, the value of their assets. Transforming the underlying economics of financial services through digital currency will help those who live in poverty directly. It will also support a host of other development activities, including health and agriculture. The vision…. is a paradigm shift in the way the poor are able to approach life, seizing control of it rather than trying to manage it.”
Adds Polverini: “Financial inclusion is not just a problem for developing countries.
“Even in the US there are 30 million people who are unbanked and in Europe there are people on the margins of society who struggle to get financial services. Creating a facility to allow policymakers to get together, exchange experiences and share knowledge has really created a greater momentum to help governments around the world achieve a financial inclusion agenda.”
Perhaps a paradigm shift is also needed in the West for widespread acceptance in these days of unpopular bankers that creating universal banking can rank alongside eradication of killer diseases as a philanthropic achievement. Do let me know what you think.
