Microfinance Practice: [MFP] CGAP Newsflash: How Funders Can Help Build Financial Markets that Work for the Poor

CGAP Newsflash: How Funders Can Help Build Financial Markets that Work for the Poor

For decades, donors have been devoting significant resources to microfinance and financial inclusion. In fact, over $25 billion had been committed as of December 2011. Despite these efforts, over 2.7 billion adults still lack access to formal financial services. We at CGAP have learned that building a financial market that effectively serves the poor requires more than supporting microfinance institutions or other providers interested in the "base of the pyramid." Rather, it also requires coordinating many underlying elements - such as educating consumers, drafting appropriate laws and regulations, building capacity within organizations and creating credit bureaus - in order to create a system that adapts and innovates to serve the poor.

CGAP's latest focus note, Facilitating Market Development to Advance Financial Inclusion, makes the case that building a financial market that works for the poor is best done through the use of an informed, locally-based, trusted third-party – a "facilitator." Such a facilitator operates using its broad and deep knowledge of the market, its actors, and the emerging opportunities and challenges to disseminate information, provide incentives for market actors to take on new risks, and to help build the capacity of market participants. Early evidence from countries where financial market facilitation has been the norm - such as Kenya and South Africa - supports the idea that a third party facilitator can be successful at advancing financial inclusion.

Read the new focus note and related blog post at CGAP.org.

CGAP

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