Financial Services for the Poor: A strategy for the Australian aid program 2010-2015

The Australian Government’s overseas aid program, AusAID, has recently published its ‘Financial Services for the Poor: A strategy for the Australian aid program 200 -2015’. The strategy is aimed at increasing access to financial services by the poor in developing countries, particularly to those people who are previously excluded or underserved in Asia Pacific. The strategy recognises the multiple layers involved with building financial systems that serve the poor. It focuses simultaneously on building the capacity of governments to regulate appropriately, on building the capacity of financial institutions to deliver services fairly and in response to demand, and on ensuring that the client is both protected from abusive or unethical practices and well informed about his or her rights and responsibilities.

In the document, AusAID has defined ‘financial inclusion’ within the context of its effect on the Millennium Development Goals, and this broader understanding of financial inclusion, of which microfinance is an important tool, is welcome. The BWTP Network and FDC submitted comments draft of the program, and amongst other recommendations included in the document, is pleased to see recognition of ‘networks of microfinance institutions as well as other institutions involved in advocacy and information dissemination’ that ‘connect the provision of pro-poor financial services to the broader banking system and provide essential support functions’.

In achieving the goal of expanding access of financial services AusAID has defined the strategy in regards to four major outcomes, briefly outline below:

Outcome 1: A policy and regulatory environment that allows institutions offering financial services to the poor to enter the market and grow.

Within the strategy AusAID has committed to addressing policy, legal and regulatory constraints inhibiting the development of inclusive financial services and supporting the development of legal and regulatory frameworks conducive to the growth of financial services for the poor (from both a consumer and provider perspective). This includes encourage policies leading to the removal of interest rate ceilings in microfinance and to the improvement of consumer protection, ensuring that clients are not exposed to exploitation and unfair practices. Likewise, it aims to assist national governments to implement strategies to expand poor people’s access to financial services and provide assistance to develop the technical expertise of regulatory authorities responsible for the oversight of the financial services sector.

Outcome 2: Financial service providers and infrastructure that have the capacity to provide high quality financial services to the poor

AusAID has committed to building the capacity of institutions to expand financial services to the poor by supporting improvements to governance, management information systems, risk management systems and performance measurement of institutions that offer microfinance services. It also aims to promote the development of a range of demand-driven products and services and will encourage commercial banks to target poorer clients and expand outreach.

Accordingly, the Australian Government will seek not only to build the capacity of financial service providers but also to strengthen the broader financial infrastructure, including microfinance networks and associations.

Outcome 3: Innovative models of financial service provision that are used effectively to extend outreach to underserved regions and groups.

In order to achieve this outcome, the Australian Government has pledged to provide support to institutions offering financial services to the poor to increase their capacity to adopt innovative technologies that can expand their outreach. The said government will also create incentives to expand the use of new technology that can be easily used by poor people with low literacy levels in instances where private sector support is not forthcoming. This includes supporting and building the capacity for partnerships between banking service providers, technology companies and non-bank institutions to encourage innovative models of financial service delivery.

Outcome 4: Increased capacity of clients to understand and utilise financial services effectively.

Financial literacy has been given a high priority as AusAID understands it to be critical to ensuring sustainable expansion of financial services to poor people and will be supported through education programs and initiatives relating to service provision.

The BWTP Network welcomes the inclusive nature of the Australian Government’s development of the strategy and believes it, on the whole, represents a contemporary understanding of microfinance and the role of financial inclusion. The Network also looks forward to the translation of strategic intentions to support for regional microfinance networks and the industry more widely.