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Financial services for the poor

In a world driven by the cash economy and international flows of capital, the majority of poor people still remain excluded from financial services. There are as many as 2.7 billion adults in developing countries – or almost three quarters of the adult population – who still do not have access to banking services.

For the poor, this exclusion exacerbates the challenges of living on very low incomes. Their inability to borrow or save money makes finding a way out of poverty even more difficult and they are more vulnerable when adversity hits.

Financial services, including savings and deposit services, credit, payments and transfer services, and insurance, are increasingly being seen as important to poverty reduction and achievement of the Millennium Development Goals. By borrowing, saving or buying insurance, poor people can plan for their future beyond the short term.

They can build up assets, set up small businesses, insure against crop losses and invest in their children’s education and their family’s health. In post-conflict and conflict environments like Afghanistan, financial services can offer mechanisms to stabilise livelihoods, stimulate economic development, finance reconstruction and facilitate renewed remittance flows.

Beyond this, access to financial services can promote social inclusion and build self-confidence and empowerment, in particular among women.

Australia’s support for financial services for the poor

Australia has long supported microfinance initiatives and is committed to further improving access to financial services to break down the barriers to economic participation by the poor.

Australia’s approach is articulated in the Financial Services for the Poor: A strategy for the Australian aid program 2010-15launched in March 2010. The strategy focuses on four outcomes:

  1. A policy and regulatory environment that allows institutions offering financial services to the poor to enter the market and grow
  2. Financial service providers and infrastructure that have the capacity to provide high quality financial services to the poor
  3. Innovative models of financial service provision that are used effectively to extend outreach to underserved regions and groups
  4. Increased capacity of clients to understand and utilise financial services effectively.

Microfinance is not appropriate in all contexts. For the poorest of the poor, who often have no stable cash flow, access to credit may only increase their indebtedness and vulnerability. In these instances, services such as training, access to productive assets such as cows or goats, or cash transfers may be more appropriate until they are able to generate a more sustainable livelihood.

Australia is working to expand access to financial services for the poor in many countries.  We will broaden our geographic focus in line with the aid program, including the Pacific, Asia, Latin America, the Caribbean and Africa. We are also supporting Australian NGOs to expand financial services in developing countries through the Australia NGO Cooperation Program.

The following case studies provide examples of Australia’s investment in financial services for the poor.

International efforts to expand financial services to the poor

Australia is committed to participating in international initiatives focused on industry best practice.

  • Australia provides core funding support to the Consultative Group to Assist the Poor (CGAP), an independent research, policy and advisory organisation which has become the most important international platform and network for generating and disseminating knowledge in the industry. Australia’s Financial Services for the Poor Strategy is based on CGAP’s Good Practice Guidelines for Funders of Microfinance.
  • Australia is actively involved in the G20’s Financial Inclusion Experts Group established to support the safe and sound spread of new models of financial service delivery capable of reaching the poor and scaling up successful models of small and medium enterprise (SME) financing.  The Australian Government is co-chair, with Brazil of a sub-group focused on increasing access through innovation. This work will culminate in November 2010 with a final report to G20 Leaders.

Further information

Financial Services for the Poor: A strategy for the Australian aid program 2010-15 [PDF 2447KB]

Financial Services for the Poor: A strategy for the Australian aid program 2010-15 [RTF 472KB]

Financial Services for the Poor: a summary document [PDF 565KB]

Financial Services for the Poor: a summary document [RTF 72KB]

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