Formal—informal financial linkages: lessons from developing countries
Despite significant innovations in rural microfinance over the years, millions of people around the world do not have access to financial services. Can strategic linkages and alliances between financial institutions help resolve this problem? Research funded by the Ford Foundation, drawing on 12 case studies conducted in 11 countries in Africa, Asia and Latin America indicated that financial linkages are increasingly used by formal financial institutions (public or private) to target rural clients. A wide variety of less formal, often rural financial institutions are the linkage partners. Initial evidence indicates that the partnerships seem to afford both partners the opportunity to overcome a weakness in what they can achieve on their own. But does this initial appeal translate into anything sustainable or replicable? Although it is certainly too early to tell, financial linkages, while promising, are difficult to set up and manage, require strong NGO-MFIs as well as formal institutions and seldom result in a significant expansion of financial services beyond credit.
ICICI bank and microfinance linkages in India
Linking the formal financial sector with poor microfinance clients seemed impossible even a decade ago. Increasingly such linkages are emerging, either spontaneously or enforced, and it is crucial that we share the knowledge gained from these efforts. One of India's most innovative linkage models is ICICI Bank's recent 'facilitation linkage' with several NGO/MFIs. This approach is based on a partnership between ICICI Bank and selected NGOs/MFIs, according to which the latter takes the responsibility of monitoring and recovering loans from individuals and self-help groups, but the credit (and most of the risk) is directly between ICICI Bank and the SHG or individual clients. This article explains the model and provides two case study examples, PSS and BISWA, to illustrate this linkage methodology.
Microfinance and women's well-being: Evidence from South Africa
Women living in South Africa's rural areas are very poor in money-metric terms and, at the same time, are vulnerable in terms of several other dimensions of poverty. This makes them extremely vulnerable to any crisis, whether illness, drought, or death in the family. The government acknowledges the suffering of women-headed households especially in rural areas and has responded with a range of development interventions. While these interventions, which include social assistance grants, basic service delivery, and free water, electricity, schooling, and health services, certainly improve the livelihoods of the rural poor, they do not, collectively, seem to improve the standard of living of the most vulnerable people in these marginalized areas. Evidence suggests that microfinance, delivered according to a particular methodology in the rural South African context, does improve the livelihood security and well-being of recipients. This article addresses the poverty situation in South Africa and evaluates the success of the Small Enterprise Foundation in improving the well-being of the poorest women in the rural areas of South Africa.