Because of their high transaction costs, banks have made limited progress in extending their services to rural areas in developing countries, and informal savings and loans groups, such as rotating credit clubs, are limited by the fact that they do not build up their capital between cycles. This article describes a new model for rural banking: Financial Service Associations (FSAs). The article describes some of the strengths and shortcomings of other formal and informal financial arrangements before describing in detail the proposed structure and services of the FSA. These include taking savings and providing loans to clients, who qualify for membership of the FSA by being locally based shareholders. Following on from this article, it is hoped that a subsequent issue of the journal will include a description of the FSA pilot projects taking place in South Africa and several other African countries.