MICROCAPITAL STORY: Gates Foundation Gives USD 35m to Alliance of 64 Countries to Train Central Bankers, Funds Managed by German Aid Agency GTZ

The global Alliance for Financial Inclusion (AFI), a coalition of developing countries committed to financial inclusion, was launched in Nairobi, Kenya, with a USD 35 million grant from the Bill & Melinda Gates Foundation’s .[2] The AFI is based in Bangkok and managed on behalf of its members by the German government development organization Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ), the recipient of the Gates grant. [1]

The 64 countries which are members of the alliance contain nearly 70 percent of world’s unbanked individuals.[2][3] The program will connect policymakers through online and face-to-face channels, supported by grants and links to strategic partners, so that policymakers can share and implement more appropriate financial inclusion policies for their countries’ individual circumstances. The content of the shared information will address programs that target those living on less than USD 2 a day.[1]

The AFI is headquartered in Bangkok, Thailand, and focuses on six policy areas:

Agent banking- This policy set refers to regulations governing correspondent banking agents, aimed at enabling low-cost delivery channels and reducing both the fixed costs of setting up and maintaining branches and the high variable costs of small transactions.
Mobile phone banking- This includes policies that lower transaction costs and increase access to financial services through mobile technologies, including those facilitating cash deposits and withdrawals, third-party deposits into user accounts, retail purchases, over-the-air prepaid top-ups using cash in user accounts, transfer of cash or airtime credits between accounts, and bill payments.
Diversification of financial services channels and providers- These are policies that lower the regulatory barriers to offer savings and insurance products for low-income clients, promoting new entrants in the market. Strategies to adapt standard banking regulations to accommodate the specific nature of microfinance include licensing micro deposit-taking, through the creation of specialized units dedicated to microfinance, the granting of bank licenses to successfully transforming financial NGOs, or the licensing of non-bank agents.
State bank reforms- These are policy solutions that improve the management of state banks, helping them become commercially sustainable and meet the needs of clients through governance and incentive structures that restrict political interference and hold banks accountable to performance standards.
Financial identity- These are policies that provide clients with a financial identity, by transforming their transaction history into a financial asset, which can be used to obtain access to credit and other banking services.
Consumer protection- This includes policy solutions that address technical and delivery security, reduce predatory lending, increase disclosure of information, and promote efficient dispute settlement, data protection and enhanced comparability of offers. While access to financial services is on the rise, consumer protection and representation are often non-existent or weak in developing economies. [6].

The Gates Foundation grant money is dispersed by GTZ through short-term grants, long-term grants, and knowledge exchange grants. Short term grants, which range from USD 50,000 to USD 150,000 and cover a period of 6 to 12 months, lead to outputs for addressing issues such as diagnostic studies, draft regulations and manuals, and building capacity in policy and regulatory agencies. Long-term grants, which range from USD 400,000 to USD 1.2 million, are for implementing specific policy solutions that facilitate a rapid and significant expansion of financial services for the poor. Knowledge exchange grants, which range from USD 25,000 to USD 75,000, are made to facilitate information exchange through events such as staff exchanges, study tours, national and regional conferences, peer reviews, and regional working groups. The AFI is looking for a diverse portfolio of grantees across the developing world, with a focus on Africa, Asia, Latin America, the Middle East, and Eastern Europe. The short- and long-term grants are primarily targeted at regional, national and sub-national government institutions including Central Banks, Finance or other Ministries, regulatory oversight bodies and public banks, though proposals may be submitted by microfinance networks and associations as well. [6]

“Banking innovation is happening in developing countries without the foundation’s help, but the money will help speed implementation. The alliance has a goal of reaching 50 million of the world’s unbanked by 2012.” said Mr. Alfred Hannig, executive director of the AFI. Mr. Hannig stated that 60 percent of the money from the Gates Foundation will be redistributed in smaller grants to groups like the delegation from Kenya to Brazil, and the Bank of Thailand, who want to measure banking access around the world through a survey.[4]

The Bill & Melinda Gates Foundation was founded in 1994 and supports work in more than 100 countries [3]. As of October 2008 the foundation had 686 employees, an endowment of USD 35.1 billion and distributed USD 17.3 billion in grant commitments [5]. Part of the Foundation’s Global Development Program, the Financial Services for the Poor, supports new products, technologies, and business models to deliver safe, affordable financial services to poor families in developing countries. The Program emphasizes savings accounts for poor families. Other grants and grantees in the program include USD 24 million to the Consultative Group to Assist the Poor (CGAP), USD 24.2 million to Development International Dejardins (DID), and USD 5 million to New York University’s Financial Access Initiative (FAI) [4] [8][9][10].

GTZ (Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH) has supported 50 socially responsible technical assistance projects around the world for its major client, the German government’s Federal Ministry for Economic Cooperation and Development (BMZ). GTZ was founded in 1975 as a company under private law and currently employs 12,000 people in 120 countries. About 9,200 employees are based outside of Germany Other clients include national governments, the European Commission, the United Nations, the World Bank and private enterprises. GTZ works on a public-benefit basis. The company’s surpluses are fed back into its sustainable development projects. In 2007, GTZ measured a business volume of USD 1.5 billion, an increase of 15.2 percent from the previous year. New contracts also amounted to USD 1.5 billion and contracts in hand, USD 3.55 billion [7].

The GTZ has supported microfinance operations in more than 40 countries, combining technical assistance to microfinance institutions (MFIs) with financial sector reform. GTZ provides the following services: establishing and assisting microfinance institutions; vocational training, associations and credit information in microfinance; regulation and supervision of microfinance institutions (including central banks); linking commercial banks and self-help groups for microfinance; refinancing microfinance institutions; mobilizing savings; banking software for microfinance institutions (microbanker®) [7].

In general, GTZ activities can be divided into two main categories:

1) Technical assistance to MFIs: GTZ assists MFIs in their effort to become financially, legally and institutionally viable financial intermediaries. GTZ helps create network structures and links between MFIs and the banking sector rather than focusing solely on individual MFIs [7].

2) Support to financial sector reform that affects the institutional environment of MFIs: GTZ assists countries and their microfinance supervisory authorities (central banks or government agencies in charge of supervision in the microfinance sector) to develop more effective financial systems through appropriate legislation on prudential regulation and supervision. The full range of GTZ’s consultancy services can be found here [7].

By Kenny Kline, Research Associate

Bibliography:

[1] The Seattle Times: “Gates Foundation funds global network to increase savings” by Kristin Heim, 09/14/09

http://seattletimes.nwsource.com/html/thebusinessofgiving/2009863865_gat…

[2] Microfinance Focus: “Gates Foundation helps form new global alliance for Financial Inclusion” by N. Naagesh, 09/15/09

http://www.microfinancefocus.com/news/2009/09/15/35-million-grant-helps-…

[3] Philanthropy News Digest: “Gates Foundation Awards $35 Million to Alliance for Financial Inclusion”, 09/15/09

http://www.foundationcenter.org/pnd/news/story.jhtml;jsessionid=5ZKDBFHT…

[4] Washington Examiner: “Gates Foundation gives seed money for alliance to bring banking to the poor” by Donna Gordon Blankinship, 09/21/09

http://www.washingtonexaminer.com/nation/ap/gates_foundation_gives_seed_…

[5] Bill & Melinda Gates Foundation

http://www.gatesfoundation.org/Pages/home.aspxf

[6] The Alliance for Financial Inclusion

http://www.afi-global.org/

[7] Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ),

http://www.gtz.de/en/

[8] CGAP: http://www.cgap.org/

[9] New York University’s Financial Access Initiative: http://financialaccess.org/about/fai

[10] Development International Dejardins: http://www.did.qc.ca/en/default.html

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