Raising the Curtain on the "Microfinancial Services Era"

This article introduces a new era of microfinancial services and a vision for the future. This new era is characterized by diverse financial products and follows on from the first era of agricultural loans and then more recently, microloans to business women. It defines all financial services as means for poor people to turn their savings into usefully large lump sums and these are done in three ways:

• Saving up is keeping back cash now so that it can be spent in the future;
• Saving down is a cash advance against part of future income;
• Saving through is turning a series of savings into a lump sum through mechanisms such as RoSCAs, pawning and insurance.

The paper offers requirements for good financial services products in line with the definition above. They are all matters of product design:

• Making it easy to deposit pay-ins;
• Offering a disciplined regime for making the pay-ins;
• Making it easy to take out the lump sum;
• Accepting a wide range of values of deposits;
• Offering a wide range of time scales for the savings-to-lump-sum swap;
• Offering a full range of swap strategies.

This article is also available in French, Spanish and Arabic here.