How We Can Lift 2.7 Billion People Out of Poverty

A remarkable revolution is taking place in finance, not in the City, but under the shade of large communal trees in villages across Africa and the developing world. It's a savings revolution, and one with the potential to pump $157 billion into the global economy, and particularly developing nations, if the 2.7bn adults worldwide who are 'unbanked' participate in savings-led microfinance programmes.

A remarkable revolution is taking place in finance, not in the City, but under the shade of large communal trees in villages across Africa and the developing world.

It's a savings revolution, and one with the potential to pump $157 billion into the global economy, and particularly developing nations, if the 2.7bn adults worldwide who are 'unbanked' participate in savings-led microfinance programmes.

That is a finding in a report entitled, 'Banking on Change: Breaking the Barriers to Financial Inclusion'. It's an initiative by Barclays, and two NGOs, CARE International and Plan UK that aims to break down the barriers that prevent poor people from accessing financial services. It introduces some of the world's poorest people to a saving culture by joining a 'village savings and loan group' and then linking these groups to formal banking services.

Village savings and loans groups allow people to save together and lend to each other rather than relying on moneylenders. Interest is charged and the money shared out at the end of the year. Individuals have established successful businesses, sent children to school, and found an ability to manage their money against the hardship of a fluctuating low income.

The $157billion savings boost could support jobs and growth agenda in developing world. This is why, David Cameron and the panel appointed to work out the next set of Millennium Development Goals (MDGs) need to take financial inclusion seriously following their meeting in Liberia over the weekend..

Financial inclusion is absent from the current MDGs, but in its final report, the UN high-level panel should recommend that alongside goals on hunger and maternal health, the post-2015 development framework has financial inclusion either as a goal in itself or as a measurement of development progress and inclusive economic growth. This will help to ensure that discussions taking place amongst central banks and regulators are informed by the need for financial inclusion to reach the poorest.

As a former chief secretary to the Treasury and high commissioner to South Africa, I know just how vital access to even the most basic forms of finance can be for those living in poverty. The majority of savings group members are women who live on less than $2 dollars a day and yet the report finds that that no one is too poor to save. The group members save tiny amounts, and without any external injection of funds bring about enormous changes to the lives of their families. Women gain a new-found confidence, with many becoming leaders in their community.

I have seen these groups in action, and have powerful memories of a group of women savers in Mali singing joyfully under a tree - their impressive savings are allowing them to better feed, clothe and educate their children.

The savings revolution may just be the saviour of the much attacked microfinance world, accused of over indebting poor people much as easy access to credit in the West led to the US subprime mortgage collapse.

While many here rightly line up to criticise banks, there are 2.7billion people in the world for whom just having a bank account would be a luxury - they are considered too poor to warrant an account and for reasons explored in the report, have never been thought of as a viable market for global banks to explore, but that is a short-sighted view.

To their credit, Barclays have recognised this and have developed savings products and overdraft facilities that enable people in very poor communities to bank with them as a group.

These efforts are bearing fruit, the Banking on Change partnership has reached over 510,000 people in just three years. On average, each member has saved $58 per year. Multiplying this figure by the 2.7billion 'unbanked' people could represent a total of $157 billion that could be pumped into the formal economy each year.

Europe and the US may be in the grip of financial recession, but seven of the world's top 10 fastest-growing economies are in Africa. Amidst this picture of economic dynamism, poverty and inequality remain high.

Across Africa, I have witnessed the potential that the 'unbanked' represent and how developments in communications technology now offer opportunities for commercial and financial linkages. In the DRC I have seen how farmers affected by conflict are rebuilding their communities by accessing finance and market information via mobile phone.

It is a missed opportunity that there are an estimated 2.7billion people globally who do not have access to formal financial services. This represents a huge pool of potential savers who are not depositing in savings accounts or passing through other formal financial channels.

Lord Paul Boateng is a member of The House of Lords, he is co-chairman of the All Party Parliamentary Group on Microfinance and wrote the forward for the Banking on Change: Barriers to Financial Inclusion Report.

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