Toespraak van Prinses Máxima bij VN-conferentie “Finance for Development”

Toespraak | 29-11-2008

Roundtable on Mobilizing Domestic Financial Resources for Development

Ladies and gentlemen,

It is a great pleasure for me to be able to address this special group of people today. As a member of the UN Advisors Group on Inclusive Financial Sectors, I welcome the opportunity to share some thoughts with you in this important exchange of views in reviewing the Implementation of the Monterrey Consensus. I would like to thank the organizers for their kind invitation, and for allowing our group to be part of this panel.

The discussion on Financing for Development in relation to financial sector development cannot be more timely at this moment. The financial crisis that has been prevailing over the last months have shaken all our grounds and have certainly made us rethink how can we finance development and therefore how to help reduce poverty and reach the MDGs. We know that a strong accessible financial sector in a country not only promotes growth, but also reduces inequality, two things we should be aiming for.

During the 2005 International Year of Microcredit, the United Nations asked me and 24 other distinguished colleagues from a variety of professional arenas including finance, academia, development, government and the regulatory community, to become a part of a new Advisors Group on Inclusive Financial Sectors.

Our task was to identify and define the key issues limiting access to financial services and advise the United Nations and its member states on strategies and concrete steps to remove these constraints and offer new opportunities by enabling genuinely inclusive financial sectors - a task we gladly took on. In this process we adopted key messages for four key audiences: governments, regulators, development partners and the private sector that will help provide guidance to achieve universal access to finance. These key messages together with a set of recommendations were presented to the UN secretary General, just an hour ago, in the hope that the UN system will pursue their completion.

Ladies and gentlemen, "Inclusive finance" is so much more than microcredit. There are more than 2 billion "unbanked" people around the globe - people who do not have access to even the most basic types of financial services that we often take for granted: bank accounts, insurance, savings, mortgages, money transfers and - yes-credit.

Of all the products encompassed by inclusive finance, there is one that deserves special attention and that is savings. For a variety of reasons, savings has not received the same level of attention or resources as credit, but research shows that it is equally as important -- if not more so. Debt instruments may not be optimum vehicles for the poorest of the poor. Savings, on the other hand, affords a debt-free way to form a buffer against life's risks, build assets and provide opportunities for the next generation. Despite the important role of savings, only 20% of the world population has a formal savings account with figures varying from 18% in Latin America, 22% in Africa, 37% in Asia against 90% in the OECD countries.

A lot of people say that poor people cannot save, well, that is certainly not true. We know that poor people can and do save, though often not in formal saving accounts. Instead, they put money under their mattress, or are forced into risky, unsecured, illiquid investments such as livestock or building materials, and as a result can see all of their assets - and dreams - wiped out in an instant by an illness, fire, flood or drought.

In expanding the supply of saving instruments around the globe, we have seen that the demand for saving products has been astonishing. In countries like Cambodia or Mongolia for example, when offered the possibility to open savings accounts, we have seen growth figures of nearly 100% per year. In Bolivia and Peru growth rates of 50% are not uncommon. In Kenya, we learned that the number of Kenyans choosing to open bank and savings accounts tripled --- from 3.3 million to 10.1 million - over a one year period, thereby clearly demonstrating that there is a huge need for saving products in Africa and other parts of the world.

This growth in savings has not only been a consequence of choosing safer saving instruments over informal methods, but also because when people have good instruments to save, they are incentivized to save even more. In Uganda, one study found that those with access to formal savings in banks saved three times as much as those who had only informal savings available. Also in India similar evidence was found.

The need for saving instruments is sometimes compelling….

Once in Soweto, I was speaking to a lady who said that she got money from her son living in the UK on a monthly basis. She wanted to add a room to her house to be able to rent it out. Every month, she bought some building materials and put them aside. One day a storm came, and half the bricks were destroyed. My question was, why couldn't this woman save that money in a savings account?

In Kigala, Kenya, I met a woman that was so happy. She now had a savings account of her own! And when I asked her why it was so important for her, she answered: "Now my husband won't steal it from me to go out drinking and buying useless things".

Lately, from some microfinance Institutions I have learnt that during the recent periods of high food and oil prices, some of their clients ate on their savings to maintain their family's daily diet.

And that is exactly what savings are for, to cover for unexpected developments. Or to invest, in your children, in your house or in your business. Studies have shown that poor families with access to financial services are more likely to send their children to school, and the children stay in school longer. In Kenya, farmers who have access to formal savings products are more likely to save after harvest and invest in fertilizer, which in turn increases their crop yields and annual income.

And, ladies and gentlemen, attracting savings is the way for microfinance institutions to develop in a healthy and sustainable way. It is often the most sustainable source of funding for them. If we want to keep on financing small credits and therefore helping the creation of micro-small and medium sized enterprises that will boost development, we will have to focus on access to savings. During the last two months we have seen that microfinance institutions that do not have a savings base and are dependant on loans from local commercial banks or international funders, are finding it more difficult to refinance these loans. And if they do, they probably have to pay 200 basis points more on these credits. We are then talking of a cost of capital of at least 11% to begin with. These costs will have to be transferred to their clients with all of its consequences of course..

The institutions that have been able to attract deposits are well weathered for this crisis and will be able to continue funding their clients. Growth will probably not be the same as the last years, but at least they will continue to service their old clients focusing on the quality of their service and their assets.

Mobilizing domestic resources through promoting savings is so obvious, but still, it does not get the attention needed!!! I expect ánd hope that the liquidity problem that arose from the financial crisis will create the sense of urgency needed in order to prioritize savings and create the necessary enabling environment.

For this, governments and regulators need to have a clear vision in terms of mobilizing domestic resources. Policies need to reflect this vision by incentivizing savings, educating the population on the importance of savings and, forming legal frameworks that protect deposits without hampering access to savings. This is essential, very tight regulations will ensure the safety of deposits of only the very few that will have access to them. The trade-off between safety and access has to be central in determining a country's financial regulatory system.

Microfinance institutions together with regulators need to study the possibilities of becoming deposit taking institutions and design this roadmap. Donors have here an important role to play as it is costly to undergo this process and microfinance institutions will need the necessary funding and technical capacity for this transformation.

Ladies and gentlemen, if there is something that I definitely have learnt from these past few months is how important it is to have and develop a sound inclusive financial system in a country that, not only promotes growth, but also gives their customers financial services they really need and can afford. Therefore safeguarding not only our people's savings, but also the financial system as a whole.

When speaking about financial inclusion, there is a subject that is key. While access to this kind of financial services can be a good thing, it requires informed consumers who understand the obligation they are undertaking and have the commitment to fulfill it. It also depends on fair dealing on the part of the lender, and clear and transparent loan terms. The current global financial crisis owes in part to absence of these factors, and to reckless and aggressive marketing of inappropriate loan products to vulnerable consumers, many of whom did not fully understand what they were getting themselves into. There's an appropriate role for the government in establishing "light touch" market conduct regulation and programs to inform consumers about financial services. And it is the role of the microfinance institutions to have consumer protection and transparency written in the DNA of their organization.

I was in Paraguay a month ago and somebody from an MFI said something that I will never forget. He said: "It is not about increasing market share and trying to get as many products sold to the customers out there, but it is about giving the product that the consumer needs and that they can afford. Knowing your customer, not on a scoring basis, but really knowing that this client has the capacity to pay back his loan."

Ladies and gentlemen, on behalf of my fellow advisors to the UN, I hope this has in some way, inspired you to really give some thought to the issue of Financial Inclusion and how can you help enhance it. Just remember that microfinance is back to basics, it is back to the traditional banking activity of intermediary between the saver and the debtor, it is back to a strong relationship between the client and its financial institution and it is back to thorough assessment of how much a client can take as a loan, giving him a chance to improve his life and giving him back his dignity.

I thank you all very much for your attention and I wish you wisdom and vision in all your endeavors.