By promoting microfinance, the SDC aims to offer cost-effective, comprehensive financial services geared specifically to the needs of poor sections of the population and microenterprises.
The SDC's focus
The SDC is committed to creating a financial sector that also takes account of the needs of poor households, women, smallholder farmers and microenterprises. This is also known as the microfinance sector because it targets low-income sections of the population and microenterprises in particular. The SDC regards the development of financial services as an entrepreneurial challenge and aims to create cost-effective, sustainable services geared to clients' needs and able to respond flexibly to changing market conditions.
The key elements are:
- The SDC supports a wide range of financial institutions that offer services for poor client groups. Depending on the context, these may be formal financial institutions, such as banks that offer microfinance products in direct or indirect collaboration with self-help organisations, specialised institutions, such as co-operative societies, non-governmental organisations, village savings funds, post office banks or informal financial institutions, such as savings and loan groups or other civil organisations, etc.
- The SDC promotes financial education for its target groups. This helps people learn more about financial products such as savings accounts and micro-insurance as well as basic skills in handling modest savings.
When given the opportunity, poor sections of the population will eagerly save even the tiniest amounts. In poorer countries, the savings volume is often many times higher than the lending volume. Moreover, loans are usually repaid reliably. So it is all the more surprising that the overwhelming majority of the population in virtually all developing countries still have no access to adequate financial services.
By developing microfinance structures (specialised microfinance institutions, alliances between banks and non-governmental or self-help organisations, commercial banks with specific service structures for poor clients), even poor sections of the population can be integrated in the economic cycle. As a fixed component of the financial sector, microfinance is aimed at economic actors who have no regular access to appropriate financial services via formal financial institutions. The aim is to offer a broad, differentiated range of products and services for small and micro amounts of cash, including loans, savings services, insurances and cashless transactions.
Secure savings options are particularly important for households with small, irregular incomes and for women, in order to hedge against emergencies or set aside money for their children's education or other long-term investments. In addition to savings, access to credit facilitates their participation in economic life. It enables them to capitalise on business opportunities and expand existing commercial activities. Access to financial services can pave the way to a self-determined life of economic self-sufficiency. This applies particularly to poor women who account for more than half of all microfinance clients around the world.
Facilitating access to secure financial services for poor sections of the population remains one of the key challenges for microfinance. In addition to expanding financial and management know-how for clients and providers, the focus is on building and expanding sales channels and creating favourable framework conditions. There is also a need to enhance efficiency and reduce costs in order to offer services cost-effectively and, thereby, sustainably.
Another challenge is to develop new products that meet the variety of needs of poor sections of the population. A varied, secure range of savings products, long-term credit, insurance products and risk capital are just a few of the key ideas in this area.