The co­op­er­a­tion coun­tries of German de­vel­op­ment co­op­er­a­tion are de­mon­strat­ing a growing interest in the provision of needs-driven financial services for individuals, house­holds and businesses. Micro­finance services including insurance, savings accounts and payment trans­actions are seen today as a key instrument in giving poor sections of the popu­la­tion greater economic and social leeway.

Sustainable microfinance builds on independent microfinance institutions. Only a microfinance organisation that is financially self-sustaining can play an effective part in reducing pov­er­ty.

High level of demand for savings accounts and credit

The chance to save money can give poor people an opportunity to build reserves and thus underpin their survival. A bank account into which small sums are paid can tide them over crises or allow them to invest.

Microloans help individuals to invest in seed or working capital, allow them to finance education or housing, and can improve the health care available to family members. A study published by the non-governmental organisation Microfinance Information Exchange (MIX) comes to the conclusion that some 100 million people in 117 coun­tries have been granted a loan by one of more than 10,000 microfinance institutes (as at December 2008). The demand, however, far outstrips these figures: 2.7 billion people still have no access to formal financial services.

Insurance against ill health, accidents and loss of harvests

Low-income households are disproportionately vulnerable to the risks that come with everyday life – ill health, accidents or extreme weather events hit them par­tic­u­lar­ly hard, and can cost entire families their livelihood, forcing them into pov­er­ty. Health insurance, life insurance and ag­ri­cul­tur­al insurance are efficient ways of covering the risks faced by individuals. The huge demand in de­vel­op­ing coun­tries is still largely unmet – only three per cent of the popu­la­tion in the world’s 100 poorest coun­tries has insurance cover of this sort.

Mobile phones open up new opportunities

Large sections of the popu­la­tion in de­vel­op­ing coun­tries still have no access to microfinance services. Mobile-phone-based services offer an opportunity to step up access in a cost-efficient and effective manner. About 2.7 billion people have no bank account, but almost one billion of them have a mobile phone.

Mobile-phone-based financial services make customers independent of bank branches. This opens up entirely new opportunities in rural areas in particular, where there often is no commercial bank.

German engagement

The promotion of sus­tain­able access to needs-driven, trans­pa­rent financial services is incorporated in the overall German strategy for financial systems promotion. The Federal Republic of Germany is one of the leading donor coun­tries in the field of microfinance. At in­ter­na­tional level, Germany is an active member of the G20's Global Partnership for Financial Inclusion. Flagship projects of German de­vel­op­ment co­op­er­a­tion include the Access to Insurance Initiative, a German-initiated multi-donor platform that aims to improve access to microinsurance schemes, and the European Fund for Southeast Europe, which is one of the largest financing funds for small and medium-sized businesses in Southeast Europe and the Eastern European Neighbourhood Region.

The Federal Ministry for Economic Co­op­er­a­tion and De­vel­op­ment (BMZ) supports the work of micro­finance organisations, insurance bodies, banks and political actors in a wide variety of ways. Im­ple­ment­ing orga­ni­sa­tions of the Ministry, including KfW Entwicklungsbank and the Deutsche Investitions- und Entwicklungsgesellschaft (DEG), which specialise in offering Financial Co­op­er­a­tion services, extend loans to secure microfinance organisations or take out a stake in these institutions.

On behalf of the BMZ, the Deutsche Ge­sell­schaft für In­ter­na­ti­o­nale Zu­sam­men­ar­beit (GIZ) supports moves to establish stable financial systems. The gov­ern­ments of co­op­er­a­tion coun­tries are advised on how to improve the legal framework and banking super­vision. With a view to strengthening the financial infra­structure, credit information offices and microfinance associations are being established and consolidated with German assistance. These bodies help microfinance institutions to expand their product portfolio and develop needs-driven financial services.

Involving private investors in micro­finance insti­tu­tions and micro­in­surance funds offers a huge potential. In future, the BMZ would like to en­courage private-sector involvement to a greater extent, and thus facilitate responsible and sus­tain­able invest­ment in the financial sector in de­vel­op­ing coun­tries. This will also spawn numerous opportunities on which other sound de­vel­op­ment projects can build.