Formal-informal Financial Linkages: Lessons from Developing Countries

Topic :

Despite significant innovations in rural and microfinance over the years, millions of people around the world do not have access to financial services. Can strategic linkages and alliances between financial institutions help resolve this problem? Thanks to funding from the Ford Foundation several researchers set out to answer this question.

The results drawn from 12 case studies conducted in eleven countries in Africa, Asia and Latin America indicate that financial linkages are increasingly used by formal inancial institutions (public or private) to target rural clients. A wide variety of less formal, often rural financial institutions are the linkage partners. Initial evidence indicates that the partnership seem to afford both partners the opportunity to overcome a weakness in what they can achieve on their own. But does this initial appeal translate into anything sustainable and/ or replicable? Although it is certainly too early to tell, financial linkages, while promising, are difficult to set up and manage, require strong less formal as well as formal institutions and seldom result in a significant expansion of financial services beyond credit.

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