Paper

How Donors Can Help Build Pro-poor Financial Systems

Utilizing financial system approach to serve the poor better

This paper presents a framework for action for donors to more effectively support pro-poor financial systems by mutual collaboration:

  • Analyzing the priorities and constraints of financial system stakeholders from the perspective of expanding services to poor people;
  • Identifying potential donor engagements with each stakeholder to create a menu of possible actions;
  • Selecting an appropriate course of action from the menu.

The paper argues that financing through government budgets is not appropriate for building pro-poor financial systems. It presents an example of how few donor agencies joined forces to fund pro-poor finance in Tanzania through:

  • Common donor goals;
  • Supportive and appropriate government policy;
  • Joint principles for pro-poor financial system development;
  • Harmonization of donor procedures;
  • Establishment of a trust mechanism.

Finally, the paper lists the emerging principles to improve effectiveness of donor support to pro-poor financial systems:

  • Using donor to help build strong retail financial intermediaries that reach a large number of poor;
  • Building local capacity and markets at macro, meso and micro levels;
  • Avoiding the reinvention of the wheel if others have already analyzed the financial system;
  • Donors not channeling financial services solely through governments but also utilizing private sector initiatives;
  • Harmonizing standards and procedures to increase efficiency of all types of donor engagements;
  • Using subsidies to make financial markets work for poor people and not to undermine them.

About this Publication

By Helms, B., Goodwin-Groen, R., CGAP
Published