Linkage Banking in the Pacific

This study describes and explores examples of working partnerships in the Pacific between regulated financial institutions (e.g. banks) and community, industry, market, or other groups outside the formal economy. These partnerships aim to extend the reach of formal financial services to people without access to finance and financial services, and to enable those in the informal economy to engage more effectively with the formal economy and eventually transition into it. The rationale behind linkage banking is that each partner applies its respective organizational strengths and resources to provide sustainable and effective access to finance and economic opportunity for those who would otherwise be disadvantaged.

Five linkage banking partnerships in the Pacific were studied in producing this report. They represent a mix of models and delivery channels, which in turn represent responses to the differences in population density and infrastructure, and to the various market and cultural factors that hold throughout the Pacific. 

The study offers the following key lessons and recommendations:

• Savings‐led schemes appear to dominate linkage banking, and where small loans are extended against savings balances, recovery rates are excellent.
• The main benefit of partnership is confidence. Clients engage best with new products and providers when they are introduced by a trusted advocate.
• Mobile technology is a critical enabler of access to financial products and services.
• The human factor remains the vital component in addressing problems.
• Capacity‐building is needed across the board, among clients, providers and systems.
• Clients need more than just money. They also need technical advisory services and training in business skills. It is important to link credit schemes and development services.
• Paced growth underpins sustainability, and that pace should be in line with institutional capacity and the absorptive capacity of the market (clients).
• Starting with a core group is an effective strategy. Such groups can be established more intensively by introducing more borrowers in smaller areas, or by adding members of an affinity group (savers, smallholders, farmers, etc.).
• Cash is king—for now—and banks are its primary providers.
• Community, market and industry groups can focus on providing product and use information to members while agents concentrate on transactional services, thereby improving the efficiency at the agent interface.