FDC’s recently completed linkage banking 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 organisational strengths and resources to provide sustainable and effective access to finance and economic opportunity for those who would otherwise be disadvantaged.
While there may be limitations on microfinance’s ability to achieve reach quickly and at scale, it remains an effective way to connect with those people who have the least access to finance. The retail finance sector is applying more capital and technology and achieving success in reaching the unbanked and underbanked, however, its ability to get to people at the base of the pyramid remains constrained. The most excluded still require the human touch in building their awareness of products and services, their financial capability, and their trust in suppliers and the financial system.