Gates Foundation Offers $500 Million to Help Poor Save

The Bill & Melinda Gates Foundation pledged $500 million over five years to help poor people get savings accounts, its biggest commitment to improving access to financial services.

The pledge will let millions of people who live on $2 or less a day use mobile phones or visit a local store to deposit money, the Seattle-based foundation said today in a statement. Of the total, $40 million in grants were announced to get programs under way.

The project, with partners including BRAC Bank Ltd. in Bangladesh and Vodacom Tanzania Ltd., is intended to build on the success of Safaricom Ltd.’s M-PESA mobile money system in Kenya, foundation officials said. That service began in 2007 and had more than 13 million subscribers at the end of September.

“The big challenge you see over and over again with banks is that the small-balance accounts are not profitable,” said Bob Christen, director of the foundation’s financial services for the poor program. “Also, not very many bank branches are located where the poor live and work.”

As a result, someone in Bangladesh might spend half a day’s wages getting to the bank, Christen said. As an alternative, the poor often put cash in jewelry or livestock vulnerable to theft or loss. Studies show people using M-PESA in Kenya are better able to withstand shocks like crop failure, he said.

‘Warren’s Gift’

The foundation, run by Microsoft Corp. Chairman Bill Gates and his wife, Melinda French Gates, had $36.4 billion in assets at the end of September and has focused on public health and education. In 2006, investor Warren Buffett, ranked the second-richest American after Gates by Forbes magazine, pledged most of his fortune to the foundation.

“Bill and I had not yet completely decided how much money we were going to put in this area when Warren’s gift came along,” Melinda Gates told reporters in Seattle today at a foundation-sponsored conference of global leaders in banking and technology. “And that became the moment that we said, ‘OK, we’re really going to do this.’”

Including earlier pledges of $530 million, the foundation has committed more than $1 billion to financial services for the poor.

Among the package of grants announced today is $10 million to bring 17.5 million poor people into bKash, a mobile money system in Bangladesh planning to start service in March, and $4.8 million to expand M-PESA in Tanzania by at least 2 million people.

Using mobile phones for banking may drive down costs as much as 70 percent, said Kamal Quadir, chief executive officer of the bKash venture with BRAC Bank. More people in Bangladesh, a country of 160 million people, have mobile phones than bank accounts, said Syed Mahbubur Rahman, the bank’s CEO.

“So, the potential is very much there,” Rahman said.