Formal—informal financial linkages: lessons from developing countries

Abstract

Despite significant innovations in rural 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? Research funded by the Ford Foundation, drawing on 12 case studies conducted in 11 countries in Africa, Asia and Latin America indicated that financial linkages are increasingly used by formal financial 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 partnerships 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 or replicable? Although it is certainly too early to tell, financial linkages, while promising, are difficult to set up and manage, require strong NGO-MFIs as well as formal institutions and seldom resul...