FAO, thanks to funding from the Ford Foundation, conducted a world wide review of innovative linkages between formal and informal financial intermediaries in Africa, Asia and Latin America in 2005. In the scope of the study FAO set out to examine linkages that result in expanded access to a broad array of financial services, not just credit.
Twelve cases (available on the RFLC website) investigated in this study show a rich variety of such financial linkages. These linkages take many forms and no single circumstance is sufficient to explain the emergence of various types of linkages or the reasons why specific institutions enter into linkages. Some linkages are spontaneous and market driven, such as when a large urban commercial bank lends to a cooperative or NGO that specialises in rural lending. Other linkages are sponsored, such as when donors support the creation of wholesale apex institutions for lending to small rural retail institutions. Some linkages emerge out of compliance with regulations, such as when an insurance company links with rural microfinance institutions (MFIs) as a way to meet its quota of life insurance sales to rural customers. Sometimes small institutions seek linkages with larger ones to gain access to their more abundant resources and expertise, while larger institutions want to link with smaller ones that are closer to and more knowledgeable about the demands of a specific rural clientele for financial services. Some linkages are expected to be permanent because they serve the long-term business interests of both partners. Others, however, may experience a natural lifecycle in which they are designed, serve a purpose for a time, but then disappear because regulations, markets, institutions, or clients change.
Initial evidence indicates that the partnership seems 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 and/ or replicable? Although it is certainly too early to tell, financial linkages, while promising, are difficult to set up and manage, require strong less formal as well as formal institutions and seldom result in a significant expansion of financial services beyond credit.