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Executive summary
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The remote poor need access to the financial system and not merely financial capital.
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Savings-based semi-formal financial institutions such as self-help groups serve this need well. However, semi-formal institutions may require different supports than microfinance institutions that seek permanence and scale. They have capacity to be self-replicating.
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In order for these semi-formal financial institutions to really have an impact in terms of breadth of outreach, they need to adapt within their context.
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Transforming into a more formal financial institution is not the only option. Several cases have demonstrated that semi-formal institutions can remain decentralized if they are appropriately linked. They key is to draw on both the “local” and the “linked.”
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Self-management draws on local leadership significantly reduces the transaction cost substantially, making it possible to reach remote areas and / or reduce the lending cost of capital.
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However, to broaden the scope of products and other inputs such as increased funds for growth, being linked is also helpful. There are many ways for semi-formal institutions to be linked: becoming members of a financial institution; becoming networked but retaining some management autonomy and becoming networked in a centralized management structure.
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Donors and regulators have the capacity to facilitate or impede these linkages. It is essential to understand how these semi-formal institutions fit into the broader macro-environment.
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