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When in May, Barclays Bank opened a branch in Soroti, a town in eastern Uganda located five hours' drive from Kampala, the event attracted minimal media coverage in Britain.

But in Soroti it was a major event. Uganda's minister of finance was there, along with the district governor, local MPs and councillors and the national media.

The main road was closed and huge marquees were erected to offer shade to those turning up to witness the opening and watch Barclays' former vice chairman, Gary Hoffman, cut the turquoise ribbon.

The opening marked Barclays' return to an area it left 35 years ago, when former Ugandan dictator Idi Amin ordered all foreign-owned banks to abandon up-country branches. It was also the 48th branch opened by Barclays in Uganda in 18 months, taking its national estate to 55 branches.

But the branch signified more than another stage in Barclays' Ugandan expansion. It recognises that the vast majority of Ugandans are unable to afford its low income accounts, which require earnings of at least $2 a day, and so, five months after its branch opened in Soroti, Barclays launched a community investment partnership to help 800,000 people in developing countries.

The $20m (£13.5m) project, which was announced by former US president Bill Clinton at the Clinton Global Initiative annual meeting, is based on lessons that Barclays learned in Katine, a village just 45 minutes' drive from Soroti.

A GLOBAL INITIATIVE

Barclays has partnered with consultancy Accenture and development agencies, CARE International and Plan International, to design and deliver the project in ten countries.

Archie Cox, chairman of Barclays America, says: ‘Tackling financial exclusion is one of the most powerful routes to helping people break out of the poverty cycle. By improving access to financial services, this partnership aims to provide people with the financial security needed to build a sustainable future, educate their children and meet basic needs such as health and nutrition.'

Susie Hares, global community partnerships manager at Barclays, says the idea for the programme came from a three year partnership between the bank, Guardian newspaper and African relief organisation AMREF, to transform the lives of people in Katine, where much of the infrastructure was destroyed during the 20 year civil war.

Hares explains: ‘The majority of people in Africa live on less than 50p per day, although it does vary from place to place. Our skills as a bank are in helping people manage their money and helping businesses to grow. We wanted to use our business skills in the village. There was no bank for the villagers to use but they were obviously minding their money in some way. We spent time understanding how.'

It soon emerged that Katine had several savings and loans associations. These had no formal documents of incorporation. ‘A group of people would get together and acquire a box with three keys,' explains Hares. ‘Each key was held by a different person and a basic share price was set. Members of the village would come to a meeting at which they would buy a number of shares and, if they wished, borrow money from the association.'

The loans, which were often for educational costs, such as uniforms or books, or medical bills, are made on a short term basis, perhaps for as little as three months, and interest, which is set by the members at the outset and can be as much as 10 per cent per month, is levied.

‘Members can borrow up to three times their cumulative savings,' explains Hares. ‘For example, you cannot invest 10p and borrow £100. There is some security because you are borrowing from your neighbours and friends, and these are close-knit communities. If you don't pay back your debts but own five goats, the villagers might take one goat instead.'

At the end of the year, each association is wound up and the profits returned to its members. A return of 40 per cent on an investment is not uncommon.

A WIDESPREAD SOLUTION

Barclays' research revealed that, across Uganda, a similar system of savings and loans associations was in place. Most villages have between two and three associations, often led by the women of the village who, historically, save a proportion of their family's weekly income for burial costs. ‘If there are 15 people in an association, then 14 will be saving some sort of amount every week, even if it is only 20p,' explains Hares.

A typical village has 250 people and two associations, of which 20 per cent of villagers are members. It also emerged that most people were borrowing to survive.

‘One resident of Katine was particularly entrepreneurial,' says Hares. ‘He was exporting cassava to South Sudan. It was an impressive set up and he had his distribution sorted out. But he was financing his growth by borrowing money from five separate associations.' Barclays recognised that his expansion might be better financed by a more formal loan arrangement, and that foreign currency hedging and a safe deposit account might prove valuable.

However, Barclays also recognised that the entrepreneur would struggle to get loans from a traditional bank because he lacked a formal credit record. This has led Barclays to consider ways that an association's records might be used to count towards credit scoring. ‘Every bank is governed by Know Your Customer (KYC) regulations, to ensure that it is lending to the right people. KYC involves a lot of paperwork and, as such, it can be a struggle to make our services available to people in villages in Africa,' explains Hares. ‘The dilemma for us is how do we, as Barclays, take the existing system and improve it. We can help improve business know how, for example offering advice on putting together a business plan, and we can put technology into the system. If there are ten villages, with a total of 20 associations, then introducing hand held devices should have an impact on business.'

The project is not, however, about getting customers for Barclays. ‘Let me set a scene,' says Hares. ‘It is five hours' drive to the capital city [where there are many banks] along roads that are extremely bumpy. People want financial services but they want them on a local basis.' For example, staff from Barclays' Soroti branch will support the project's activities by providing mentoring and coaching.

SPREADING KNOWLEDGE

In April, Barclays approached CARE International and Plan International to discuss a strategy for ‘upscaling the existing savings and loans model on a wider basis', says Hares. The bank offered to provide funding, skills and business knowledge. ‘It is an opportunity to try a local scheme on a global basis,' she adds. ‘If eventually village members become a customer of any bank, it is of benefit to Barclays because it will benefit the community.'

The community investment partnership will launch in ten countries, in Africa, Latin America and Asia. There are two schemes on offer. Barclays will offer advice and financial assistance in establishing village savings and loans associations, based on the model in Katine, or, alternatively, it will extend financial services and loans to people who need more significant funds at around one tenth of the normal interest rate.

‘If there are 15 people in a group saving 50p every week, not everybody will want to borrow,' explains Hares. ‘The association has capital which it can use and invest, and that is an area on which we can offer advice.' There is an added need in Africa to make sure funds are secure and safe, because it is estimated that as much as 20 per cent of all savings are lost every day either through theft, fire or termites that eat the money.

Hares adds: ‘We have worked very closely with Plan International and CARE International to ensure that we are doing the appropriate thing. We are not trying to force one million people to sign up with Barclays. If it is right for some people, then we will offer basic accounts and commercial loans but this project is more than that - it is about tackling financial exclusion.'.

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