Mobilizing Savings - Key Issues and Good Practices in Savings Promotion
By Isabel Dauner Gardiol (Feb, 2004)
Abstract
This author analyzes the three levels of the market: micro, meso and macro and highlights how the three interrelate with each other. It stresses the need to understand the needs and demands of low income households for savings services (micro level), which determines the development of institutions (macro level), the design and marketing of their products. Finally, it looks at the way the regulatory framework and institutions (macro level) interrelates with the other two and the issues to consider before designing a legal framework.
The key issues that this paper considers are:
Given that the main determinants of households to save are: security, liquidity and access, institutions should develop their products to meet these three characteristics and should build internal mechanisms that guarantee them.
Similarly, the characteristics of the institutions available in the country as well as the resources and skills available should define the regulatory and legal framework of the sector.
The author suggests that a combination of self-regulation and delegated supervision by an accredited auditor can be a good alternative to MFIs who want to become regulated, but the authorities lack the capacity or political will to do it.
Summary
-Micro level- Households needs and characteristics:
Determinants to save are: security, liquidity and access. Evidence suggests that poor people save in monetary form to manage liquidity and they do so in informal institutions such as cooperatives or Roscas or neighbours or even at home and they decide among these alternative according to their perception of how save their savings will be and how easy it is for them to access these funds and turn them into cash.
They hold a diversified portfolio. Not only do they hold savings in cash and other liquid assets, but also do they keep some less liquid assets such as cattle, chicken, land, construction materials, etc.
-Meso level- Organizations that want to provide savings services successfully
They hold a strong management and are financially solvent. Not only should they meet all the formality requirements, but should also have internal controls, which combined with an external auditor can help detect problems quickly. This will allow them to provide an image of safety to the customer.
Liquidity management issues can be complicated and costly, thus institutions should be able to hold a knowledgeable management and technology that allows them to cope with the new demands.
Deposit-taking activities reduce the dependence from donors. A new role for donors can be to influence policy dialogue to develop a legal and regulatory framework. Also, they can encourage MFIs to offer savings services by being clear about their funding intentions and by relating their funding to the amount of saving. Alternatively, they could fund technical assistance to MFIs.
Four basic products are on offer. 1. Current accounts or sight deposits. 2. Savings accounts. 3. Time or term deposits. 4. Other products targeted to special segments or special purposes (i.e. children, elderly, education, housing, etc.)
-Macro level- The legal and regulatory framework
Regulation must be country specific but should include some prudential regulation. Authorities must protect savers by ensuring the solvency of the organization, by demanding things like minimum capital requirements, capital adequacy, loan documentation, etc.
Non-prudential regulation should aim to allow the efficiency of the organization. The existence of a lender of last resort protects the institution (indirectly the depositors), while a deposit insurance protects directly the depositors.
Regulation must address the specific country needs and availability of skills and resources to regulate MFIs, the author suggests that a combination of self-regulation and delegated supervision by an accredited auditor can be a good alternative for MFIs who wish to become regulated, but authorities canAot do it.