By Marguerite Robinson (2004)
http://www.microfinancegateway.org/files/23749_file_Mobilizingsavings_Robinson.pdf
Abstract
This paper has two objectives: It aims to help transforming MFIAos stakeholders to understand what to expect when introducing a savings product. Secondly, it aims to inform their decisions about whether mobilizing savings is the right choice for the institution.
The author concludes that the success of a transforming MFI, which begins to mobilize savings depends on:
A good understanding of the basic principles of why and how people save
Right macro and political environment, as well as appropriate regulation
Right staging of the introduction of savings products, which includes several internal modifications to staff and internal culture.
While the main risks to the transforming institution are:
internal reluctance to absorb changes to the organization
macroeconomic risks, liquidity crisis
operational risks (frauds, technology problems), damaged reputation.
Summary
The author believes that understanding in what ways poor people save and why is key to develop appropriate products. Thus, she presents a set of facts about low-income savers:
They want the same things as other savers: security, convenience, liquidity, confidentiality, products appropriate for their needs, helpful and friendly service, returns and potential access to loans. All these characteristics form a package, not a menu from which MFIAos can choose.
Their primary need is to swap small savings from income flows into lump-sums.
Institutions wanting to provide savings products must keep in mind:
Need to remain profitable, they must raise the average account size, thus, it must also serve non poor savers. This means it must be aware of financial habits of both kinds of savers.
Security and convenience perceived by rural savers, these could outweigh any higher returns that may be gained from informal savings such as caring for animals. Similarly, those that save in valuable objects, such as gold or jewelry could be attracted to MFIs if they offer a substantial amount of security to its clients. Finally, for those that save in cash, the advantages a financial institution offers are security, liquidity and, in most cases, returns.
The author gives 10 basic principles for MFIs mobilizing savings synthesized below:
Provide products and services appropriate to the needs of the clients, as opposed to aiming to teach poor people how to save (they already save).
The client must trust the MFI. The product and the institution must be perceived as trustworthy, secure and stable. Savings will not be so tolerant to transaction costs as debtors.
Macroeconomic and regulatory preconditions must exist: Political stability and a reasonable policy and regulatory environment must exist. Also, public supervision should be available.
Ownership and management will have to change. Accountability of owners of a finacial intermediation agency differs from that of an unregulated NGO. Similarly, new management skills will also be needed since financial intermediation requires specific qualifications.
Savings must be mobilized from the poor and from the not-so-poor. This would help the institution to be self-sufficient. Also, diversification will allow it to avoid withdrawals clustered around certain times (i.e. when school fees are due, at religious holidays, pre-harvest months, etc) which could cause a liquidity crisis.
Number of clients can increase in a fast and uncontrollable way. On the operational side, human resources may need to be retrained or motivated to undertake a larger number of clients. Also, information technology should be available.
Savings is a source of funds, but also a liability. Loan defaults can put savers money at risk, losses from investments. MFIs must have a spread that is adequate to cover expenses that keep saverAos money safe.
New training and incentive programs for management and staff.
Avoid a wide choice of products. A few well designed savings products and a general purpose individual loan.
Mobilizing savings takes considerable time and proper sequencing. It should not be rushed to finance an expanding portfolio or other requirements.
The author describes in detail the right sequencing for turning an MFI into a savings mobilizing institution, which consists of 20 steps, summarized in:
Pilot project should assess if the designed product is in demand, to analyze the pricing structure as well as for training purposes and to test systems.
Pilot should be implement in several branches (except on very small institutions) to revise products, pricing, operational changes, test products in various environments, etc.
Second pilot should be followed by a gradual roll-over to all branches.
Develop appropriate strategies for investing excess liquidity. Once financial intermediation is happening for the whole organization and market penetration increases, savings are likely to overtake lending. After lending to low and middle-low income people, the remaining funds should be well invested.
The author finalizes the paper with a small reflection on how all actors involved benefit from increased savings products delivered to the poor. Households benefit by having greater financial options, MFIs can grow and more competition encourages more efficiency. Governments do not need to subsidize credit programs, and economies have more resources available for investment.