By Stuart Rutherford (2004)
http://www.alternative-finance.org.uk/cgi-bin/summary.pl?id=38&language=E
Abstract
This paper builds on Safesave experience in offering a variety of different services to satisfy clients' need for financial intermediation and aims to shed some light on how the banking sector in Indian can expand rapidly to serve the poor on a massive scale. He concentrates on product design, since he believes products are sometimes taken for granted but the ‘right product' should be developed based on a deep understanding of clients' needs.
The main conclusions of this paper are:
Understanding basic personal financial intermediation is the basis to promote good products for the poor. Thus, services must be tailored to enable and encourage pay-ins.
Products that are relevant for the poor must take very small and variable sums and very frequently.
Withdrawals should also be allowed to happen when needed, thus before, during or after a series of pay-ins.
Products must be as convenient and cheap as possible, with on the spot easy transactions, with clear and written rules.
Summary
Understanding client behavior. The author believes that understanding the basic principles of banking from the poor is far more effective than replicating proved models. He has done extensive research on the ground trying to understand client behavior towards Grameen-like loans and towards loans from informal providers. His findings are summed up on three simple facts:
Poor people can and want to save.
Poor people surprisingly often need large sums of cash for three main reasons: a. life-cycle events such as marriages, home-making, educating children, festivals, funerals, heirs; b. emergencies from accidents and illnesses to floods, fires, etc; and, c. opportunities to invest in land, bulky assets or to start up a business, etc.
The only practical and reliable way to get hold of the large sums they so frequently need is to find a way to creating them from the small sums that they are able to save.
Creating lump-sums from small savings or Basic Personal Financial Intermediation. There are three main ways to meet peoples' needs for large sums of money: a. save until you have a large sum, get an advance; b. loan against future income; or c. (insurance) deposit a regular flow of small savings with an organization which will give a large lump sum if an eventuality occurs. All of these mechanisms refer to what the author calls basic personal financial intermediation (or turning mickles into muckles).
Product design basically consists of helping the poor with ways of turning mickles into muckles in as many ways as possible, and in as flexible and convenient a way as possible.
Facts about existing products in India:
Most informal basic personal financial intermediation swaps, such as money collectors, moneylenders or ROSCAs offer little flexibility.
The Annual Savings Club allows its clients to save 520 rupees plus 30% a year interest earnings and they are allowed to ask for a loan at 4% a month (better than a moneylender). These conditions are much better than those mentioned in the previous paragraph, thus highlighting that systems that treat savers and borrowers tend to be the best.
For longer term swaps, India's Marriage Funds set up an underlying long term savings swap, but then offer short term loan swaps. The flexibility of this fund has proved this product better meets the requirements of the poor (some long-term and some short-term).
SaveSafe's product was developed based on deeply understanding the client's needs:
This product has been aimed to meet the poorest needs(most models used, like Grameen, have failed to reach the poorest of the poor). Given that the poorest people's income is too uncertain to commit to weekly fixed savings, SaveSafe offers them the daily opportunity to save, borrow, withdraw or repay. Clients may take or turn down the opportunity. Most accept it several times a week and some every day. Thus, variable pay-ins makes this product flexible and convenient. This product works individually and no meetings are required, which reduces transaction costs of clients to the minimum. Besides, it is profitable, since it charges 2% a month for its advance-against-savings service and pays under 1% a month on savings.