Case 1: Keys to Cost Management

Vital Savings Statistics: DEPROSC Development Bank (DD Bank), Nepal 2006 Type of institution For profit private company, MFI Number of voluntary deposit accounts Group savings 20,322 Compulsory savings 16,759 Voluntary savings 103,574 Contractual/recurrent savings 1,260 Average savings account Average group savings account ($) 5 Average compulsory savings account ($) 8 Average voluntary savings account ($) 40 Average contractual savings account($) 21 Total value of savings($) Group savings($) 101,610 Compulsory savings account ($) 134,072 Voluntary savings($) 103,560 Contractual/recurrent savings ($) 21,602 Total number of borrowers 16,759 Gross Loan portfolio($) 2,578,090 Percentage of rural clients 80 Number of branches 13

Technique:
Managing costs by standardizing product features and procedures, building staff capacity, and designing efficient incentive schemes.

Takeaway:
Although operating in a market with abundant government subsidized lending capital, DD Bank still sees value in mobilizing voluntary savings in order to develop a reliable long-term source of capital to support the institution's rapid growth.

DD Bank has contained the costs of its savings program by 1) integrating its financial services; 2) by training its existing credit staff in savings services and providing strong incentives to deliver those services; 3) and by standardizing its operating procedures and savings products.

Results:
DD Bank's operating costs for deposit mobilization have declined from 3.2% in July 2003 to 1.8% in July 2006. Staff productivity has improved from 178 clients per staff member in June 2003 to 215 clients per staff member in July 2006.

Case:
Founded as an NGO in 1996, the DEPROSC Development Bank (DD Bank) transformed into a for-profit institution in 2001. DD Bank primarily serves people living below the poverty line. The Nepalese market features an abundance of relatively low-cost lending capital made available to MFIs through the government's Deprived Lending Sector. As such, very few MFIs1 have made a substantive effort to develop savings programs that move beyond the compulsory savings that accompany the group lending methodologies favored by poverty lenders in this country. In contrast, DD Bank recognized early on that government policies can change frequently, and so it developed its capacity to mobilize savings as a way to ensure the long-term viability of the institution. Today, DD Bank is the only Microfinance Development Bank (MDB) in Nepal that is gradually diversifying and expanding its savings product line while maintaining a clear focus on cost management in order to create a low-cost source of lending capital.

DD Bank offers clients group savings, compulsory savings, voluntary savings, and contractual or recurrent savings products. Today, DD Bank serves 20,322 group accounts (with an average balance of USD 5); 16,759 compulsory accounts (USD 8 average); 2,589 voluntary accounts (USD 40 average); and 1,260 contractual accounts (USD 21 average). DD Bank delivers its services to groups of women who are often located in geographically dispersed and hard-to-reach locations. It does so through a decentralized network of branches and by employing a manual management information system. Its level of operating self-sufficiency is 112.6%.

Standardized operations and product features

DD Bank has learned that the best way to keep operating costs low is to standardize processes and employ the same staff to deliver both savings and credit services.

To ensure a high degree of standardization and control in the field, DD Bank keeps staff numbers at the branch level to a minimum. It backs up these essential staff members with an information management system that allows for continuous evaluation, monitoring, and technical advice to be delivered from management to the branch staff. And DD Bank prepares detailed manuals for branch operations and trains the staff on all aspects of branch operation to ensure consistent processes throughout the organization.

As staff time is the largest cost for most MFIs, the DD Bank has designed products that limit the number of times clients perform transactions to twice a month. Deposit collection and withdrawals take place every fifteen days, during staff visits to the village when they disburse loans and collect payments.

DD Bank has also introduced greater standardization in their savings program by introducing a contractual savings product. A contractual savings product is essentially an accumulated fixed-term deposit savings product where clients commit themselves to depositing a fixed amount of money over a fixed period of time (1 to 3 years) and to leaving the funds in the account for a fixed term (1 to 3 years). A client can withdraw the entire amount plus interest on maturity. Early withdrawal is prohibited or penalized. Contractual products have the advantage of being more predictable for the institution, and collections can therefore be more carefully controlled by management. Moreover, clients using these products tend to save more, and they do so with greater consistency which, in turn, has raised DD Bank's average savings balance and has allowed the institution to spread its administrative costs over a much greater volume of savings.

Training and staff incentives

DD Bank's leadership has worked hard to motivate its staff to be more productive. Now that the field staff offers both savings and credit services, they are held to a productivity target of 400 clients (borrowers and savers combined). This target is closely tied to staff incentives which include both financial remuneration and promotions. As a result, DD Bank has been able to mobilize a higher volume of savings while keeping their operating costs in check. These incentives have also engendered a spirit of competition among the staff, pushing them to reach higher levels of efficiency and productivity.

As of July 2006, five years after its creation, DD Bank's total savings deposits reached upwards of USD 360,000. The voluntary and contractual savings products, which are not directly linked to their group lending product, were introduced three years ago and have seen similarly strong growth. Today, DD Bank is actively servicing 3,849 of these accounts. By fully integrating their credit and savings services, maintaining a high degree of standardization in savings delivery, and motivating staff, DD Bank has been able to lower its operating costs and maintain strong internal controls. This, along with the introduction of contractual savings product, has helped DD Bank to increase its absolute deposit balances from less than USD 7 to USD 18. Its operating costs for deposit mobilization have, in turn, declined from 3.2% in July 2003 to 1.8% in July 2006. And staff productivity has improved from 178 clients per staff in July 2003 to 215 clients per staff in July 2006.

1 Community-based MFIs like the Savings and Credit Cooperatives in Nepal are savings driven institutions. However, their size and local focus limits their potential to mobilize large volumes of deposits. Nepalese Microfinance Development Banks (MDBs) were created to help MFIs become regulated and more readily access the capital to expand their outreach and capture savings from the public. However, until now, most have not given sufficient attention to savings. Their credit-centered services remain concentrated in the plains of Nepal and the more accessible hill areas. And their savings products are mostly compulsory in nature.