Savings Mobilization Strategies for Effective
Microfinance
The Nigeria 5th Annual Microfinance Conference and Entrepreneurship Awards
Abuja, January 17 - 18, 2011
This presentation explores some of the challenges & strategies in savings
mobilization strategies, for effective microfinance.
The presenter is an Associate of the Alliance for Financial Inclusion and founder of
K-Rep Bank Limited, the first NGO microfinance institution, in Africa, to transform
into a regulated commercial bank specializing in microfinance. He has devoted
close to three decades to designing and instituting viable and sustainable micro
credit and savings strategies.
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Kimanthi Mutua - AFI Associate
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Areas covered
1.
Savings & Microfinance
2.
Challenges in Savings Mobilization
3.
Importance of savings to microfinance institutions
4.
Methodological considerations for savings mobilization (Factors for
successful mobilization of small & micro-savings)
5.
What to consider in making savings attractive to customer
6.
Institutional, governance and management structures that support
savings
7.
Policy & Regulatory Consideration
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Savings & Microfinance
• Savings has always been central in microfinance
• But never seen as the driver
• Most MFIs evolved as micro-credit organizations
– Savings complimentary to credit
– Not a funding source
– Often mandatory & used as collateral
• MF business models did not evolve as savings institutions.
• Conventional commercial banks operate at average savings levels that
exclude the bulk of the people in developing economies.
• Accessible savings accounts tend to be at specialized institutions: NGOMFIs, Deposit taking MFIs, co-ops, NBFIs & Banks with microfinance focus.
• Despite realization of the demand & importance, savings mobilization
remains a challenge for many MFIs.
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Challenges in Savings Mobilization
 Traditional MFI - face several challenges in Savings Mobilization:– Legal capacity to mobilize savings – although many do collect savings
• Recent initiatives to enact special legislation aim at addressing this
– but challenges persist.
– Traditional credit led business model has contributed to:• A poor savings mobilization organization-culture in many MFIs
• Lack of capacity to develop and implement good savings
mobilization strategies
• Perception by management/staff that poor people don't save
• Perception by customers – borrow from MFI save with other.
– Most MFIs pursue a narrow savings customer base of credit customers
– Service delivery channels are not suitable for savings mobilization.
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Challenges in Savings Mobilization
 Deposit Taking MFIs mostly suffer from their heritage:
– Capacity, culture, perception & image issues impairs ability to scale up
savings mobilization.
– Cost inhibitions prevent quick change of delivery challenges – new
branches, ATMs & systems to support savings products.
– Access to payment systems & clearing houses
– Skills needed to manage savings are different & more complex that
those needed to manage micro-credit & come at high costs that most
MFI structures cant afford.
– Quick fix attempts to hire staff from conventional banks to fill the bank
often ends up in conflict of culture & poor strategies.
– After transforming MFIs face new challenges in deposit mobilization:
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• What type of deposit customers to pursue – their traditional market niche
or open market?
• The type & size of deposits products to introduce – large, small, fixed,
current?.
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Challenges in Savings Mobilization
– Deposits from the traditional market niche:• Small in size, grow slowly & pause funding problems.
• BUT they are stable, less costly & predictable.
– Large deposits
• Provide liquidity , fuel growth, grow fast
• BUT can also go out quickly chasing other opportunities.
• Requires high investment in branch network, connectivity etc.
• Demand large loan facilities that MFIs have no or limited capacity
to appraise & manage.
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Challenges in Savings Mobilization
 Co-ops:
– In addition to some of challenges faced by MFIs:• Closed membership (common bond) model – which is gradually
changing with introduction of new deposit taking legislation for coops.
• Weak governance & management impair capacity.
• Weak regulatory framework detracts depositor confidence.
• Public image - those that save in co-ops do so to get cheap loans.
 Other Challenges facings NBFIs & Banks
– Excess liquidity in financial system limits incentives.
– Unfair competition from cheap & easy wholesale funds mostly to
government owned apexes.
– Uneven regulation: Very restrictive to some institutions & permissive
to others – Banks considered ‘safe’ have no incentive.
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Importance of Savings to MFIs
• Deepening & expanding outreach:
– Large numbers of customers choose to use savings services instead of
credit, but limited access.
– Savings help the poor to better organize their financial lives and deal
with emergencies.
– Accumulation of assets from savings, helps improve quality of life.
– Savings is equally if not more important that credit in development.
– Low usage of savings services is not an indication of low demand.
– Access to savings is the key to financial inclusion.
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Important of Savings to MFIs
• Sustainability & growth
– The main Funding source for sustainable growth is savings, it is
• Its less costly than loans which many MFIs rely on.
• Stable source of funding
• Improves public image & confidence.
– Organization Culture
• Instills strong demand oriented business model.
• Creates the desired organization culture
• Forced MFI to improve product variety & efficiency of service.
– Intermediation
• Provides an environment for effective financial intermediation
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Methodological Consideration for Savings Mobilization
 Factors for successful mobilization of small & micro-savings:
– Organization & Delivery Channels
• The closer the MFI gets to its customers the better the chances for
mobilizing a large number of depositors – Branch network &
Access points.
– Savers need convenient & ease of frequent access to their
deposits.
• Technology to support branch connectivity & ease access.
– Products: Individual, voluntary and open access accounts have proven
to be the most successful.
• Lower costs of savings mobilization essential: e.g. Lean branch
structure supported by technology solutions.
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Methodological Consideration for Savings Mobilization
– Management
• Strong & skilled management team
• Avoid quick fix – gradual process of recruitment & training,
• Ensure buy in of business model
• Capacity to Manage risks & liquidity to guard reputation
– Strategy
• Re-engineer business processes, model & organization
• Develop & implement good marketing & promotion program to
address perception.
• Identify & focus on market niche.
• Develop loan & advances products to support savings customers.
• Plan growth of credit portfolio to avoid adhoc decisions on loans
to new savings customers.
• Don’t promise what you cant deliver.
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Methodological Consideration for Savings Mobilization
– Know your market
• Conduct research, document & share widely in MFI
• Base products on research finding.
• Learn from others – don’t re-invent the wheel.
– Focus on front office services
• Delivery of Credit services requires strong back office to control
risks.
• Delivery of Savings services requires very strong front office skills
to not only attract customers but most importantly to listen &
know what they want  savers vote with their feet.
– Interest Rate policy
• Set appropriate interest policies for savings accounts
• Avoid blind competition for deposits
– Plan to scale-up savings portfolio to at least 8 times that of credit
portfolio
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What to consider in making savings attractive to
customers
 To attract micro-savers consider that:— Micro-savers are intensive money managers
— They manage money day to day
— Prefer to build relative large sums of deposits for asset acquisition &
life cycle events & emergencies.
— Choose informal savings systems because of flexibility – Study the
competition.
— Reliability, convenience, frequency & Reliability is key.
— Micro-savers are bankable – don’t struggle to make them so, adapt
MFIs operations to make it accessible.
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What to consider in making savings attractive to
customers
 Priorities for Micro-Savers:
— Security – from fraud, collapse of MFI is paramount even in the face
of inflation.
— Low transaction costs – Proximity & Convenience
— Appropriately Designed Products – Frequent deposits of small
variable amounts, quick access – Contractual Deposits
— Interest Rates – When transaction costs are low, savings takes place
even with negative real returns.
— Connectivity – Ability to transact at different branches or parts of the
country.
— Payment transaction – facilities to pay school fees or transfer money.
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What to consider in making savings attractive to
customers
 Recent Innovations with potentials
— Mobile Banking – Especially when connected to savings accounts and
bill payments
— Agency Banking – Allowing banks to appoint agents that can make
certain transactions on behalf of banks or MFIs.
— A combination of the two has great potential.
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Institutional, Governance & Management Structures
that support Savings
 Savings Customers’ Confidence is greatly influenced by:
— Type of Institution
 Savers are cautious about unregulated institutions
 Being regulated & transparency improves customer confidence
— Ownership
 Well known & perceived trustworthy owners improve image
 As does Government ownership because of guarantees on
deposits.
 NGOs, Co-ops a challenge.
— Governance & Management:
 Experiences, visible & trusted top leadership essential.
 Accountability for results.
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Policy & Regulatory Consideration
 Economic Reforms & Liberalization of market:– Increases competition
– Broadens array of financial products.
– Eliminates subsidized financial products from the market.
 Other reforms:
– Legislation for deposit taking MFIs & Co-ops to level playing field.
– Revive branch specifications to allow for smaller branches to deepen
outreach.
– Open new delivery channels, e.g. agency banking
– Open access to payment systems & clearing houses – Strict but appropriate prudential guidelines for deposit taking MFIs
– Embrace new technology based service delivery solutions.
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Policy & Regulatory Consideration
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End
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