Microfinance Institutions' Experience With Offering Savings Products
Campion, A.
Publication Date: Mar 2001
Published by: World Bank
Document Type: Presentation
Should microfinance institutions proceed with savings mobilization?
This paper explores the motivation and risk implications of mobilizing client savings by microfinance institutions (MFIs). The paper lists specific hindrances to savings mobilization in MFIs:
- Regulatory restrictions on NGOs to use savings for lending;
- Requirement of higher startup cost;
- Availability of low cost alternative sources of funds.
The paper describes different approaches to savings:
- NGOs - require borrowers to save before accessing loans, thus encouraging discipline;
- Transformed NGOs - offer large term deposits since they intend to develop a stable and cost-effective fund source;
- Commercial MFIs - are motivated by the social objective of expanding outreach as well as a commercial objective.
- Credit unions - emphasize savings.
The presentation explores the motivations to save for MFIs and the clients. While the clients save for security, at their convenience, to get financial returns and to provide an alternative to borrowing at a later stage, the MFIs are motivated to:
- Expand outreach to other low income individuals;
- Provide better services to existing clients;
- Stabilize and diversify sources of funds, facilitate loan repayment.
The presentation lists down the marketing advantages in savings mobilization of MFIs:
- Familiarity with the target population;
- Very little competition.
The presentation suggests that irrespective of the benefits, before mobilizing savings, MFIs should weigh:
- Their specific motivations;
- Risk implications.
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