ASA's Culture, Competition and Choice: Introducing Savings Services into a MicroCredit Institution

Publication Date: 2001
Published by: MicroSave
Document Type: Paper

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Do microfinance institutions need more flexible systems and broader client base?

Recognising the importance of, and growing interest in introducing savings products into microcredit institutions, MicroSave-Africa and the Consultative Group to Assist the Poorest (CGAP) collaborated to study the dynamics of institutional change during the Association for Social Advancement's (ASA) transformation from a microcredit to a microfinance institution (MFI)

ASA's experience provides some very important lessons for the microfinance industry:

• moving from a compulsory, locked-in savings system to a voluntary open access savings service requires significant changes in management and information systems, personnel/training, organisational culture and the mandate to mobilise savings
• open access savings services need flexible systems capable of dealing with numerous transactions
• open access savings systems require a different type and complexity of control built on a clear segregation of duties and efficient and transparent management information systems
• the transition from forced to voluntary savings services also involves profound changes in the attitudes and behaviour of staff
• locked-in savings can be a source of capital for the institution, but in the long term, such locked-in arrangements can create default and drop-out incentives
• moving from compulsory to voluntary savings products can also lead to a high degree of "cannibalisation" particularly in saturated markets
• in Bangladesh, individuals within the MFI "target group" are already being given one and often multiple loans and the potential for mobilising savings from this group may be limited
• better knowledge of clients outside their current "target group" must be acquired if MFIs are to design, market and deliver savings products appropriate to "non target groups"
• mass savings mobilisation depends on MFIs diversifying their client base by understanding and responding to the needs of people from a much broader range of socio-economic strata than they typically serve
• in Bangladesh, increasing competition between MFIs is leading to over-indebtedness and undermining the primary incentive to repay