On October 16, 2006 CGAP sponsored a 24-hour international Q&A session with three experts on marketing deposit services for the poor. Click here to read more about our experts: Jose Linares Fontela, Gerry Lab-Oyan, and Susan Nkugwa Nsibirwa. Questions were submitted by individuals working to promote savings services around the world. Highlights from the Q&A follow below. Our thanks to the participants for their thoughtful questions and to the experts for their valuable responses.
Q: How do you effectively market to poorer clients?
Anecdotal findings reveal that poor people who have never had a bank account feel unwelcome in banks because of their economic status and are ashamed to enter because they are not well dressed or well groomed. They may have the impression that formal banking is for the better-off or educated, or that it requires one to have a large sum of money to be deposited, etc. A MFI's first step must be to address these impressions.
An MFI must also consider how to market savings in relation to household expenses. If the motivation materials emphasize savings after expenses (earnings minus household expenses equals savings) then the importance of continuous savings is less emphasized. But if the motivation materials emphasize savings before expenses (earnings minus savings equals household needs) then the importance of continuous savings, even little by little, is more emphasized.
It is important to keep in mind that the MFI's image should reflect market preferences not those of the board of directors, executives and employees, because neither the board of directors, the executives nor the employees are representative samples of the opinions, perceptions and likings of the market that the MFI serves. Branding will fail when internal opinions prevail over the market opinions.
Q: How do you effectively market to those who have never had a bank account?
Here are some suggestions:
- In Africa, the local councils are very strong institutions that can help reach the poorest, and also the medium class and the general public. A MFI could make a list of the local councils in the areas surrounding the branches, and then contact the leaders to have them make presentations in their meetings. A good presentation must be assembled using flip charts to reinforce the arguments and the institution's employees must be capable of opening savings accounts right there, where the presentation takes place, since the interested parties will probably not go to the branch. The presenter must be able to respond all the questions from the public and there must be support materials to complete the presentation such as leaflets or brochures.
- Another way to reach newcomers is to distribute leaflets in the area around the branches.
- If the market research shows that one of the limiting factors is proximity, then, lockboxes and/or saving collectors (part-time, full time or on commission basis) might be appropriate.
- Or MFIs can be creative with prizes and raffles. There are several types of raffles associated with savings:
- Raffles with coupons as reward for those who saved a set amount in their account
- Raffles with coupons according to the balance - First, divide the balance by the value of a coupon and then assign the coupon a number (This is done electronically)
- The golden zero raffle: add a zero to the end of the balance of the winner (10x their balance), up to a limit
- Raffle with coupons to new-comers: the size of the prize is calculated according to the amount of the first deposit
- You can also include term deposits, but the amount to get a coupon should be higher
- Balloon raffle: You buy some prizes, and use balloons to raffle off the prizes. Inside each balloon put a small folded piece of paper with either "Good luck next time" or a prize written on it. Calculate the proportions 1 to 100, depending of the cost of the prizes and write the name of the prize on 1 paper and "Good luck next time" on 99 papers. When a new client opens an account or makes a deposit, he(she) bursts a balloon with a needle and reads the paper inside. Savers that reach a particular balance can also be rewarded with small tokens such as less expensive (but durable) kitchen wares, farm tools or carpentry tools.
Q: How would you market savings services to a community which is loans oriented?
"I have never found, in more than 20 countries where I have worked, a community that was not loan-oriented. But that does not mean that the people cannot or do not save" (Jose). People often say that poor people are spending today what they are going to earn tomorrow. But that does not mean that people cannot save - savings is a matter of habit not of amount. When you use a piggy bank and deposit the loose coins left in your pocket each evening in it, and then open the piggy bank at the end of the week and deposit the money in a bank, you are saving.
Q: How would you involve community leaders to market savings services to the people they are leading?
It is easier for a leader to convince another leader. Similarly, if the top management or leadership of the MFI is fully convinced on the savings products of a MFI, then it is easier for them to involve community leaders to market savings services.
We know that political leaders or politicians in general like public attention to get votes. Thus, politicians like to be visible or appear to be involved in activities like extending loans. We also know that loans "promoted" by politicians have a higher chance of not being repaid at all because borrowers think that the money lent, is the money of the politician. And money coming from the politician and loans promoted by politicians are perceived to be hand-outs. Thus, involving politicians in lending is an obvious good for politicians but may pose a risk for MFIs.
It's a different story if you talk about savings because you are convincing the people to entrust their hard-earned money to the MFI. The people usually expect to receive money from the politicians. And in savings, politicians are asking people to turn over their money. This is the reason why savings mobilization is not palatable to politicians.
However, I recall one occasion where a financial institution was able to successfully tap the positive elements of political involvement. At a savings mobilization launch in one community the financial institution invited the politicians as guests. The master of ceremonies announced that the first three or five passbooks were reserved for the special politician guests to allow each of them to open accounts. As each guest was called to render his/her short speech the master of ceremony gave him/her a passbook with a blank deposit slip inside. As expected, the politician included in his/her speech an announcement about his/her initial deposit and received a warm applause from the people. As politicians loved the applause of the people, the staff of the financial institution distributed deposit slips and signature cards to the people for their initial deposits. Simple tokens were given to the first 20 or 50 depositors during that day (the politician guests are automatically included). It turned out that the savings mobilized during that occasion surpassed expectations.
Community leaders cannot be left out of mobilizing community savings. Visits by top institutional leaders can be used to initiate savings events. Meetings convened by the leaders at which the institution talks about itself are not hard to organize. Involvement in various community activities can also help to bring the institution to the forefront.
Q: How do you balance marketing to the poor with attracting clients from the broader market who may have larger sums of money to deposit with your institution?
Unlike credit, with savings, you must receive and promote savings from all socioeconomic levels. MFIs must be a little like Robin Hood - receiving savings from those who have more money and lending this money to those who have less. Your savings strategy must be open to everyone, and to do this you must be attractive and competitive to higher income people.
This market segment (large savers) is more demanding i.e. more special attention, price (earning) sensitive, sensitive to changes in external environment, etc. To attract this market segment, one may employ combination or mix of these techniques:
- Higher end marketing materials - design a colorful advertisement materials
- Personalized service - the branch manager or top management will be the one to entertain or personally visit such client
- Special services - create VIPs areas where the access is tied to the balance in savings accounts
- Personalized mailing - sending nicely design thank you cards for opening an account or for continuously savings at the institution, birthday cards, and Christmas cards;
- Gifts - giving of special gift such as special homemade cakes or wines during birthdays of the client or during Christmas time
- More attractive products - offering a higher interest rate; offering as a package one free year of accident insurance for a depositing a set amount of
- Branch location - in higher-income neighborhoods
Q: Mission drift is often thought of with loans, but how do you prevent it from happening among your savings clients?
Attracting larger savings does not lead to mission drift but is a strategy to balance costs of savings as a source of funds for lending to poor clients. An MFI that concentrates its marketing efforts on attracting larger savers at the expense of the smaller savers faces a higher liquidity risk level. In the same manner, a MFI that concentrates on attracting smaller savers at the expense of larger savers faces a higher transaction cost. A MFI, therefore, should always strive to strike a balance between small savers and large savers in order to effectively managed costs and risks in savings mobilization.
Q: How can an MFI develop a savings product that caters/matches to the demand of their clients?
It pays to review your market niche and conduct market survey/research in order to effectively sell yourself to that niche. A simple innovation in the design of your product to suit the needs or preferences of your market niche can make all the difference. An example of such innovations include: lowering the minimum amount to open an account, lowering the minimum maintaining balance, changing the color of the passbook, adding a tagline on the passbook, adjusting the size of the passbook easily fit in one's pocket, etc. Ultimately, if the market niche is small savers, this market segment puts value on a personal approach, and a little attention and care. The institution that can reflect this case in its image has an edge.
MFIs must be creative in developing savings products that address the needs of their clients. If you have an idea, define the concept:
- What it is
- How it works
- Under which conditions
Go to the market and test the concept in the segments to which is oriented, adjust it and then do a cost-benefit analysis. If it does not give profits, revise it, test it again and do the cost-benefit analysis again. Once you find a model that is profitable, develop the product and brand it, do a manua-matic pilot (work by hand and Excel) at one or two branches and if it works, adapt it to the MIS and then launch it. Clients are often grateful to the institution for teaching them how to save.
Q: I'm curious if there's a rule of thumb that might be helpful in pricing demand deposits.
I use this general rule of thumb: 25% pricing for passbook savings (highly liquid) and 50% pricing (or 5%) for term deposits (semi-liquid), as percentage of the cheapest source of commercial funds. Since, it is a rule of thumb or just a rough guide you can adjustment based on the central bank discount rate. On passbook savings, 25% represent the price and the 50% represent the transaction cost, hence, the total cost is 75% of the cheapest commercial source. On term deposits, the 50% represents the price cost and 25% represents the transaction cost, hence, the sum total cost is also 75% of the cheapest commercial fund source.
In addition, there are wider issues to consider alongside transaction cost (cost of funds). For example, MFIs should consider their portfolio yield in that savings should not exceed earnings. They should also consider transaction cost; savings are a direct cost and will run alongside operating costs. It would good to ensure this cost is in line with targeted profits after considering the operating cost ratio.
Lastly, MFIs should consider their competitors. Rates should be high enough to attract funds but low enough not to distribute profits - a delicate balance.
Here are some steps in developing an interest rate:
- explore the market place - this should be the starting point because in otherwise equal conditions, people will take their savings to the best rate and my experience is that commercial banks pay the lowest rates
- strike the balance between trust and rate - the most trusted financial institution pays the lowest rate for savings.
Q: Since most financial institutions sell more or less similar products, my question is on how one can sell the brand of the organization in such a way that its products are viewed as superior because of its branding?
That MFIs offer similar products is quite common, partly as a result of the conditions imposed by regulators and partly in as a means to maintain low costs. Ultimately, creativity is limited in favor of profitability and risk reduction. Under these conditions, it can be difficult for an MFI to differentiate itself from the competition. But there are number of ways to use branding to gain a competitive edge using:
- institutional image
- specialty products that are directed to particular market segments
- the image of the savings products
- the packaging of the savings products
- add-ons to the services, using promotions, gifts and other marketing resources
- maybe the most importantly, the quality of the customer service
Offering the market well-branded and -packaged products is important, but offering profitable products and excellent service is critical to success. For while institutional image attracts new customers, you then have to fulfill the promises you made.
Q: How does the marketing promise, affect consumer perceptions, institutional trust and the zone of tolerance?
In savings mobilization we are talking about trust (assurance), image (reliability and tangibles), and relationship building (responsiveness and empathy), thus, it would be advisable for MFI to market what it can deliver. If the target market niche is the small/rural savers, two savings products with simple product design are more appropriate than many products. Then, the clients (savers) can easily remember two savings products and the MFI can easily fulfill its marketing promise (if it has simpler product design), and ultimately, the MFI is perceived to have a superior service quality.
Q: What kinds of strategies can be used to promote small saving deposits in a country where there is distrust from the public because of experiences with bankruptcy?It is really challenging for an Institution to mobilize small savings when savers had a bad experience with another financial institution in the country. Projecting stability, strength, reliability and financial soundness is the top concern under these conditions. The integrity of the leader or top management is very important. The top man of the organization should have an established reputation and command the respect of the community or target market.
The top man of the organization must be highly visible at savings mobilization activities. In addition, it is very helpful to involve respected community elders or leaders in savings mobilization activities. The visible display of information technology being used, and presence of uniform staff ready to assist anyone entering the institution's premises projects a good image, worthy of trust by the targeted savers.
There are several aspects that must be taken in account to reinforce trust (not necessarily in order of importance):
- The prolonged presence of the institution in the market - the old age of the institution communicates to the public that the institutions is around to stay
- The leaders, executives and employees behind the institution - if you, as a member of the public, have respect for the individuals that work\s in the institution and you trust those individuals, then you will also trust the institution
- Talk about action - it is more important to say what the institution is doing rather than describing what the institution is. The second has little credibility if the acts do not correspond to the words
- Steady growth - the size of the institution. Regular growth in time shows the market that many others trust the institution
- The physical aspects - a beautiful office is better than an ugly office. This is because untidiness transmits to the public, a sense of disorder and improvisation that arouses the question, "Hey, how will they handle my money?"
- Transparency and access to information - if the institution communicates a sense of withholding information it will also communicate distrust. Employees must be well informed and trained to answer questions from clients correctly and convincingly
Q: Our savings projections look encouraging but my dilemma is that new branches take time before they can attract required deposits. Do you have any suggestions for ways to use marketing to encourage growth at a new branch?
Publicity events can be useful in mobilizing savings. For example, when launching a new branch, you could hold a show to bring people to the place where the branch is. In the show you could include music, jokes, dancing, and local artists. The speaker can raffle passbooks using the day and month of birth (You will validate this with the ID on opening the account). At one such event, we opened 1.500 new savings accounts and raffled about 100 accounts with a small balance!
The second suggestion is to make noise in front of the branch - decorating it to attract people on market days. This should be done on a regular basis, maybe monthly or every two months, in the first year of life of the branch.
Finally, you can make a traffic building promotion to move people to the branch. One example is to place a glass bottle filled with coins in the middle of the public area in the branch. People who open an account or account holders who make a deposit can guess how much money there is in the bottle by filling out a ticket and depositing it in a box. At the end of the month, the person who guessed correctly wins the bottle. This is a nice raffle cost-wise. It does not matter how many coupons you receive, the prize is the bottle with the money and for the institution, it is a fixed cost. Furthermore, people must go into the branch to participate and once they are there, employees can engage them to talk about savings.
Q: To what extent are sales promotions responsible for growth in savings?
This can be determined by simple indicators. Before launching sales promotion of savings take note of these practical indicators: number of savings accounts and/or number of savers, the value of outstanding savings, and the normal growth trend of savings, then after launching the sales promotion take note of the same indicators, compare and see the extent of sales promotion, if any. Of course, you may include additional indicators or parameters and employ a more sophisticated monitoring instrument to determine the extent of your sales promotion.
However, be aware of these pitfalls of marketing efforts:
- The abuse of savings promotions can lead to inefficiency amongst staff because people slack off believing that the marketing will bring enough business
- The prizes have to be kept under control otherwise the market will continue to demand better prizes and more frequent promotions. The risk is that promotions become a part of the savings products so when there are no promotions the products become undervalued
- Rules must be clear and enforced. Usually when you give prizes for a certain amount of deposit, you should make a rule that the client must add to the account in order to withdraw the prize money, and must keep the amount in the bank for a set period of time
- Marketing must be as transparent as possible to maintain credibility
- Promotional drives should not exceed four months, otherwise the level of motivation decreases and results are poor.
Q: Are there any performance parameters/indicators that have been scientifically proven and can be used by banks/deposit taking- institutions for savings mobilization?
Performance indicators are based on these major parameters:
- number of new savings accounts opened,
- number of existing accounts,
- the value of outstanding savings, and
- the number of accounts closed.
The parameters can be expanded to include:
- range of amounts,
- savers classification (micro/small, medium, and large),
- savings product offered (passbook, term, and current),
- category of savers (rural, peri-urban, urban),
- savings form (highly liquid, semi-liquid, illiquid).
Q: How can I make my institution more "savings-oriented" when it has always focused on credit?
As an MFI grows, savings will likely become the cheapest source of funding available. However, many MFIs continue to ignore the potential of savings. They argue that their income comes from lending, not from the savings. However if a MFI does not attract savings it will have less money to lend and it will be forced to use high cost money for lending.
One of the most basic requirements in savings mobilization is that the MFI governance or top management must first be convinced of the importance of savings. Offering savings requires the complete transformation of a MFI and therefore, the governance and/or top management must be the ones leading the transformation process. Savings is much more demanding than credit services. An MFI that is successful with credit is not guaranteed to be so with savings mobilization. Savings mobilization is a matter of reputation, image and relationship-building with the savers. Savings mobilization is also a means for client empowerment through asset-building mechanism, a coping mechanism against external shocks, and capital for other investment opportunities, etc.
Many Boards of Directors or executives think that financial services do not need to be sold, until the market pressure of more aggressive MFIs start to take away customers. The reality is that financial services to be marketed aggressively and with close attention to the market niche. The front line staff is critical to the success of savings mobilization, they must know ALL the products and be able to sell each of them. If our staff is lousy at customer service, selling and cross selling of products and services it is usually because the MFI has not prepared them adequately.
Q: How do I get my loan officers and front desk staff to believe in the product so that they will actually sell them? In most cases, these employees have little to no savings themselves, so even if they told customers about the products, it is was in an off-hand way that did not convince any one. In this case what do I do?
Revisiting your institution's mission and values might help your staff to internalize and take savings as a part of their personal mission & values. This "revisiting" should include the value of savings as a tool for empowerment (including the staff themselves). It may help to have staff each write a personal pledge as a symbol of their personal commitment to the institution's mission and values. This can be used later to gauge how each staff is fulfilling his/her commitment. This is necessary so that the staff will understand the relationship and connection of the products offered to the attainment of the institution's mission.
It may also be useful to discuss savings with the staff themselves and their own savings practices. Internal marketing is very often ignored, and yet once you have your staff on board, it can greatly reduce your expenses on external marketing strategies. It is of prime importance that they believe in the institution and what it offers, otherwise other efforts will be quite ineffective. Frontline staff should have sufficient knowledge about cash management when counselling savers. They should be able to critically analyse customer needs and ask relevant questions to understand the financial dilemmas that customers face. They then need to advise customers on best savings options, using their knowledge base as a frame of reference. The mistake we usually make is to recruit people who know how to smile but cannot efficiently diagnose a client's financial needs. Ideally we, in banks, are financial counsellors, and we need to establish relationships, not merely offer canned product packages.
Q: How do you market savings products at a microfinance institution in a country where there is not yet a law clearly defining savings mobilization by MFIs?
In a country where there is no law defining savings mobilization by MFIs, it is safer to start savings mobilization from within the existing clients of the MFI.
Where there is no legislation, a MFI must auto-regulate and define healthy financial policies, for example:
- Apply the same delinquency provisions as those of the banks regulators
- Establish an adequate level of loan reserves in order to cope with demand on the savings deposits
- Establish loan benchmarking to assure the high quality of the lenders
- Establish a minimal level of liquidity to cover withdrawal
Q: To what extent is monetary savings of significance to the rural saver, in light of available investment or rural savings options?
The rural saver may be the best saver for many MFIs, though the amounts involved are small. Rural families have low household costs, and rural families usually have multiple incomes. However, rural families usually have no nearby quality financial institutions. SInce rural savers are usually far from branches their savings accounts are more illiquid for them than for urban savers. However, compared to their other means of savings such as livestock or land, savings accounts are quite liquid.
One can create products especially targeted for rural families. For example, a savings account with progressive disposal of the savings, such that when the producer sells the crop he/she opens an account with the condition that the withdrawals will be limited by amount and frequency e.g. once a month x amount. In this way the family gets a monthly salary between seasonal incomes.