By By Kailash C. Sharma (2004)
http://www.alternative-finance.org.uk/cgi-bin/summary.pl?id=27&sourcelang=E&view=html
Abstract
The paper describes the modalities of Cuttack's Urban Co-operative Bank (CUCB) daily savings and loan repayment collection scheme in detail, which depicts a useful model for any institution interested in extending its outreach in a cost-effective way, which also creates a large number of jobs.
The main lessons from this scheme are:
- The Daily Deposit Scheme (SDDS) was born from the belief that tapping poor urban traders' earning on a daily basis is a successful way to get deposits.
- Collection agents are key to the implementation of this scheme. An important share of resources are invested in selecting collectors. The process can go up to 8 months before accepting an application.
- Collectors absorb the administrative burden (i.e. providing receipts, statements, visiting clients, etc) for a 3% commission over deposits.
- SDDS uses savings as a prerequisite to provide loans. Additionally, loan takers must buy shares of the bank, increasing capitalization of the institution.
- Profitability of this scheme is close to 2.5% per year. Loans pay close to 11.5% annual interest rates, while total costs are close to 9% (4.5% payments on deposits, 3% commission to collectors and 1.5% other costs).
Summary
Although Cuttack is well served by various commercial banks, CUCB is one of the most successful banks in the region. One of the products for which the bank is best known is Sanchayeeta Daily Deposit Scheme (SDDS), which emerged from the notion that poor urban traders would save if their earnings could be tapped on a daily basis. Thus, they decided to go their doorsteps to collect their savings.
Sanchayeeta Agents are the most important actors of this scheme. Agents must be locals who are rigorously selected through a long process that can take up to 8 months. When hired, they must deposit Rs4,000 as a fixed deposit with the Bank along with a Collateral Security worth Rs 10,000. Everyday they go to the customer's work place to offer daily deposit and loan repayment service, which usually go from Rs2 - 10. Each agent collects on average from 100 clients. Monthly commissions are 3% of deposits, of which 10% is deposited as a fixed deposit in the bank, serving as a security amount.
CUCB keeps each agent's collection under one account. It is the collector's responsibility to provide a statement for each client at the end of the month.
Clients receive interests for their savings at the end of the year. No interests are paid on a monthly basis, however, 4.5% annual rate is paid to all Sanchayeeta deposits at the end of the year. If the client saves regularly for 2 or 3 months, it is entitled to get a Rs5,000 loan, for which two guarantors are needed.
Requirements to get a loan are: To become members of the bank by buying shares worth 5% of the loan, also his/her savings are placed on fixed term until repayment. Agents cannot intervene in the loan approval process. Recovery rate on loans is about 80%
On the viability of the scheme, the author highlights that the bank has close to a 2.5% margin, since interests on loans are close to 11.5% per year, while costs are only 9% (4.5% paid on savings + 3% commission to agents + 1.5 other costs).