Mobilizing micro savings: the experience of seven deposit-taking institutions

31-May-2010    This article by Laura Elser, Alfred Hannig and Sylvia Wisniwski (1999) is the first empirical research about factors which make the mobilizing savings strategies of micro finance institutions optimal.

In recent years the importance of mobilizing savings strategies has arisen in several countries for different reasons. This article by Laura Elser, Alfred Hannig and Sylvia Wisniwski (1999) focuses on the role played by micro finance organizations. Given the new commercial view1, mobilizing savings strategies have assumed increasing importance for micro finance institutions. This research compares the strategies of seven micro finance institutions operating in Asia, South America and Africa and investigates the different characteristics that make the savings mobilization strategies of the seven deposit-taking institutions optimal. The authors find that an micro finance institution's ability to attract savings depends on:

  1. institutional type, the governance and organizational structure of micro finance institutions. For example, a key role for successful mobilizing savings strategies is represented by the close geographic proximity of the institutions to the depositors as long as it helps in establishing a permanent relationship to build confidence between them;

  2. the products offered and the marketing strategies. The financial instruments designed have to be perceived by potential clients as better than the informal saving options, like the real goods. Most of all, many of the organizations studied by the authors offer market-competitive interest rate (usually, one percentage point above the one offered by the competitors);

  3. the kind of staff recruited, the way it is trained, the incentive system and the risk and liquidity management ability. Many of the organizations targeted by the research involve members from the villages where they provide their services, establishing a further close contact with micro clients. Moreover, the staff-training creates social ties between staff members and strengthens the institution's corporate identity;

  4. the external and internal regulation and supervision. Since the countries where the micro finance institutions operate usually lack of external financial regulation and supervision, developing efficient internal controls is needed. In all sample financial institutions, decentralized internal control systems allow operational flexibility while ensuring adequate levels of control.

The same strategies may be valid also in micro pension sector. Implementing a micro pension program requires more effort in making the elderly and the workers aware of the utility of saving for their retirement. Indeed, micro finance institutions' staff have to spread the basis of financial literacy and and to convince potential savers about the importance of long-term savings. In countries where poor people use to care about daily living costs, this is an hard challenge that can be won by introducing highly designed and tailored savings facilities and by creating a close relationship with the targeted villages.



1 Traditional micro enterprises was based on distributing small loans sponsored by donors' and governments' fundings. External subsidies may bound and drive projects and activities of micro credit organizations, harming their independence. By the early 1990s the new commercial view has developed. According to that, micro finance institutions should attain full financial self-sufficiency, in order to cover their expenses for operations, loan losses, cost of funds and inflation.




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