Laurie Dufays of WSBI

World Savings Banks Institute

Micro-Accounts
Can Be Attractive

Saving is not easy. And if you are poor and wish to put your savings in a financial institution, the task is even more complicated. In fact, in some companies it is easier to get a loan than a savings account. And it is not difficult to understand why, since in many countries, regulations—luckily—are stricter for savings accounts than for microcredit services.

Several undesirable consequences can result. On the one hand, microcredit institutions have trouble thriving, as they are unable to grow with the savings of their clients. On the other hand, a large portion of the population has limited access to financial savings services. The situation is far from ideal. Commercial banks offering savings products do not reach the lowest-income sectors, while those institutions that do serve these sectors are usually not authorized to offer savings accounts. The solution is not easy.

Chris De Noose, Chairman of the Executive Committee of WSBI

“There must be a minimum regulation that guarantees savings deposits, but it should correspond to the institution’s level of activities,” says Chris De Noose, Chairman of the Executive Committee of the World Savings Banks Institute (WSBI). De Noose knows what he is talking about. According to WSBI data, his organization represents more than 1,000 financial intermediaries in 86 countries that together form 75% of the total savings accounts coming from noncommercial financial institutions.

“In Latin America, the banks need to be physically close to the clients, including [those clients who live] in remote areas, and also good governance is needed and the clients need to be educated on savings and loans,” adds De Noose. What is certain is that regulation is only one of the factors that complicate the entrance of microcredit organizations into the savings market. For many organizations, it is more advantageous to work only with capital provided by donors than to have to set up the infrastructure to be able to attract small savers.

It is also true that micro savings accounts have a high management cost. One study of 61 Latin American regulated microfinance institutions by Glenn Westley, finance expert at the Inter-American Development Bank, showed the following: 75% of the savings accounts have less than US$100, account for 30% to 60% of the transactions yet hold only 2.5% to 3% of the savings. Thus, the challenge and cost of servicing low-income populations are higher, at least in the short term.

However, Westley suggests that offering micro-savings accounts can also provide some advantages: it allows diversification of the microfinance institution’s funds, makes the institutions less dependent on donations and thus more independent from donors and governments, increases the clientele base and finally opens the possibility of developing economies of scale, resulting in lower costs.

Competition Enters Into Play

Savings institutions were born from banking entities that promoted this activity, which in great part consisted of capturing deposits. This is still an objective, although competition from banks has now “forced us to look for innovative savings products that the savings institutions adapt to their local clientele,” explains Laurie Dufays, Assistant Director at the WSBI headquarters. Among these new products are savings accounts to prepare for daughters’ weddings or savings programs for Muslim clientele to pay for the pilgrimage to Mecca.

Dufays expresses satisfaction with the savings institutions’ work to facilitate access to financing by all sectors of the population: “The institutions attend to the needs of the new poor, whether they are single-parent families, ex-convicts or tsunami victims.” The resulting reward is “our loyal clientele come back, they stay with us as we begin to grow,” adds Dufays.

This loyalty has given WSBI a competitive advantage in offering diverse financial services. “Microcredit in many cases has become a vehicle that for the first time has put citizens in touch with a formal banking institution,” says Dufays. An example is the loans for housing associations offered by Peru’s Caja Municipal de Cusco (Cuzco Municipal Fund). Its clients are people displaced in the city due to violence, extreme poverty or lack of opportunity, who, united by family or social ties, want to buy land where they will settle. In many cases the institution participates by identifying the land, registering and titling the property and negotiating the transaction. It is not unusual for housing associations to approach the Caja Municipal de Cusco to solicit a second line of credit for general works, water treatment services, sewers, electricity or to build housing.

Reaching Financial Democracy

Dufays travels throughout the world assuring that the lessons learned from the experiences of several savings institutions are useful to others. The challenges that many face are similar, wherever they are located. “We have many products but often little information. The WSBI brings experts to visit the savings institutions, who offer training and information on what other countries are doing successfully.”

Dufays says that in Sri Lanka there was a successful experience in which the savings institutions took interest in the citizens who were traditionally excluded from formal financial markets. Several techniques were used: programs with savings booklets for children, municipal events and megaphones in the streets. The purpose was to inform the population—including illiterate people—about the advantages of savings without making them feel intimidated. A study is now under way in Cochabamba, Bolivia, to see how to adapt this idea to local reality. One fund is exploring the possibility of using free buses that take women from their villages to Cochabamba on market days, so that during the bus trip the information can be presented to them on the advantages of keeping their savings in a banking entity.

For De Noose, “access to financial services—whether savings or credit— is extremely important for reaching sustainable development. This is something that WSBI has known for a long time and for which it will continue to work, for the sake of achieving funding financial democracy.”