MEDIA RELEASE PR41648
Savings for Poor People Make Good Business Sense, CGAP
WASHINGTON, Oct. 7 /PRNewswire-AsiaNet/ --
Groundbreaking study shows potential for microfinance
institutions to serve small savers profitably through cross-selling, fees,
and use of new technologies.
Many microfinance institutions are already serving small savers
profitably and many more could do so. So say the authors of a groundbreaking
study on the business case for small savers.
CGAP researchers Glenn Westley and Xavier Martin Palomas were given full
access to the 2008 books of two microfinance institutions that offer savings
for low-income clients -- ADOPEM in the Dominican Republic and Centenary Bank
in Uganda. They conclude that savings accounts, which are a very high-cost
product for microfinance institutions to offer, can nonetheless generate high
profits through cross-sales of loans and other products to small savers, and
by the fees generated from the savings accounts.
"The business case for serving small savers is compelling," said author
Glenn Westley. "We identified a whole range of ways in which these
institutions are using small balance accounts to generate profits. We suspect
that many microfinance institutions are already serving small savers
profitably, and the evidence shows that many more could do so."
Revenues from small balance savers turn out to be significant: 400% of
the deposit balances in Centenary, and over 1000% in ADOPEM. Without the
small savers, says the paper, Is There a Business Case for Small Savers?,
these two very profitable institutions would lose about 30% of their total
profits.
One of the issues most poor people face is not just a lack of money, but
uneven and unpredictable income. Deposit services can have a hugely
beneficial effect in helping even out the troughs and peaks, and ensuring
that families have access to savings to cover school fees or emergencies. And
yet microsavings have failed to take off in the same way that microcredit has
over the past few decades.
One of the reasons that microsavings has languished, despite widespread
recognition across the microfinance industry of the considerable
consumption-smoothing benefits it offers, is simple economics. Deposit
services are expensive for microfinance institutions. And it's harder to make
a profit from customers who make lots of tiny deposits without massively
trimming transaction costs. This new study is significant because it shows
that microfinance institutions can integrate savings services as part of an
overall service offering, and that in doing so deposit services more than
overcome their high operational costs, reaping quite significant profits for
the institutions.
In both the institutions studied for this paper, cross-selling of loans
and money transfer products to small savers was significant. In ADOPEM there
was a high rate of cross-selling of loans to small savers, with about three
quarters of ADOPEM's small savers also borrowing at any given time, while
Centenary Bank generated most of its profits through the fees charged on
small savings accounts (a monthly charge of US$ 0.56 on savings accounts
alone accounted for 32% of all small saver profits) and by offering a range
of money transfer products (which accounted for 16% of all small saver
profits). Centenary also makes substantial use of ATMs to attract and retain
clients, boost savings levels, and cut costs.
"This use of ATMs," said Westley, "points to the even greater potential
of reducing transaction costs and increasing deposit balances by leveraging
technologies such as mobile phones and point of sale devices that allow
banking services to be offered outside of expensive to run bank branches."
Download the paper:
SOURCE: CGAP
CONTACT:
Jeanette Thomas
+1-202-744-4829
jthomas@cgap.org
SOURCE: CGAP
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