MAIN Seminar Theme No. 2: Looking Beyond the Narrow Corner of Compulsory Saving - Improving the Provision of Micro-saving Service

This paper talks about the need for MFIs to move beyond compulsory savings to more demand driven saving products and argues that neither the poor nor the institution benefits from compulsory saving policies. The paper analyses the approach of Buusa Gonofaa, an Ethiopian financial institution, in attracting open access micro saving.

The study looks at the main features of the savings product like:

• Group based savings;
• Waiver of minimum balance requirement;
• Independence from loan securitization.

It also looks at the timing of withdrawal, client behavior and pricing strategies for deposits, examining the following issues:

• Timing of withdrawal:
  • Current withdrawal policy within the organization,
  • Liquidity crunch and negative savings balance during certain months and concerns for the same,
  • Frequency of withdrawal contrary to prevailing beliefs.
• Client behavior:
  • Purpose of withdrawal among rural and non rural clients,
  • objectives of withdrawal, viz. predictions of client behavior by economists,
  • Preference of targeted savings as a mode of savings.
• Pricing of deposits:
  • Current policy of pricing vs. prevailing market rates,
  • Client perceptions of the interest rates,
  • Need for review of interests given high administrative costs.

The paper concludes by saying that:

• Compulsory savings do not fit into the livelihood strategies of the poor;
• There is a need for designing and working out appropriate remuneration for depositors through proper identification of direct and indirect costs of savings and loans.