What the Pandemic Taught Us About Savings

FinDev Gateway: Congratulations on winning the 2020 European Microfinance Award. Can you tell us a bit about Muktinath Bikas Bank and what makes you different from other banks?

Govinda Bahadur Raut: From the very beginning, Muktinath Bikas Bank Ltd. (MNBBL) adopted the following principle which has become our motto: ''जनता बैंकमा होइन, बैंक जनतामा जानु पर्दछ'' or: “People should not come to the bank; the bank should go to them.” What makes us unique in the Nepalese banking system is that we reached out to the rural population when many believed that banks could only operate in urban areas. It is important to us to include people who have traditionally been excluded from banking services, thus contributing to the economic upliftment of the community and country. We focus on savings because it is an essential requirement for low-income people, providing a cushion for them in adverse situations like the pandemic and other unexpected shocks.

FinDev: Offering savings services to excluded populations is a worthy mission, but is it possible to do this in a sustainable or even profitable way?

Govinda: When we first started reaching out to poor and rural communities, it was costly, but we made a conscious decision to accept this cost in order to fulfill our social mission. Over time, as we grew our micro-savings portfolio, the operation became profitable as the cost of mobilizing deposits went down and we could offer other products for low-income people. Ultimately, we have found that offering savings provides benefits not only for the poor but also for the bank. Small savings amounts from a large number of accountholders now provide a stable source of deposits for the bank.  Our micro-savings portfolio of approximately $41.7 million covers nearly 40 percent of our outstanding micro-loans.

Founded in 2007 as a regional development bank, MNBBL is now a leading national development bank in terms of business size, profitability and branch network. We have seen that poor people can and do save. Our efforts in financial literacy, educating our clients on how best to manage their hard-earned money, have also helped increase their savings habits.

Deposit mobilization can work for low-income populations by reaching scale and working with groups to encourage savings discipline.

FinDev: What has been your strategy for encouraging savings given that you primarily serve low-income clients?

Govinda: We use the Grameen model of solidarity groups to serve our rural clients. From the beginning, this helped us lower operational costs, reach as many people as possible in a short time period and build trust at the community level. In order to develop clients’ savings habits and build their confidence that they could save regardless of their income level, we start motivating low-income clients to save from day one. During the seven days of pre-group training, they have to save a small amount each day. We also discuss how to identify future financial needs and plan accordingly. Then, as they pay back the loan, clients deposit savings along with the loan installments.

Eventually, clients began to demand a separate savings product, so we developed voluntary and mandatory savings, as well as short-term and long-term savings products based on the needs and demands of our valued clients.

FinDev: You have at least eight different savings products. Why so many? How did all of these products come about?

Govinda: All of our savings products were developed based on different client needs, which we learn about through our interactions with them in the field, client surveys and market research. While the population we serve has little disposable income, they have many obligations to fulfill and a single savings account is not enough to help them manage all of their obligations. That’s why we came up with so many savings products, such as Pension Savings for long-term saving, Insurance Savings for paying the life insurance premium and Atmanirbhar (Self-Reliant) Savings for starting a business after coming back from foreign employment.

Each product is easy to explain, which adds to their popularity. The most popular product is Pension Savings, a recurring savings product which has the highest interest rate among the savings products offered. The client chooses a tenure of either 10 or 15 years and must deposit a fixed monthly amount during that time. After the tenure ends, they receive 1.5 times the amount deposited for a 10-year tenure or double for a 15-year tenure. Clients like this product because its fixed nature makes it an obligation which gives them an excuse if anyone asks them for money.

The experience of the pandemic has reinforced the importance of savings among our members, as they became a lifeline for many during lockdown.

FinDev: What are some of the lessons you’ve learned as you developed savings products for the low-income population?

Govinda: One of the first things we learned was that ensuring the privacy of our clients’ accounts was crucial in order to gain their trust while working in groups. Group members saving larger amounts were getting targeted by other members asking them for loans. Some clients also wanted to keep their deposits private even from family members. Upon learning about these concerns from our clients, we adjusted our procedures to make sure that the information from clients’ accounts was completely private, even within their group.

Clients were also worried about the security of their deposits in a group setting, as many had previous experience with informal groups that ran away with their money. They wanted to deal with a formal bank with a good brand image they could trust. To address this concern, we put more efforts into educating our clients through monthly group meetings and financial literacy programs.

Our biggest learning has been proving that deposit mobilization can work for low-income populations by reaching scale and working with groups to encourage savings discipline. 

FinDev: How have your clients and their savings been affected by the pandemic over the past year?

Govinda: The pandemic brought many challenges for our clients’ livelihoods. As economic activities slowed down or came to a halt, they were forced to live off of their savings. During the first four months of the pandemic, while the country was in lockdown, savings decreased by nearly 25 percent. Now they are slowly coming back up and I believe it will take about three to four more months for savings to get back to pre-pandemic levels. The experience of the pandemic has reinforced the importance of savings among our members, as they became a lifeline for many during lockdown. 

FinDev: How has the pandemic affected Muktinath Bikas Bank? How do you see it affecting your plans going forward?

Govinda: The pandemic has taught us, as well as our clients, a key lesson about the importance of savings and digital channels. While the pandemic had many negative effects, it was actually a boon for our digital products, as clients who had previously been hesitant to go digital began to use them.  We increased our footprint in quick response payment mode (QR), mobile banking and internet banking. Going forward, we will focus on introducing more digital products, including digital channels to make deposit mobilization easier and more flexible.