Overcoming Regulatory and Legal Constraints to Savings Mobilization
The regulatory & legal constraints microfinance providers face offering savings services to the poor
This paper was commissioned by the Microcredit Summit Campaign in 2006. It:
- Provides a brief overview of savings mobilization within the context of the microfinance industry and of the ways in which poor populations save around the world.
- Highlights the principles of financial regulation as they relate to deposit-taking, including:
- Protecting the safety and soundness of the financial system;
- Protecting the depositor who has limited information and time.
- Outlines the regulatory restrictions various microfinance providers face in offering deposit-services as follows:
- For banks - minimum deposit requirements, identification requirements and branching requirements;
- For NBFIs restrictions in the type of deposits or lack of permission to accept deposits;
- For nonprofit organizations permission to only accept compulsory savings.
The paper concludes with a discussion on how institutions are attempting to overcome three types of constraints:
- Regulatory constraints:
- By lobbying for regulatory changes such that their institution can offer deposits to the poor;
- Through institutional transformation into an organization that can offer deposits;
- Through partnerships with deposit-taking institutions.
- Capacity constraints: Through change in management and training.
- Cost constraints:
- By limiting the location and time when deposits are made;
- Using cheaper technologies;
- Accommodating deposits within the existing infrastructure;
- Using innovations in information and communication technology.