> Posted by Elisabeth Rhyne, with input from Liza Guzman and Leonardo Tibaquira of Accion
Accion has made a concerted effort over the past few years to promote savings among its partners and affiliates around the world, and those organizations have racked up some impressive statistics. There are 2.9 million savers using the 17 financial institutions associated with Accion that have savings operations, and the total amount on deposit is nearly $4 billion (data as of September 2013). The average savings amount, at $1,376, is uncannily similar to the average loan, $1,460.
But behind these numbers lies a very different story that reflects deep-seated cultural differences in the approach to savings among Latin American and African microfinance institutions – and their customers.
Several of Accion’s Latin American partners are mature commercial banks or finance companies that started with a strong microcredit orientation and subsequently gained the approval to accept deposits. At this point, several have somewhat more savers than borrowers, and loan portfolios mainly funded by deposits. As would be expected, average loan sizes are several times the size of average savings.
On the surface, Accion’s four newer and smaller partners in Africa look similar, though the ratio of savers to borrowers is higher (5-10 times as many savers as borrowers), and average savings balances are a smaller fraction of average loan sizes. The loan portfolios of two of the four are fully savings-financed; the other two require some outside funding.
Looking more closely at the Latin American institutions, one might at first think that they have reached the elusive goal of offering a balanced set of savings and credit services to their base-of-the-pyramid clients. However, a large portion of the accounts included in the total above are dormant, with balances less than $1. In half the institutions, over 70 percent of the accounts are dormant. Dormancy is prevalent among savings accounts in banks everywhere, but in these institutions the level is higher because many of the accounts were created as loan disbursement and repayment accounts. They were not regarded by either provider or customer as saving vehicles. Despite the large number of accounts, most of the actual savings comes from a relatively small number of term deposits, including large deposits from institutions.
Such results are not unusual for microfinance institutions in the region. The leaders and staff of Latin American microfinance institutions have been very slow to embrace retail savings, believing that collection of small savings is an expensive way to fund a portfolio and not profitable. Clients, for their part, have not clamored for savings accounts and apparently do not perceive microfinance institutions as the right place to save, as opposed to informal savings, credit unions or mainstream banks.
Accion’s four African microfinance partners, in contrast, started with savings. They tend to view savings as the primary way to acquire customers and build customer relationships. They see savings as an important part of the value they bring to customers and therefore, organize their operations for attracting retail savings. In West Africa the institutions draw on local tradition, in the form of roving savings collectors who make it easy for customers to save small amounts day by day. Despite the large number of savers and small average savings balances, the African microfinance institutions operate profitably.
Accion worked intensively with two of its Latin American partners to develop retail savings, with support from the Gates Foundation. The results have been interesting. Finamerica, a historically credit-focused institution in Colombia, now has a savings portfolio designed with BOP client needs in mind, which shows a good uptake by target clients. The product, El Milagroso (The Miraculous), won the Accenture Prize for Innovation 2013 in the financial services category in 2013. It represents 36,000 new savings accounts, an increase of 165 percent during the past year, with an average balance of $38 and a dormancy rate of 33 percent (vs. 70 percent for Finamerica’s older traditional saving account). El Milagroso accounts are easily opened by the sales force on the streets through a mobile phone, and clients can make deposits though any of Finamerica’s banking agents, located close by. Balances have been growing faster in these accounts than in regular savings accounts, demonstrating the appeal of the product’s features for motivating savings, including proximity and convenience of the channel.
Banco Pichincha, in Ecuador, also introduced savings products to the BOP to complement its microcredit offer. Pichincha’s clients can now access a voluntary savings account designed according to their needs and can access the bank’s extensive channel network (the biggest in the country). As a result, 510,000 accounts now exist.
The arithmetic of averages makes it look like broad-based savings is happening at institutions with many dormant accounts coupled with a few big deposits, and that arithmetic has allowed the underlying situation to go unremarked in public discussion. It takes stratification of deposits by size to reveal what is happening within a single institution or a group, but such data is rarely public. Only when the data are examined from a variety of angles, does the real story start to emerge.
Image credit: IADB
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Accumulating Financial Assets: Microfinance Ambivalence about Savings and the Poor
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February 12, 2014 at 3:33 pm
Anne Hastings
A very important blog, Beth. Thanks for writing about it in such an honest way.
I thought your readers might want to see how one institution I am familiar with reports on its savings:
https://centerforfinancialinclusionblog.files.wordpress.com/2014/02/savings-and-term-deposits.pdf
This particular MFI offers accounts in either USD or the local currency and it offers both regular savings and term accounts. The analysis gets at a couple of your concerns:
1. It classifies the number and total value of savings accounts classified as active, inactive, dormant, or collateral accounts. Inactive accounts forewarn managers that accounts are on their way to dormancy.
2. It looks at the number and total balance in the accounts as a function of the account size. In this MFI’s case, the minimum USD balance is $5 and the minimum in local currency is about $0.57. About 34% of the USD accounts have less than $10, while about 53% of the local currency accounts have less than $2.28.
3. Of course, it also tracks the average balance, which is $784 in USD regular savings and $53 in the local currency accounts.
Especially when one can analyze this type of information by branch over time in order to see the trends, it can be an important management tool.
February 14, 2014 at 1:32 pm
Daniel Rozas
Hi Beth, Liza, Leonard —
thanks for putting this data out publicly. The timing couldn’t be better. Over at e-MFP, we’ll very shortly be publishing a paper on empty/dormant savings accounts (http://www.blog.e-mfp.eu/blog/are-mfis-overstating-savings-outreach). We found that some 50-75% of MFI savings accounts are empty, which greatly skews outreach figures. The research is based on an algorithm we developed to extrapolate the number of empty accounts using stratified savings data from banks, credit unions and MFIs in Bolivia, Nicaragua, Pakistan, and in several countries in Africa. While the data is by no means representative of the entire sector (e.g. in Asia, things are quite different, as they are also in some African institutions), the relative consistency of the findings suggests that empty accounts are indeed widespread.
Since savings is a core component of financial access, our hope at e-MFP is that this focus will help encourage the sector towards better reporting of savings accounts.
Daniel