By Amaka Abayomi
Savings mobilization for microfinance banks and institutions has been described as a good strategy for effective microfinance operations.

Speaking to microfinance operators, an Associate of the Alliance for Financial Inclusion and founder of K-Rep Bank Limited, Mr. Kimanthi Mutua, said despite realization of the demand and importance, savings mobilization has remained a challenge for many microfinance institutions.

“Savings has always been central in microfinance but never seen as the driver but it is complimentary to credit. Conventional commercial banks operate at average savings levels that exclude the bulk of the people in developing economies. So the onus lies on microfinance institutions (MFIs) to mobilize savings for them.

“The importance of savings mobilization can never be over-emphasised as it deepens and expands outreach. Large numbers of customers choose to use savings services instead of credit as it helps the poor to better organize their financial lives and deal with emergencies.

“Access to savings is the key to financial inclusion and low usage of savings services is not an indication of low demand. It has been proven that a good number of poor people now enjoy improved quality of life as they have accumulated assets from savings.

“Savings is the main funding source for sustainable growth because it is less costly than loans which many MFIs rely on, stable source of funding, and improves public image and confidence.

“Its effect is noticeable in organization’s culture as it instills strong demand oriented business model, creates the desired organization culture, makes MFI to improve product variety and efficiency of service, and provides an environment for effective financial intermediation.”

Mutua listed the challenges
traditional MFIs face in savings mobilization to include legal capacity to mobilize savings, and most MFIs pursue a narrow savings customer base of credit customers.

“Traditional credit led business model has contributed to a poor savings mobilization organization-culture in many MFIs, lack of capacity to develop and implement good savings mobilization strategies, perception by management/staff that poor people don’t save, perception by customers as they borrow from one MFI and save with other.

“Deposit taking MFIs mostly suffer from their heritage as their capacity, culture, perception and image issues impair ability to scale up savings mobilization.

“Cost inhibitions prevent quick change of delivery challenges such as new branches, ATMs and systems to support savings products. Access to payment systems and clearing houses also pose some challenges to MFIs.

“Skills needed to manage savings are different and more complex than those needed to manage micro-credit and they come at high costs that most MFI structures can’t afford. Quick fix attempts to hire staff from conventional banks to fill the bank often ends up in conflict of culture and poor strategies.”

Other challenges, Mutua said, include excess liquidity in financial system limits incentives, unfair competition from cheap and easy wholesale funds mostly to government owned apexes, and uneven regulation which may be restrictive to some MFIs and permissive to others.

According to Mutua, there are certain factors that are sure recipes for successful savings mobilization for MFIs. They are organization and delivery channels as the closer the MFI gets to its customers, the better the chances for mobilizing a large number of depositors.

Branch network and access points are important as savers need convenient and ease of frequent access to their deposits, and the MFIs need technology to support branch connectivity and ease access.
Strong and skilled management team are equally important for successful savings mobilization.

Instill a gradual process of recruitment and training, ensure buy in of business model and have the capacity to manage risks and liquidity to guard reputation

Strategies to employ for successful savings mobilization are re-engineering of business processes, model and organization, developing and implementing good marketing and promotion program to address perception.

Others are identifying and focusing on market niche, developing loan and advances products to support savings customers, planning growth of credit portfolio to avoid ad-hoc decisions on loans to new savings customers, and not promising what the MFI can’t deliver.