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DOING GOOD DOING WELL CONFERENCE
            IESE 2011

       How can International
FinancialInstitutionssupportmicrosavi
                  ngs?

        Guadalupe de la Mata
WhyIFIsprovidemainlycredit?
Easier to justify from economic development and poverty
alleviation perspective>Providing credit has been regarded
as having most direct link to increasing incomes

Incentives in many funding agencies are skewed toward
financing credit

Potentially risky business and requires specific
expertise, institutional capacity and long term
commitment
WHY Renewed interest among
             funders?
• CRISIS have raised:
  – Concerns about over lending and over-indebtedness
  – The impact of economic recession on the poor
  – Criticism of microcredit
• These factors have shown:
  – Importance of savings for poor people’s economic well
    being and
  – that deposits are potentially a stable source of funds
    for FI
  – Demand is there but supply is scarce
1. Savings can help people deal with 3
     barriers to escaping poverty
Smooth their volatile income streams and ACCUMULATE
funds to eat regularly, invest in education and reduce
financial stress

PROVIDE A CUSHION AGAINST COMMON SHOCKS
(ILLNESS, DEATH, CROP FAILURE…)


SAVINGS can be used to INVEST IN NEW TOOLS AND
BUSINESS TO IMPROVE PRODUCTIVITY (SELF FINANCE)
2. Savings have a positive effect on the
      financial system as a whole

Strengthening local financial
intermediaries
• Stable funding source
• Reduce risk of forex losses
• Strengthen institutional stability, especially
  in times of economic crisis
3.Demand for savings is high but
          supply scarce
DEMAND/ When made available
• Impressive growth in the number of savers
  achieved by leading deposit taking institutions over
  the last decade
Supply SCARCE due to:
• Institutional level constraints
• Inadequate infrastructure
• Regulatory barriers
What can IFIs do
tosupportmicrosavings? Fourproposals
ENCOURAGE DEMAND for Savings products and
Services

Extending the Reach and SOUND RETAIL PROVIDERS

Strengthening MARKET INFRASTRUCTURE for Savings
Services

Supporting SOUND POLICY
1. Encouragedemand
Key lessons to encourage demand
• The poor already save in many informal ways
• Poor people save with formal institutions
  when their services are close by and
  appropriate- accepting very small and varied
  deposit amounts
• Policy makers and financian institutions may
  not always understand the importantance of
  savings for poor clients
1.Encourage demand (II)
What can donors do to encourage demand ?

• Promote and encourage an UNDERSTANDING of
  the IMPORTANCE OF SAVINGS SERVICES FOR POOR
  PEOPLE
• Promote MARKET STUDIES aimed at
  QUANTIFIYING AND BETTER UNDERSTANDING
  client demand
• Support programs that promote CONSUMER
  AWARENESS and FINANCIAL CAPABILITIES OF THE
  POOR.
2. ExtendingtheReach of
          SoundRetailproviders
Key lessons
• Different kinds of institutions are needed to improve
  access to savings. Different providers serve different
  market segments and client needs
• Managing deposit services for the poor requires greater
  institutional capacity than credit only services
• The decision on wheather to support a particular
  institution should focus on:
  • Management commitment to savings mobilisation and
  • Institution´s capacity for safe and sound deposit
    operations or its ability to build that capacity
2. Extendingthereach of
           soundretailproviders

Guidance for funders
• Support CAPACITY BUILDING and the up-front
  investment costs of introducing or scaling up savings
  services and use performance based funding
• Explore other, NON-TRADITIONAL SERVICE
  PROVIDERS (such as telecommunication companies)
  that may partner with FI to extend their reach and
  product range
• Focus support on the type of instutions that match
  funders´ internal capacity and expertise
2. Extendingthereach of
            SoundRetailproviders
1.   Informal Communitymanagedsavingsgroups
2.   CreditUnions and otherfinancialcooperatives
3.   TransformingMFIs
4.   SpecialisedMicrofinance Banks and Greenfields
5.   Savings and Postal banks
6.   Mainstreamcommercialbanks
Types of ServiceProviders   Advantages                   Challenges
Savingsgroups               -Servepoorclients ,          -Limitedproductsoffering
                            primarilywomen               -
                            -Operate in remote rural     Limitedmanagerialcapacity
                            areas                        -
                            -Easlly replicable           Savingsmethodslimitassetb
                            -                            uilding
                            Profitsdistributedtomembe    -Risk of exclusion of
                            rs                           poorerindividuals
                            -Build social capital and    -Risk of theft of savings
                            selfesteem
CreditUnion and             -Inherentsavingsled          -Governancechallenges
otherFinancialCooperative   -Simple affordableprodcuts   -Findingtherigh balance
s                           -Of ten located in           betweenborrowers and
                            remoteregionsaccessibleby    saversinterests
                            thepoor                      -Risk of caputure
                            -Lowtransaction and
                            financialcosts
Advantages                             Challenges
Transforming    -Knowledge of poorclients              -
MFIs            -Social                                Inadequateinstitutionalcapacityf
                missionoftenorientedtoservepoor        orsavings
                and marginalisedcommunities            -Highcosts of transformation
                -Increaisngly more interested in       -Creditledculture
                usingdepositstodiversifyfundingsou     -Lack of
                rces                                   accesstopaymentsystems


Specialisedmi   -Adequateskills and expertise          -Requiresignificant subsidies
crofinanceba    -Set up as deposittakinginstitutions   initally
nks and         , no transformationrequired            -
greenfields     -Broadrange of products                Knowledgegainednotsharedbeyo
                                                       ndnetwork/
                                                       holidngforproprietaryreasons
                                                       -Oftennotreachingclients in
                                                       remoteaeas
                                                       -Limitedbranchnetwork
Advantages                             Challenges
Savings and    -                                      -Governance and
postal banks   Extensivebranchnetworkthatoftenp       managementchallenges
               enetrate rural markets                 -Bureaucraticculture
               -Preexistinginfraestructure can        -
               allowforlowtransactioncosts            Oftenrequiresignificantinstitutio
               -Usuallyperceivedtobesave and          nalreform
               secure                                 -Limitedproductrange
                                                      Poorcustomerservice
Mainstream     -Broadrange of products and            -
Commercial     services                               Corporateculturenotorientedtol
Banks          -Modernbranchinfrastructure            owincomemarkets
               -Largenetwork of branches              -LimitedincenTivesto target poor
               -Linkagestopaymentsystem               and remoteclients
               -Abilitytocross-subsidisesmall         -Exitingproductsoften do
               balance                                notmeettheneeds of tehpoor
               accountswithexistinghighvolumeop       -Lack of lowcostdeliverychannels
               erations                               -Operatemostly in urbanareas
               -
               Saferthanotherinstitutionsifproperly
               regulated and supervised
3. Strengthening MARKET
            INFRASTRUCTURE
KEY lessons
• Support market infrastrure goes beyond
  microfinance and it is important to take a BROAD
  FINANCIAL SECTOR PERSPECTIVE when
  supporting initiatives at this level
• In country trainers and technical advisory
  services for savings mobilisation are usually
  quite limited
• Access to payment services can affect an
  institution´s ability to attract deposits
3.
StrenghtheningMarketInfrastructureforSavi
              ngsService
  Guidance for funders
  • Training support and capacity building for service
    providers to increase their experience and expertise
    to support savings services
  • Support initiatives that increase access of financial
    providers to Payment systems and money markets
    (facilitating communication among stakeholders)
  • When supporting Deposit insurance, funders should
    apply good practice features and have access to
    adequate expertise
4. Supportingsoundpolicyenvironments

Key lessons
• Prudential regulation and supervision is required for
  institutions mobilising savings (Except for small,
  community based intermediaries too tiny or remote
  to supervise effectivily)
• Capacity of regulators and supervisors is often the
  main bottleneck
• There is no one-size fits all regulatory or supervisory
  solution. Each country should establish one taking
  into account its priorities and capacity constraints
4.
SupportingSoundPolicyEnvironments.
Guidance for funders
• Support policy and regulatory environments that balance
  and increase
  • access,
  • financial stability and
  • protection of savings
• Capacity builiding of regulatory and supervisory bodies
• There is no one size fits all regulatory or supervisory
  solution. Each country should establish its regulatory and
  supervisory framework taking into account its priorities and
  capacity constraints
5. ChoosingtheRight Role in
            PromotingSavings
Key Lessons
• Only funders with the relevant internal capacity
  should support savings mobilization

• Savings mobilisations is an internal component of
  overarching goals (poverty allevation, access to
  finance and building an inclusive financial system.)
ChoosingtheRight Role in
                PromotingSavings.
Guidance for Funders
• Clear strategy that articulates the funder´s goal in supporting
  savings mobilisation
  • Expanding access to finance
  • Building inclusive financial systems
  • Reducing poverty
• Support savings mobilisations only if they have the adequate
  expertise, systems and instruments
• Appropiate mix of funding instruments
  • Grants
  • Debt
  • Equity
GRANTS

GRANTS Promoting savings is best suited with the
resources (typically grants) to support capacity building
and technical assistance over the medium and long term


Grant support should be

• time-limited,
• performance based, and
• disbursed against the grantees institution´s atainment of clearly
  established performance tagets
DEBT


Can support but also hinder savings mobilisation

Debt financing should be nondistortive and
complementary to savings mobilisation

Debt providers can use their influence to promote
savings mobilisation with retail service providers
EQUITY

EQUTY
•Start up capital for greenfields
•Necessary in transformation
•Strategy and corporate governance
 (oversight the governance and
 management of the instituon
Guadalupe de la Mata
          THANKS!!!
Time forQuestions and Comments

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The role of International Financial Institutions to promote microsavings. guadalupe de la mata

  • 1. DOING GOOD DOING WELL CONFERENCE IESE 2011 How can International FinancialInstitutionssupportmicrosavi ngs? Guadalupe de la Mata
  • 2. WhyIFIsprovidemainlycredit? Easier to justify from economic development and poverty alleviation perspective>Providing credit has been regarded as having most direct link to increasing incomes Incentives in many funding agencies are skewed toward financing credit Potentially risky business and requires specific expertise, institutional capacity and long term commitment
  • 3. WHY Renewed interest among funders? • CRISIS have raised: – Concerns about over lending and over-indebtedness – The impact of economic recession on the poor – Criticism of microcredit • These factors have shown: – Importance of savings for poor people’s economic well being and – that deposits are potentially a stable source of funds for FI – Demand is there but supply is scarce
  • 4. 1. Savings can help people deal with 3 barriers to escaping poverty Smooth their volatile income streams and ACCUMULATE funds to eat regularly, invest in education and reduce financial stress PROVIDE A CUSHION AGAINST COMMON SHOCKS (ILLNESS, DEATH, CROP FAILURE…) SAVINGS can be used to INVEST IN NEW TOOLS AND BUSINESS TO IMPROVE PRODUCTIVITY (SELF FINANCE)
  • 5. 2. Savings have a positive effect on the financial system as a whole Strengthening local financial intermediaries • Stable funding source • Reduce risk of forex losses • Strengthen institutional stability, especially in times of economic crisis
  • 6. 3.Demand for savings is high but supply scarce DEMAND/ When made available • Impressive growth in the number of savers achieved by leading deposit taking institutions over the last decade Supply SCARCE due to: • Institutional level constraints • Inadequate infrastructure • Regulatory barriers
  • 7. What can IFIs do tosupportmicrosavings? Fourproposals ENCOURAGE DEMAND for Savings products and Services Extending the Reach and SOUND RETAIL PROVIDERS Strengthening MARKET INFRASTRUCTURE for Savings Services Supporting SOUND POLICY
  • 8. 1. Encouragedemand Key lessons to encourage demand • The poor already save in many informal ways • Poor people save with formal institutions when their services are close by and appropriate- accepting very small and varied deposit amounts • Policy makers and financian institutions may not always understand the importantance of savings for poor clients
  • 9. 1.Encourage demand (II) What can donors do to encourage demand ? • Promote and encourage an UNDERSTANDING of the IMPORTANCE OF SAVINGS SERVICES FOR POOR PEOPLE • Promote MARKET STUDIES aimed at QUANTIFIYING AND BETTER UNDERSTANDING client demand • Support programs that promote CONSUMER AWARENESS and FINANCIAL CAPABILITIES OF THE POOR.
  • 10. 2. ExtendingtheReach of SoundRetailproviders Key lessons • Different kinds of institutions are needed to improve access to savings. Different providers serve different market segments and client needs • Managing deposit services for the poor requires greater institutional capacity than credit only services • The decision on wheather to support a particular institution should focus on: • Management commitment to savings mobilisation and • Institution´s capacity for safe and sound deposit operations or its ability to build that capacity
  • 11. 2. Extendingthereach of soundretailproviders Guidance for funders • Support CAPACITY BUILDING and the up-front investment costs of introducing or scaling up savings services and use performance based funding • Explore other, NON-TRADITIONAL SERVICE PROVIDERS (such as telecommunication companies) that may partner with FI to extend their reach and product range • Focus support on the type of instutions that match funders´ internal capacity and expertise
  • 12. 2. Extendingthereach of SoundRetailproviders 1. Informal Communitymanagedsavingsgroups 2. CreditUnions and otherfinancialcooperatives 3. TransformingMFIs 4. SpecialisedMicrofinance Banks and Greenfields 5. Savings and Postal banks 6. Mainstreamcommercialbanks
  • 13. Types of ServiceProviders Advantages Challenges Savingsgroups -Servepoorclients , -Limitedproductsoffering primarilywomen - -Operate in remote rural Limitedmanagerialcapacity areas - -Easlly replicable Savingsmethodslimitassetb - uilding Profitsdistributedtomembe -Risk of exclusion of rs poorerindividuals -Build social capital and -Risk of theft of savings selfesteem CreditUnion and -Inherentsavingsled -Governancechallenges otherFinancialCooperative -Simple affordableprodcuts -Findingtherigh balance s -Of ten located in betweenborrowers and remoteregionsaccessibleby saversinterests thepoor -Risk of caputure -Lowtransaction and financialcosts
  • 14. Advantages Challenges Transforming -Knowledge of poorclients - MFIs -Social Inadequateinstitutionalcapacityf missionoftenorientedtoservepoor orsavings and marginalisedcommunities -Highcosts of transformation -Increaisngly more interested in -Creditledculture usingdepositstodiversifyfundingsou -Lack of rces accesstopaymentsystems Specialisedmi -Adequateskills and expertise -Requiresignificant subsidies crofinanceba -Set up as deposittakinginstitutions initally nks and , no transformationrequired - greenfields -Broadrange of products Knowledgegainednotsharedbeyo ndnetwork/ holidngforproprietaryreasons -Oftennotreachingclients in remoteaeas -Limitedbranchnetwork
  • 15. Advantages Challenges Savings and - -Governance and postal banks Extensivebranchnetworkthatoftenp managementchallenges enetrate rural markets -Bureaucraticculture -Preexistinginfraestructure can - allowforlowtransactioncosts Oftenrequiresignificantinstitutio -Usuallyperceivedtobesave and nalreform secure -Limitedproductrange Poorcustomerservice Mainstream -Broadrange of products and - Commercial services Corporateculturenotorientedtol Banks -Modernbranchinfrastructure owincomemarkets -Largenetwork of branches -LimitedincenTivesto target poor -Linkagestopaymentsystem and remoteclients -Abilitytocross-subsidisesmall -Exitingproductsoften do balance notmeettheneeds of tehpoor accountswithexistinghighvolumeop -Lack of lowcostdeliverychannels erations -Operatemostly in urbanareas - Saferthanotherinstitutionsifproperly regulated and supervised
  • 16. 3. Strengthening MARKET INFRASTRUCTURE KEY lessons • Support market infrastrure goes beyond microfinance and it is important to take a BROAD FINANCIAL SECTOR PERSPECTIVE when supporting initiatives at this level • In country trainers and technical advisory services for savings mobilisation are usually quite limited • Access to payment services can affect an institution´s ability to attract deposits
  • 17. 3. StrenghtheningMarketInfrastructureforSavi ngsService Guidance for funders • Training support and capacity building for service providers to increase their experience and expertise to support savings services • Support initiatives that increase access of financial providers to Payment systems and money markets (facilitating communication among stakeholders) • When supporting Deposit insurance, funders should apply good practice features and have access to adequate expertise
  • 18. 4. Supportingsoundpolicyenvironments Key lessons • Prudential regulation and supervision is required for institutions mobilising savings (Except for small, community based intermediaries too tiny or remote to supervise effectivily) • Capacity of regulators and supervisors is often the main bottleneck • There is no one-size fits all regulatory or supervisory solution. Each country should establish one taking into account its priorities and capacity constraints
  • 19. 4. SupportingSoundPolicyEnvironments. Guidance for funders • Support policy and regulatory environments that balance and increase • access, • financial stability and • protection of savings • Capacity builiding of regulatory and supervisory bodies • There is no one size fits all regulatory or supervisory solution. Each country should establish its regulatory and supervisory framework taking into account its priorities and capacity constraints
  • 20. 5. ChoosingtheRight Role in PromotingSavings Key Lessons • Only funders with the relevant internal capacity should support savings mobilization • Savings mobilisations is an internal component of overarching goals (poverty allevation, access to finance and building an inclusive financial system.)
  • 21. ChoosingtheRight Role in PromotingSavings. Guidance for Funders • Clear strategy that articulates the funder´s goal in supporting savings mobilisation • Expanding access to finance • Building inclusive financial systems • Reducing poverty • Support savings mobilisations only if they have the adequate expertise, systems and instruments • Appropiate mix of funding instruments • Grants • Debt • Equity
  • 22. GRANTS GRANTS Promoting savings is best suited with the resources (typically grants) to support capacity building and technical assistance over the medium and long term Grant support should be • time-limited, • performance based, and • disbursed against the grantees institution´s atainment of clearly established performance tagets
  • 23. DEBT Can support but also hinder savings mobilisation Debt financing should be nondistortive and complementary to savings mobilisation Debt providers can use their influence to promote savings mobilisation with retail service providers
  • 24. EQUITY EQUTY •Start up capital for greenfields •Necessary in transformation •Strategy and corporate governance (oversight the governance and management of the instituon
  • 25. Guadalupe de la Mata THANKS!!! Time forQuestions and Comments