Microfinance and Savings Outreach: What Are We Measuring?

> Posted by Daniel Rozas, e-MFP

The following post was originally published on the e-MFP Blog.

For years, credit was the driving force behind microfinance. But times have changed. Instead of credit, we now speak of financial inclusion and expanding access to savings stands as one of the topmost objectives for the sector.

We also live in the age where it’s no longer acceptable to claim success without reliable metrics to back it. And on that front, the metrics applied to savings are woefully inadequate. According to a paper recently published by e-MFP, 50-75 percent of the savings accounts reported by MFIs stand empty. Like shadows cast by an evening light, the majority of savings clients are but illusions that obscure the real savers. We are thus doubly tricked – led to believe that more clients are saving than is the case, and that the clients who save are poorer than they really are.

This is both a problem and a symptom of a larger challenge. The problem is simply that we know surprisingly little about real savings outreach. Reporting the gross number of bank accounts and total deposits, whether for a single institution or an entire market, is a poor reflection of reality. As Elisabeth Rhyne put it succinctly: “possession of a bank account … should not be confused with genuine inclusion.” Yet that assumption lies behind most of the metrics used to report savings outreach.

In 2008, the microfinance sector in Bolivia, one of the case studies in our paper, reported 1.4 million savings accounts, with an average balance of $309. Bolivia is often regarded as one of the most mature microfinance markets, and the success of its savings outreach is one of the reasons why. However, our analysis shows that after excluding empty accounts, the actual outreach drops to some 366,000 active savers, with an average balance of $1,225. Instead of reaching millions of poor savers, Bolivian MFIs are serving a substantially smaller number of individuals, many of whom probably earn more than the MFIs’ traditional clients. Similar patterns show up at banks and credit unions. That’s the problematic outcome of how savings outreach is currently reported.

Empty accounts exaggerate outreach to the poor

The large number of empty savings accounts is a symptom of the substantial challenges of serving poor savers. The past few months have seen a spate of publications examining the challenges – and successes – of serving poor savers.

Accion recently shared findings from its affiliates that demonstrate how empty accounts reflect regional and institutional differences in microsavings. As with our findings in Bolivia and elsewhere, Accion’s Latin America partners’ apparently high savings outreach is a quirk of arithmetic: in half of the institutions, over 70 percent of accounts are dormant. This is in part because savings are considered unprofitable, while clients do not perceive MFIs as the right place to save.

However, not all savings products for the poor result in high dormancy rates. By explicitly focusing on serving the needs of poor savers, Finamerica, Accion’s partner in Colombia, rolled out a product whose dormancy rate of 33 percent is less than half of its traditional products. Examples of this abound elsewhere: Grameen Foundation’s Microsavings Initiative at Cashpor, India achieved a dormancy rate of 28 percent, compared to average dormancy rates of over 80 percent among financial institutions in India. Similarly at CARD Bank in the Philippines, the Grameen Foundation collaborated with the behavioral economists from ideas42 to increase transaction frequency by 73 percent and raise account balances by 37 percent.

To read the rest of this post, click here.

Figure source: Annual Report 2008, ASFI, Autoridad de Supervisión del Sistema Financiero, Bolivia

Have you read?

Base-of-the-Pyramid Savings Among Accion Partners – Some News Is Bad and Some Is Good

Savings Is Key to Merchant Payments in Developing Countries

Savings Overtakes Loans in the Philippines