Making a Case for MFIs Serving Small Savers

November 5, 2010

Despite recent data pointing to the high-cost to MFIs of providing small-dollar savings accounts, a paper recently published by CGAP suggests it's a matter of perspective. If an MFI is offering savings accounts in isolation, it's apt to incur significant overhead but not if the accounts are offered in tandem with other financial products, including loans and insurance.

The paper - Is There a Business Case for Small Savers? - examines quantitatively whether small savers (those with deposit balances of $100 or less) contribute to or undermine the financial sustainability of MFIs.

Using examples from Uganda and the Dominican Republic, the paper demonstrates the high cost of savings products, in isolation. "However, these high operating costs are more than overcome by the profits generated through cross-sales of loans and other products to small savers and by the fee income derived from their savings accounts," the paper explains.

The authors - Glenn D. Westley and Xavier Martin Palomas - have identified what they describe as "five pathways to profitability," that are discussed in detail in the paper. These are:

1. loans, which continue to be a major revenue generator for the microfinance sector
2. cross-selling life insurance, money orders and other non-loan/savings products
3. savings account fees
4. using new and emerging technologies, such as ATMs
5. higher interest rates for smaller and otherwise costlier-to-make loan products

Copies of the report Is There a Business Case for Small Savers? can be downloaded from the CGAP Web site.

One in four people, worldwide, survive on less than $1.25 a day