MicroFinance

BY
Aditya Prasanna
Sai Aditya
K V Sandeep
LIVE LIFE KING SIZE
Why have MFIs historically not emphasized savings as
much as credit?
• main reasons:
1. The movement’s aim is to help the poor, who were not thought of
as having much money to save;
2. In most countries, new credit techniques, not new savings
techniques, launched the movement,  
3. Most of the institutions involved were NGOs, which were not
legally licensed to collect savings.
4. There are two key constraints that technology is
addressing, both equally important: proximity and cost.
• For a bank-sponsored savings product to be useful for a poor
family, the service needs to be easily accessible and at low cost.
• Poor people will not walk for hours to the nearest branch of a
bank.
 Microsavings
• Microsavings
• division of microfinance
• comprises a deposit account with a nominal value
• provided to individuals or families with low levels
of income as a bonus for saving funds for the
purpose of future application.
 Micro savings
•The micro-savings accounts function similarly as a general
savings account. Nevertheless, they have been planned for
small amounts
•Micro savings programs are commonly provided in
developing nations as a means to motivate saving for
educational activities and other types of investments in the
future.
•Micro savings is vital for the people who are facing
difficulties in a small-scale business or those in unsteady
economic condition.
 Savings
What problems do credit-based financial institutions
commonly face when developing savings services?

Sufficient Staff Commitment

Cost recovery
Information management
Sufficient governance
Developing trust
Implementing adequate internal controls
Culture
 Do poor people really save?

Yes. Poor people save because they must:

• their income is rarely sufficient to manage crises
• to invest when opportunity strikes, or
• to pay for large expected expenses, such as school fees, a
wedding, or a home renovation.

• How do they save?

• Numerous studies and experience worldwide confirms that
the poor use informal savings devices, even though these
are often neither reliable nor secure.
• In Indonesia 10 savers for every 1 borrower
What criteria must be considered when designing
deposit services for the poor?
Typically, the poor want their savings to be secure, with low transaction costs,
appropriate design, and, if possible, constant in value:
Security.
Low transaction costs - Proximity ,Convenient opening times and minimal
paperwork
Appropriate product terms - Individual voluntary deposit products that allow
frequent deposits of small, variable amounts and quick access to funds are best.
Contractual savings are also useful for planned future lifecycle expenditures such
as weddings, funerals, and birth celebrations.
Interest rates - If transaction costs are low, rural savings takes place even with
negative real returns – indicating that the poor can be relatively insensitive to
interest rates as a priority when evaluating savings options. Nevertheless, demand
for savings products does increase as real interest rates rise. 
• What are the prerequisites when offering savings services?
An institution should have:
• the legal authority to mobilize deposits
• effective governance
• financially sustainable operations
• a sound business plan showing continued viability and indicating where savings can be invested
profitably
• adequate capital
• a history of rigorous credit management
• a system for measuring and monitoring financial performance
• sufficient internal controls supported by a culture, policies and human resource management that
prioritize the security of funds
• the technical capacity to manage liquidity and interest rate risk
• a management information system, whether manual or computerized, that can handle the volume
of anticipated transactions and can provide information that is sufficient, accurate, timely and
transparent
• the necessary physical infrastructure including secure premises in safe and convenient locations, a
strong room or vault, and sufficient office space with counters.
 Latest situation

• Earlier the conventional microcredit institutions function

beyond the regional banking rules and regulations and
typically are not allowed to receive savings deposits from the
microcredit customers.
• Lately efforts towards Government deregulation of MFIs on
micro-savings is in the limelight/progress
• Micro-credit & micro-savings under one roof
• Limited freedom…..
 ASK microfinance
• Established in 1999
• For-profit company which aims for ‘Social and
Economic returns’
• Well established in 10 states of India
• 1 million Customer base
• Annual Growth rate of 3%
• Customers = Self-help groups & low income
individuals
• 60% of customers constitute women
 FACTS contd…
• Lowest default rate of 1% in India
• 40% customers have crossed above the
poverty line
• Rate of borrowings from banks is 11%-14%
•  We charge an average interest rate of 26%
• Regulations legalizing MFI to extend savings
services… an opportunity
 Technology in place
• Use of state of the art Information Systems at
ASK
• Presence of more than 1000 retail outlets
across 10 states
• Use of biometric devices for credit disbursal
and collection of repayment
 Target market

• Current customers of micro- credit of ASK

(SHGs and Individual)
• The future customers
 Product
• Savings based on daily need and special
events
• Need 
– To smoothen irregular cash flows
– Future investments
• Variety 
– Daily saving scheme (Saral)
– Special occasion scheme (Jeevan Anand)
 Product design
Daily Saving scheme

• Minimum deposits – Rs 20/-

• Withdrawal – in
denomination of 10s up to
maximum amount in this
account
• Charges 0%
• Interest 0%
 Product design
• Special Occasion Scheme
– Include marriages, school fees, festivals etc
– Minimum deposits – Rs 50/- fortnightly
– Withdrawal – cannot be withdrawn in first 6 months
– Charges 0%
– Interest
• <1 Yr - 0%
• >1 Yr – 6% ( as bank rates on the capital for the term of
savings, till maturity)
How do they avail the services
 Promotion & place
• Promotion
– Agents
– Retail outlets
– Word of mouth
– Local means of advertising
– Use of self-help groups (SHGs)
• Place
– Retail outlets
– MFI agent locations
– kiosks
 costs
• Training costs
– Agents
– Retailers
• Technology costs
– Use of biometric devices
– Internet connectivity
• Compensations for retailers
– Transaction costs
• Interest charges of 6% on special occasion scheme
• Transportation costs
 How do we use the saved money
• Invest In government securities
• For further credit to future loan seekers
ThAnK yOu!!!