Introducing Savings into a MicroCredit Institution: Lessons from ASA

Recognizing the importance of, and growing interest in introducing savings products into microcredit institutions, MicroSave-Africa and the node 2836 CGAPest (CGAP) collaborated to study the dynamics of institutional change during the Association for Social Advancement's (ASA) transformation from a microcredit to a MFI.

ASA's experience provides some very important lessons for the microfinance industry:

• Moving from a compulsory, locked-in savings system to a voluntary open access savings service requires significant changes in management and information systems, personnel/training, organizational culture and the mandate to mobilize savings;
• Open access savings services need flexible systems capable of dealing with numerous transactions;
• Open access savings systems require a different type and complexity of control built on a clear segregation of duties and efficient and transparent management information systems;
• Transition from forced to voluntary savings services also involves profound changes in the attitudes and behaviour of staff;
• Locked-in savings can be a source of capital for the institution, but in the long term, such locked-in arrangements can create default and drop-out incentives;
• Moving from compulsory to voluntary savings products can also lead to a high degree of "cannibalization" particularly in saturated markets;
• In Bangladesh, individuals within the MFI "target group" are already being given one and often multiple loans and the potential for mobilizing savings from this group may be limited;
• Better knowledge of clients outside their current "target group" must be acquired if MFIs are to design, market and deliver savings products appropriate to "non target groups";
• Mass savings mobilization depends on MFIs diversifying their client base by understanding and responding to the needs of people from a much broader range of socio-economic strata than they typically serve;
• In Bangladesh, increasing competition between MFIs is leading to over-indebtedness and undermining the primary incentive to repay.

This note is based on the document 'ASA's Culture, Competition and Choice: Introducing Savings Services into a MicroCredit Institution' by the same authors.