Overcoming Regulatory and Legal Constraints to Savings Mobilization

This paper was commissioned by the Microcredit Summit Campaign in 2006. It:

• Provides a brief overview of savings mobilization within the context of the microfinance industry and of the ways in which poor populations save around the world.
• Highlights the principles of financial regulation as they relate to deposit-taking, including:
  • Protecting the safety and soundness of the financial system;
  • Protecting the depositor who has limited information and time.
• Outlines the regulatory restrictions various microfinance providers face in offering deposit-services as follows:
  • For banks - minimum deposit requirements, identification requirements and branching requirements;
  • For NBFIs restrictions in the type of deposits or lack of permission to accept deposits;
  • For nonprofit organizations permission to only accept compulsory savings.

The paper concludes with a discussion on how institutions are attempting to overcome three types of constraints:

• Regulatory constraints:
  • By lobbying for regulatory changes such that their institution can offer deposits to the poor;
  • Through institutional transformation into an organization that can offer deposits;
  • Through partnerships with deposit-taking institutions.
• Capacity constraints: Through change in management and training.
• Cost constraints:
  • By limiting the location and time when deposits are made;
  • Using cheaper technologies;
  • Accommodating deposits within the existing infrastructure;
  • Using innovations in information and communication technology.