Institutional Preconditions: Testing Readiness and Achieving Sustainability
This document draws on lessons learned from credit unions in Nicaragua on assessing an institutions readiness to mobilize savings responsibly. It also describes how to prepare an institution to mobilize savings.
In offering savings products, an institution takes on the responsibility of protecting client deposits. Many existing MFIs, NGOs, finance companies and credit unions are not in the position to begin mobilizing savings responsibly. They need to put in place the structures and disciplines that will enable them to become safe and sound institutions, capable of protecting the savings they mobilize.
Electing to mobilize savings is a strategic, long-term decision. There are seven minimum preconditions an institution must meet before mobilizing savings from their members or from the public. They are:
- Legal authority granted by the government to mobilize savings;
- Up-to-date accounting system;
- Accounting books that are closed monthly;
- Full provisions for all loans delinquent more than 12 months and for all delinquent loans where the term is past due;
- Delinquency tracking tool;
- Liquidity reserve of 10 percent of total deposits;
- Established internal control policies and procedures.
