Stability of Small Balance Deposits

This paper examines the actual behavior of deposits raised from poor individuals. The study focuses on five institutions in developing and emerging markets that have large deposit volumes from low-income savers, and examines if:

• Such deposits are a stable base of long-term institutional funding;
• Any recurring seasonal supply patterns are at work;
• Known external events and certain institutional actions impact deposit supply.

Study results indicate that, with limited access to capital market instruments, mobilizing customer deposits is fundamental to balance sheet growth and to maintaining a stable, low-cost liability base. Findings include:

• Banks do not dedicate enough effort in analyzing their deposit supply;
• Seasonality is weak;
• Aggregate balances move gradually;
• Deposit supply variations tend to be normally distributed;
• Average life is an alternative measure of volatility;
• Sensitivity of deposits to macro stress events is small.

The paper recommends that banks and MFIs in emerging and developing countries invest their efforts in understanding depositor behavior in normal operating conditions as well as under stress circumstances.