Term Deposits: Rural Clientele Ask For More

MicroSave Briefing Note No. 134 highlights the experiences of rural banks in Java, Indonesia, in mobilizing term deposits. It examines issues and challenges they face, and strategies they have adopted to revive their portfolio and growth. The note states that term deposits are one of the most common means of investment in rural sub-districts of Java. Most rural banks in Java have recently witnessed a decrease in deposit mobilization. A growing number of rural banks have therefore made renewed efforts to revive their deposit portfolio. Key challenges that rural banks face in mobilizing term deposits include lack of focus, inability to use a market segmentation strategy, and lack of adequate performance standards and incentive schemes. The note concludes that rural banks:

• Can develop an edge over commercial banks to capture term deposits;
• Offer higher interest rates, lower minimum deposits, and have convenient local offices;
• Need to understand their target segments and fine tune their products, services, and marketing efforts to develop and maintain a competitive edge;
• Need to develop better market intelligence as well as committed and capable institutional resources.