New Publication: Exploring the Business Models Behind Microsavings

In the past several years, the microfinance sector continues to expand its focus on savings as a tool for increasing financial inclusion. According to MIX Market data, there were 75 depositors for every 100 borrowers as of 2012. For an industry rooted in credit, these numbers are impressive. 

However, the story of microsavings is more complicated than it looks. First, many of the accounts are extremely small or just sit idle altogether (up to 50% by some estimates) and poor customers often borrow more than they save.    

In a new paper, Exploring the Business Models Behind Microsavings, FAI affiliate Daniel Rozas seeks to disentangle some of the existing complications in the microsavings story by exploring several key questions:.

  • How might one define the different models by which MFIs provide savings?
  • How are they distinguished, where are they more prevalent, and which institutions are more likely to adopt them?
  • And is there a difference in outcomes—in terms of cost, outreach, and profit?

The findings suggest that geographic location, level of economic development, and regulatory environment all play an important role in dictating the types of models that are likely to be adopted. Different models also have substantially different funding and operating costs. Finally, net outreach levels in terms of number of savers served appear to be little affected by choice of model, though in many cases outreach may be skewed by widespread presence of empty accounts, which overstate the number of active depositors, and understate the average account balance.

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