The Provision of Microfinance Services by Savings Banks: Selected Experiences from Africa, Asia and Latin America

The paper portrays experiences of savings and socially responsible retail banks in dealing with microfinance services. It describes four main characteristics of savings banks that make them ideally equipped for providing microfinance services:

• Geographic proximity: Savings banks are committed to maintaining branches in rural and structurally weak urban areas;
• Accessibility: Savings banks take into account the special needs of low-income households in designing products and services such as micro-savings and micro-credit;
• Sustainability: Savings banks attempt to reduce the costs by increasing efficiency while charging and offering correct interest rates that cover their costs;
• Social commitment to provide financial services to underserved markets.

The paper describes the challenges faced by savings and other retail banks to enter into microfinance business:

• Product development and human resources: Microfinance operations differ from conventional banking practices and require specific products, skills and capacities;
• Improving overall efficiency: Transaction costs are still high;
• Corporate governance: Politically motivated microlending decisions can quickly lead to substantial losses and threaten the protection of deposits.

The paper concludes that:

• Microfinance industry should rely more on commercial funding sources to ensure expansion;
• Savings banks should continue to introduce pro-low-income financial products and services to complement existing deposit services;
• Donor-backed initiatives can assist savings banks through appropriate guarantee schemes and subsidized technical assistance for capacity building and institutional development.