How Can BC-MFIs Tap Household Savings?

Developing MFIs as savings service providers

2 pages

Using behavioral research, this focus note examines why many clients of MFIs do not save in accounts that MFIs open as business correspondents (BCs) of banks. It finds that typically MFIs are positioned as credit service providers, and so they do not fit into clients’ mental models of where to save. The focus note discusses how MFIs can turn this situation around using clients’ demand for credit and desire to accumulate lump sums as triggers to induce active savings behavior. It suggests that to bring about such a change, MFIs will have to focus on branding themselves as savings service providers and will also have to highlight their relationships with commercial banks to build trust among clients. The focus note covers the following sections in detail:

Introduction to savings services offered by MFIs in India and an overview of client behavior;
Drivers of savings behavior: surplus, reliability, and operations processes;
Current market position of Indian MFIs and the scope of repositioning;
Changing market position by tweaking product design.