Why microfinance institutions in Bolivia have virtually ignored savings
The benefits of savings mobilisation to both the institution and client are many, most importantly they provide a sustainable source of funding for a financial institution and offer clients a safe and liquid means in which to save. This paper examines Bolivia’s four main regulated MFIs – BancoSol, Caja Los Andes, FIE and Prodem – and finds that they have mobilized few deposits compared to banks, or compared to similar institutions elsewhere. It suggests that the availability of cheaper and easier donor funding is a disincentive to raising capital from depositors, and explains the internal obstacles to savings mobilization on the part of the MFIs.
This paper is extremely useful in landscaping the financial and political environment of MFIs in Bolivia and proposes realistic recommendations to institutions, government and donors that will encourage savings mobilisation in MFIs to the end that they may become robust deposit-taking microfinance banks. At institution level there must be a commitment to capture savings and diversify away from soft money and concessionary loans towards deposits in the capital base of the MFI. MFIs must also invest in human and financial resources in market intelligence, more sophisticated cost accounting systems, risk and liquidity management, training and incentives.
Government level reforms that loosen the reserve and reporting requirements in rural areas, support strategic alliances between regulated and non-regulated entities, eliminate the value-added tax on interest earned, reduce the I.D. requirement to open an account and allow minors to open savings accounts will create an enabling environment for the mobilisation of savings by regulated MFIs. Donors are advised to channel subsidies away from recapitalisation of loan portfolios towards institution building and especially to assist MFIs in their capacity building efforts. Subsidies should be used to support policy dialogue and regulatory reform and to develop strategic alliances between regulated and non-regulated institutions. There is also a need for the Donor community to improve coordination in both the development of donor strategy as well as monitoring the impact of donor interventions.
Originally published by Servicios Financerios Rurales (SEFIR) in Bolivia.