Beyond Basic Credit and Savings:
Developing New Financial Service Products for the Poor

1. Introduction

"A sustainable program is far from static. Keeping up with client needs is a constant challenge" (Edgcomb and Crawley, 1994)

As the MicroFinance revolution continues, increasing numbers of MicroFinance Institutions (MFIs) are seeking to diversify the financial services they offer to their clients. In particular, there is a growing awareness that improved client-friendly savings facilities can provide not only an important financial service to the poor but also that such facilities will actually provide more capital funds for the MFI than the compulsory savings systems that have been so prevalent (Robinson , 1995 and Wright et al., 1997). Indeed there is a wide-spread belief that voluntary and accessible savings facilities may result in the inclusion of the poorest 10-15% of the population, who are averse to risk (and thus to taking credit), and are therefore not being served by most MFIs. Furthermore, there is a growing understanding and acceptance of the diverse nature of the credit needs of the poor, and an awareness that not all of these are addressed by pushing "productive loans".

In the words of Hulme and Mosley (1997), "Our main finding is the need for the designers of financial services for poor people to recognise that "the poor" are not a homogeneous group with broadly similar needs. ... Recognising the heterogeneity of the poor clearly complicates matters for scheme designers ..." But it is clearly extremely important. Thus there is a pressing need to examine the best ways of designing and introducing new financial service products into MFIs. This paper is written on the basis of the experience of BURO, Tangail a Bangladeshi MFI committed to providing flexible and responsive financial services to its clients and operating in what is perhaps the most competitive market in the world of MicroFinance. Tangail District is located two hours drive north of Dhaka, and offers a pleasant day trip from the capital for busy donor representatives and visiting consultants. Almost all the major indigenous Bangladeshi MFIs have branches in Tangail: Grameen Bank, ASA, BRAC and Proshika are all well represented, as are perhaps as many as a hundred smaller (often single village based) MFIs. The competition between MFIs is therefore growing, and in some villages intense, and clients have opportunities to "shop around" for their financial services. As a result, there is wide-spread multiple membership of MFIs (some "guestimates" suggest that as high as 40% of clients have two or more accounts). Tangail is therefore the perfect proving ground for new and improved financial services: indeed the clientele demands it (Abdullah et al., 1995).

Having long been a market leader in open access voluntary savings accounts, BURO, Tangail is currently testing a wide variety of savings and loan products (for details see the Section entitled: Operations Research Programme at the end of this paper). The methods used to develop these broadly followed four key phases of financial service product development:

  1. Identification of Needs and Opportunities,
  2. Design and pilot testing,
  3. Monitoring and evaluation of the pilot test, and finally
  4. Revision and scaled-up implementation.
These are examined (necessarily in a somewhat general manner) below. Additional material has been taken from a recent series of studies of successful innovative and poor-responsive banks financed by GTZ as part of the work of the CGAP's "Financial Instruments (Savings Mobilization) Working Group", and Marguerite Robinson's work on Bank Raykat Indonesia.

BURO, Tangail An Overview

Organization: BURO, Tangail has been operating since 1989, and is dedicated to the economic development of the poor in the Tangail District with the Mission Statement: "To establish an independent, sustainable organisation dedicated to providing effective flexible and responsive financial services to promote self-reliance among the rural poor in Tangail."

Through years of careful operations research, BURO, Tangail has developed and implemented a programme which emphasises the importance of savings as well a credit, and has become one of the more innovative and influential NGOs operating in Bangladesh.

Savings and Credit Activities: BURO, Tangail encourages potential clients drawn from the poorer "target" section of the community to form groups, encourages them to save, and provides credit to capitalise their income generation activities. By charging rates of interest designed to cover implementation costs and contribute to the capitalisation of the organisation, BURO, Tangail has developed a cost-effective and sustainable savings and credit system that by 2001 will provide financial services to around 100,000 members in a geographically compact area.

Members' Participation: The BURO, Tangail system encourages the members to participate in the planning, implementation and monitoring of the financial services and village development activities provided by the organisation, through participatory workshops, PRA and the Customers' Consultative Groups.

Scope of Operations: BURO, Tangail provides flexible financial services to 1,032 villages in Tangail district through 40 branches which are managed from a head office located in Tangail town. There are a total of 424 staff who undergo regular classroom and on-the-job training.

Savings: In the year to December 31, 1997, net savings, including members' emergency funds increased by 108% to US$ 603,678, and the weekly savings rate in mature branches continued to rise, and was significantly above (usually more than double, often triple) the projected/budgeted rate of US$ 0.125.

Loans: As of December 31, 1997 US$ 5,252,925 in loans had been disbursed, and US$ 3,753,825 had been recovered. The loan recovery rate further improved over previous years to 98.05% loanees with up-to-date repayment records (with only 1.05% of loans with repayment instalments more than 26 weeks overdue).

Capital Funds: As of December 31, 1997, donors had contributed US$ 976,504 (43%) of the total capital funds, and the 45,003 members had more than doubled this with US$ 434,905 (19%) from branch profits and US$ 727,952 (32%) in their savings and emergency fund accounts.

Profitability and Cost Analysis: In 1997, BURO, Tangail made a profit of US$ 164,548 (excluding subsidies of US$ 321,484 (reflecting the high rate of expansion at present) and the cost of donated capital (imputed at 10%): US$ 97,650), and this bought the organisation's retained earnings to US$ 434,905. Total expenditure for 1997 was 22.5% of the loans disbursed.


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