There are considerable obstacles – regulatory, organizational and financial – for MFIs contemplating offering savings accounts for the first time. Once an MFI makes the effort to develop savings products and the operational capacity to manage them, however, it stands to gain in terms of expanding its financial services while building a more stable and diverse capital base from which to fund its loan portfolio. This article describes the different types of savings account that may be offered, and how each account may benefit the MFI and its clients. It outlines how NGOs, converted banks and credit unions approach savings, and the primary reasons MFIs and their clients are becoming more interested in savings products. Finally the risks are described that must be managed by MFIs offering savings products. If managed well, savings can offer MFIs a chance to expand their operations, improve their reputations among the target clientele and increase their returns.
The formal financial system in Peru provides very limited rural and agricultural finance services and most financial institutions focus uniquely on serving urban clients. If financial institutions lend to agriculture at all, it is primarily to large agro-processors or input suppliers, rather than to farmers directly. Even microfinance providers, which are more inclined to serve the needs of the rural poor, focus on the urban areas of Peru. Given the Peruvian microfinance industry's 20 per cent growth last year, microfinance providers are likely to continue to focus on unserved urban markets, which are easier to serve than rural markets. However, several financial institutions in Peru are making efforts to serve poor clients with a variety of rural and agricultural finance product and process innovations that reduce transaction costs and manage risks. This article captures some of the emerging products and processes of four Peruvian financial institutions, which may have applicability to other countries as well.