A Fresh Perspective on Mobilizing Micro–Deposits

microdeposit session 1Micro-deposit generation is a key strategy in building more stable banks to support their credit operations and service the savings needs of the public, particularly the lower income groups. Banks unable to execute an effective micro-deposit strategy are risking being left behind in the marketplace, especially if they do not consider the perspective that broadening their micro-deposits base could provide them a solid foundation for achieving overall growth. This is one of the lessons learned during one of the sessions of the 2011 RBAP-MABS National Roundtable Conference held at the Hyatt Hotel on May 23-24, 2011.

Three speakers spoke on the topic “A Fresh Perspective on Mobilizing Micro-deposits”. Mr. Gerardo A. Butardo, Deputy Director of the MSME Finance Specialist Group of the Bangko Sentral ng Pilipinas (BSP) Supervision and Examination Sector, represented the regulators’ point of view. Representing the bankers’ views and sharing their experiences with mobilizing micro-deposits were Lt. Gen. William K. Hotchkiss III (Ret.), President of Cantilan Bank, and Mr. Joel Luna, 1st Valley Bank’s Pagadian branch manager.  The bankers’ experiences showed the participants how micro-deposits benefitted the banks’ operations and significantly expanded their deposit base.

microdeposit session - gerry butardoMr. Butardo discussed how banks could take advantage of the recent expansion in the definition of microfinance to include micro deposit services, among others, under Circular 694 (Appendix 45, MORB). As defined by regulations, micro deposit products cater to the needs of the basic sectors, low-income clients, and those that are un-served or underserved by the financial system. Some of the important features of a micro-deposit product as defined by the circular are:

  • Average daily savings account balance not exceeding PhP15,000;
  • Minimum opening and maintaining balance not exceeding P100; and
  • Not subject to dormancy charges.

Mr. Butardo also stressed the advantages that micro-deposits offer:

  • Micro-deposits can be transacted at Micro-Banking Offices (MBOs).
  • Micro-deposits are not just for micro-borrowers since it can be offered to anyone.
  • Micro-depositors can be micro-insurance clients, too.

See Mr. Butardo’s presentation

Conference participants listened to bankers Gen. Hotchkiss (see presentation) and Mr. Luna (see presentation) share their banks’ success stories in becoming billionaire banks. Both stressed that a key to their bank’s growth is their successful effort in deposits generation, starting with small savings that they actively sought from local communities and student savers.

microdeposit session - luna & hotchkiss

In both banks, micro-deposits comprise over 90% of the total number of deposit accounts. While contributing only an average of about 10% to bank-wide deposits, these micro-deposits have been a stable source of funds for the banks. Both bankers also emphasized that micro-deposits bring other benefits to the bank like the passenger traffic that these deposits generate. A healthy stream of customer traffic in bank branches reassures the general public, builds trust, and creates a positive image of the bank. Both bankers stressed that investments in promoting micro-deposit are worth it.

What are some of the activities that Cantilan Bank and 1st Valley Bank engage in?

As a way of building trust and informing the community members about what the bank can offer them, both banks join community activities such as town fiestas, school events, summer workshops for students, feeding programs, foundation day and sport events,  medical outreach missions, and other school-related events. During those community or school events, bank personnel man their booths where informational materials and lock boxes or savings boxes are displayed. These lock boxes or savings boxes are given free to those interested in opening a savings account.

Gen. Hotchkiss shared an observation that people in rural areas save more than those in urban areas. Cantilan Bank has been able to generate a lot of deposits from 3rd and 4th class municipalities.

microdeposit session 2The samples of 1st Valley Bank’s “wais box for wise savers” stirred much interest among the conference participants. The box is made of cardboard, and the key to its padlock is kept in the bank. 1st Valley Bank has already issued more than 45,000 boxes to its clients as part of its effort in mobilizing small deposits.

The session on micro savings elicited a lot of interest in the audience. What does a bank need to do? Does it need to seek approval from the BSP? The short answer is: as long as the micro-deposit product is within the guidelines, there is no need for BSP approval. However, the policies related to micro-deposit services should be added to the bank’s product manual.

Since the USAID-supported RBAP-MABS program started in 1998, savings mobilization has been a key element to the program’s capacity building approach to participating banks. The achievements of both 1st Valley Bank and Cantilan Bank in savings mobilization, along with the initiative’s contribution to these banks’ overall growth, prove that this other “half” of financial intermediation must not be forgotten.