Introducing Savings in Microcredit Institutions: When and How?

April, 1997     Joyita Mukherjee

Voluntary deposits as a source of commercial finance for microcredit institutions, has generated a lot of interest and debate in recent years. Locally mobilized voluntary savings is potentially the largest and the most immediately available source of finance for some microcredit institutions. Another important reason for undertaking the institutional mobilization of voluntary savings is the vast unmet demand for institutional savings services at the local levels of developing countries. The purpose of this paper is to broaden the discussion of when and how a microcredit institution should mobilize voluntary savings from the public. Getting these elements right is a crucial part of meeting the demand.

When?
Three conditions dominate the issue of when a microcredit institution should start mobilizing voluntary savings--some of which are beyond the control of the institution. First, profitable mobilization of voluntary savings requires an enabling macro-economy, an appropriate legal and regulatory environment, reasonable level of political stability, and suitable demographic conditions.

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