SAVINGS INCREMENT MODEL (SIM) PROJECT
A partnership between UKaid Sakchyam – UNYC Nepal (PROJECT 2)
Products and services are the faces of any financial institutions that is looked, evaluated and responded by clients and the stakeholders. Diversity in products and services is required to meet the needs and preferences of diversified clients. Meanwhile, increase in number of products and services also increases the cost and complexities in management. In this paradox, that institution will be competitive, successful and sustainable which can provide client need based dynamic products and services in efficient and easier manner.
Savings is one of the major financial products of microfinance institutions that taps the scattered money among the clients whatever small may be the amount, develop savings habit among the clients, develop their confidence for better future while managing more reliable fund for the microfinance institutions. Clients’ savings becomes more important when external borrowings become difficult like the situation Nepali MFIs faced in 2016-17 after the central bank changed the Deprived Sector Lending policy and also regulated the interest rate and its spread.
Similarly, digitization in financial transactions is an innovation that will be more valuable to MFIs as it supports in reducing operating costs and increase efficiency. Many MFIs are digitizing their transactions leading to make it paperless, swift and reliable.
Financial institutions often focus more on designing loan product for their clients compared to other products like savings, remittance and insurance. UNYC Nepal has also introduced new loan products such as Business Loan that are larger in average size and also demanded by larger number of clients. This increase in loan demand was due to new intervention focused on commercial scale business with direct concerns of the clients to improve their status and also due to faster expansion in work area due to the first project with Sakchyam. UNYC saw a large decline in its savings to outstanding loan portfolio ratio from 71% in July 2014 to 39% in July 2016, mainly due to increased loan portfolio and slow growth in savings by the clients. Meanwhile, a change in Nepal Rastra Bank’s (NRBs) policy that temporarily mandated BFIs to lend directly 2% of their portfolio in Deprived Sector Lending (DSL) (mandatory requirement removed latter) reduced their access to Deprived Sector Wholesale Loans.
Similarly, many of the competing MFIs of UNYC like Kisan Microfinance and Kisan Cooperative started digitization through tablets under Sakchyam support. This pressured UNYC to opt that to be competitive.
UNYC realized its immediate need to increase internal sources of funding by increasing clients’ savings at the institution. To do so, UNYC proposed UKaid Sakchyam Access to Finance Programme (Sakchyam) a second project entitled ‘Saving Increment Model (SIM) Project’ with one of the key objectives to increase clients’ savings habits and amounts by developing new savings-led products and services at all branches. Despite existing 5 savings products at UNYC, the project further planned to develop at least three new savings products and revisit existing loan and savings products. Together, UNYC planned to digitize transactions through 224 tablets for all branches, link the products to entrepreneurship, insurance, and remittance. As UNYC has identified many of the Agriculture Cooperatives don’t have sufficient funding capacity to their members, it was planned to tap them in UNYC network to increase outreach, loan and savings and other services loan through the cooperatives in SRG modality.
UNYC expects to reach 81,000 beneficiaries, assist 2,430 SMEs, mobilize NPR 144.63 million deposit, build capacity of 1,380 clients, and organize Savings-led Campaigns to benefit 54,000 clients. They also plan on increasing average savings to loan outstanding ratio at least to 60% and thereby reducing its dependency on DSL or other wholesale borrowings.
The savings product offers two middle term voluntary deposit schemes with different amount, term and interest rate. Clients can commit or plan to save NPR 20,000 or NPR 50,000 within 1 or 2 years period and get 9% and 9.5% interest respectively on the amount. They cannot withdraw the amount within maturity but can access to Special loan up to 80% of their accumulated deposits for any purpose any time. These features were finalized after a systematic market study, piloting and evaluation before launching in all branches.
UNYC couldn’t materialize their SRG lending plan as the central bank didn’t permit them for indirect lending through Agriculture Cooperatives. So, they have revised the plan without SRG and also the number of tablet purchases is reduced to 120 pieces to meet their needs to operate through staffs.
As of December, more than 12,200 clients have deposited over NPR 35 million in their Plan Savings account. Excited with the performance, UNYC has designed ‘Daily Savings’ product that is in pilot phase. Similarly, UNYC has purchased 120 tablets and has reached over 60,490 clients in 26 branches through 76 tablets. To make the use of tablets more effective, UNYC has conducted training, exposures and refreshers to the focal staffs on tablet. Similarly, the clients are systematically informed on the Plan Savings and Tablets at trainings and center meetings.
They have also offered financial literacy to over 2,000 clients through Pre-Group Training, reached 2,037 school students through FL campaigns and offered financial literacy to over 950 clients at center meetings. UNYC has also produced radio jingles with financial literacy messages and broadcasted the same from six FM stations, and published 1000 copies of literacy materials on savings to be used at all branches. They have started process for Smart Certification receiving technical services from Good Return Australia.