MICROBANKING BULLETIN - Microfinance Information Exchange

CASE STUDIESproviding smaller loans. And by not offeringsavings, BT might be able to lower staff salaries.On the other hand, the estimated gains in staffproductivity on the credit side cannot be separatedfrom the costs of alternative ways of raising fundsfor lending. The increase in costs due to depositmobilization may indeed be compensated for by alower cost of funds for its loan operations. Savingsconstitute about 27 percent of the total loan portfolio(and 55 percent of the liabilities) at BT. If BT wereto mobilize these resources from commercialsources, then interest costs may increase by about3.2 percent, pushing operating costs higher by atleast another one percent.It is also important to mention that the maintenanceof liquid reserves to meet potential savingswithdrawals creates an additional cost, since itreduces the funds available for loans that cangenerate income. But the costs can likely be offsetif the average savings balance grows above thereserve requirement.It is also probable, although not yet documented,that BT enhances customer loyalty, and all theaccompanying cost savings, by offering openaccesssavings.Certainly this analysis is hypothetical and requires amuch more careful look to determine the costs andbenefits of providing voluntary savings. Themicrofinance industry currently lags behind in itsunderstanding of ways to evaluate the costs andbenefits of savings products. It is imperative for BT,and for the broader microfinance community, toexamine the unit costs of savings on a productbasis to evaluate gains to efficiency and profitability.Geetha Nagarajan is a member of the Bulletin’s editorialstaff. This article is based on her due diligence visit inFebruary 2000 and information submitted to the Bulletinby BURO, Tangail. The MicroBanking Bulletin thanks BTfor granting permission to publish its financial results.26 MICROBANKING BULLETIN, SEPTEMBER 2000