Better loans through savings - Findings and conclusions on savings linked credit products. Dr. Friedemann Roy Johannesburg, 8 September 2006

Transcription

1 Better loans through savings - Findings and conclusions on savings linked credit products Dr. Friedemann Roy Johannesburg, 8 September 2006

2 What is the goal of this presentation? To prove that there is an interest of the low income earners in formal savings products To convince that you can make a profit out of offering saving products To show that prior savings activities can work as a behavioural score to mitigate credit risk 2

3 Outline of presentation What induces low income earners to start saving? Which products do meet their needs? Where is the link to RHLF? Which options exist to link saving activities to housing (credit)? Prerequisites for savings products Conclusion and outlook 3

4 Attitudes of low income earners towards savings - our findings Economy Stable macroeconomic conditions are conducive to savings activities Public supports idea of saving (i.e. National Savings Month in August 2005 and July 2006) However, South African People are a non-saver society Attitude Savings considered important Saving objectives: education, funeral; but not necessarily housing Savings are painful trade-off between self-discipline today and higher degree of independence later 4

5 Obstacles to savings High bank fees which typically lead to capital erosion Branches are far away and queues are long Rules are not explained Access in case of emergency may prove difficult Ambiguous attitude towards banks: Banks are for rich people Maintaining account at bank means a lot of paperwork However: bigger amounts should be placed within a bank because it is safe 5

6 What induces low income earners to start saving? Products should offer tangible reward: Small and flexible contributions Easy access, especially in case of emergency A good return on higher saving amounts Adequate reward for savings discipline Only a mix of different products can meet such a diverse demand 6

7 Which products do meet demand of low income earners? Demand deposit product Access is key Key conclusion: start with savings and forget about housing, but come back later in one to two years Saver Contractual saving plan Incentive structure is critical to stick to the plan Term deposit product Rate is crucial 7

8 Where is the link to RHLF? Depository institution/bank Savings Rural Loan Housing Fund Information about savings record Customer Funds Non-bank lender Housing loan Basic idea: Link individual and regular savings to a loan promise Saving efforts serve as behavioral indicator KfW commissioned study on savings schemes for housing, being inspired by bauspar idea 8

9 Mechanics of bauspar system Allocation pool Inflow of funds Outflow of funds Savings Loans Redemption payments Deposits Lifetime of contract t 9

10 Loan allocation in the early days of bausparen in Germany Source: Fundamenta Lakáskassza 10

11 Which options exist to link saving activities to housing (credit)? Allocation pool de-link savings pool from loan funding as opposed to closed bauspar system Inflow of funds Outflow of funds Savings Redemption payments Loans Deposits Lifetime of contract t A direct replication of the bauspar system does not appear suitable in the South African context, but. Option A: refer to existing saver data base for potential clients Option B: build up a new saver data base to develop future clients 11

12 Pre-requisites for savings products - success factors of bauspar products Well established product with clear message ( you save in order to become a home owner ) Wide sales network (branches, sales agents, internet) Established and well known brands (fox, slogans) Innovative marketing campaign and marketing events Governmental support (special law, savings premium as incentive) 12

13 Saving incentives Practices in other countries with sizeable low income sectors: Tying interest rates/fees to account size Linking insurance to account size (e.g. burial cover) Providing emergency loans Loan linked saving products Payroll savings Practices in Germany: Special saving products for young people and dependents Saving products which offer a bonus Saving products with lottery tickets Government premiums for certain products (bausparen, saving with investment funds) 13

14 Developing profitable saving operations Mobilizing savings can be not only feasible but also profitable only questions is how? Build up volume Invest into product diversity Develop staff commitment, attitudes and skills Provide for easy access to collection points Managing liquidity and cost 14

15 Conclusion and outlook Prerequisites for savings products in South African context: Requires unconditional commitment of management Build up of savings operation takes time Saving is not a self-seller active client mobilization required Loan officers require training in approaching customers in right way Good marketing is crucial Product terms and conditions must be transparent Institution must be honest, reliable and trustworthy 15

16 Dr. Friedemann Roy Bankakademie e.v. Sonnemannstraße 9-11 D Frankfurt am Main T F roy@bankakademie.de