Building a Business Case for Savingsfor Savings

Evolution

Business Strategy

Business Model

Business Case(Financial Model)

Business Strategy for Savingsgy gFermin Vivanco, IADB/MIF

Contents

Understand Different Savings Clients Needs Understand Different Savings Clients Needs

Select a Savings Approach

Develop a Savings Products Strategy Develop a Savings Products Strategy• 10 Key Elements to help you

Develop a Distribution Channel StrategyDevelop a Distribution Channel Strategy

Adjust Market and Financial Goals

This presentation is based on studies of commitment savings in Latin America and the Caribbean region. Upcoming publications on these studies will be available at: www.pro‐savings.org

Understand Savings Clients’ Needsg

Select a Savings Approachg pp

Need for adapted products that help people moveNeed for adapted products that help people move from informal to formal savings mechanisms, and that 

instill savings habits.instill savings habits. 

Liquid savingsFixed‐term savings Commitment savings

Select a Savings Approachg pp

Total clients served

Average savings size Savings mobilized

A Regulated MFI 100,000 US$174 US$17,376,000

Select a Savings Approachg pp

Total clients served

Average savings size Savings mobilizedserved size Savings mobilized

Sight Deposits 98,500 US$24 US$2,364,000

Certificates of Deposit 1,200 US$12,500 US$15,000,000

Commitment Savings 300 US$40 US$12,000

Aggregate Data 100,000 US$174 US$17,376,000

Adapt a Savings Productp g

10 rules to Design a Commitment Savings ProductSavings Product Both Appealing to Clients and Financially Viable

l b d d k f dConclusions based on a desk review of 780 commitment savings products available in Latin America and the Caribbean and site visits to 16 

financial entities in the region.

Publications and more information coming soon at: www.pro‐savings.org

1. Relevant

Focus on large underserved market nichesFocus on large, underserved market niches and respond to their needs.

US$61,3 BILLION TOTAL AMOUNT OF REMITTANCES RECEIVED IN 2012

2. Easy to openy p

Opening requirementsOpening requirements. • Look at Basic Accounts Regulations

3. Easy to usey

Products must be easy to understand and useProducts must be easy to understand and use. 

b l ll f l h h d ff l• Mobile wallets fail when they are difficult to use • Example:  First version of Tigo Paraguay

P t ti h ibl• Pursue automation when possible• Example: most entities in the LAC region 

4. Follow-upp

Financial offer must be accompanied by supportFinancial offer must be accompanied by support and monitoring

S t t t• Set up targets• Microcredit’s success and scale was partially due to follow‐up efforts, same must apply to savings, pp y g

• Adapt MIS for follow‐up purposes

• Example: – Cooperativa Comultrasan– Ahorrando Juntos

5. Good incentives

Apply incentives to encourage deposits andApply incentives to encourage deposits and discourage withdrawals

E l Fi H i C i C di• Examples: First Heritage Cooperative Credit Union (Jamaica)

6. Interest rate isn’t everythingy g

Studies and observations reveal that attractiveStudies and observations reveal that attractive interest rate is not what motivates clients to 

adopt and use a productadopt and use a product. • For liquid savings products interest rate becomes almost irrelevant. Clients are willing to pay for the serviceirrelevant. Clients are willing to pay for the service

• There is no interest rate competition• Example: 

– Caja de Ahorros (Panama)– First Heritage Cooperative Credit Union (Jamaica)

7. Motivated employeesp y

Sales cannot be passiveSales cannot be passive• Loans sell themselves but savings products have to be actively promotedactively promoted

• Ensure top to bottom buy‐in• Example: Cooperativa Confiar (Colombia)

8. Marketingg

Learn from informal mechanisms and take advantageLearn from informal mechanisms and take advantage of their opportunities to market new productsSi l d l l• Simple and clear popular messages

• Examples: • EcoFuturo (Bolivia)( )• First Heritage Cooperative Credit Union (Jamaica)• Banco Azteca (Mexico)• Banca Comunitaria Banesco (Venezuela)• Banca Comunitaria Banesco (Venezuela)

9. Innovation

Innovate from informal mechanisms  (savings ( ggroups) and popular culture/behaviors

• Unbanked population demand for a combination of credit and savings • Design products that combine credit, savings and microinsurance elements. • Design products that have elements of commitment and flexibility• Design products that incorporate a positive peer pressure to motivate savingsg p p p p p g• Innovate based on behavioral savings habits ‐ compartmentalization

• Example: Cosechando Juntos los Sembrado (Mexico)

10. Scale Upp

Identify elements that allow scale upIdentify elements that allow scale up• Set reasonable but ambitious goals

• Finance 20% of loan portfolio with savings• Finance 20% of loan portfolio with savings• Example: Banesco, Venezuela

• Design intelligent pricing (bundles, multi‐channels, cross‐es g te ge t p c g (bu d es, u t c a e s, c ossselling of products)

• Find ways to mitigate impact of seasonality• Example: Cooperativa Cotrafa (Colombia)

Adapted Channels:p

Evaluate the cost of savings products’ transactions in different channels

Price transactions accordingly so clients can make decisions on costs and scaling up ismake decisions on costs and scaling up is viable financially

To find out more about inclusive business models using bank agents in Latin America and the Caribbean, view the recent publications on Bank Agents and Financial Inclusion: 

Regulatory Frameworks and Bank Agents and Financial Inclusion: Business Models of the Tec‐In Program. 

Bank branch vs. bank branch

Bank branch vs. bank agentg

Cost and productivity at bank agentp y g

Bank branch vs ATM

Basic Financial Analysis for a Liquid Savings AccountLiquid Savings Account

Business ModelsBusiness Models

The Business Model CanvasKey Partners Key Activities Value Proposition Customer Relationships Customer Segments

Who are our key partners?Which key resources are we acquiring from partners? Which key activities do partners perform?

What key activities do our Value Proposition require? Our distribution channels?Customer  Relationships? Revenue streams?

What value do we deliver to the customer?Which one of our customers problems are we helping to solve? What bundles of products and services are we offering to

What type of relationships does each of our Customer Segments expect us to establish and maintain with them?Which ones have we established?How are they integrated with

For whom are we creating value?Who are our most important customers?

Examples:Mass market

Key Resources

services are we offering to each customer segment?Which customer needs are we satisfying?

How are they integrated with the rest of our business model?How costly are they?

Examples: Personal assistance, Self Service, Automated services

Mass marketNiche MarketSegmentedDiversifiedMulti‐sided Platform

Channelsy

What key resources do our Value Proposition require? Our distribution channels?Customer Relationships?Revenue streams?

Through which channels to dour customer segments want to be reached?How are we reaching them now?How are our channels 

Cost Structure Revenue Streams

integrated?Which ones work best and are most cost‐efficient?

Cost Structure

What are the most important costs inherent in our business model?Which key resources are most expensive?Which key activities are most expensive?

Is your business more:Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive 

Revenue Streams

What value are our customers willing to pay?What do they currently pay?How are they currently paying?How would they prefer to pay?How much des each revenue stream contribute to overall revenues?

Source:  www.businessmodelgeneration.com

( , p p p , ,outsourcing?Value Driven (focused on value creation, premium value proposition)

Types: Asset sale, usage fee, subscription fees, lending/renting/leasing, licensing, brokerage fees, advertising

CASHPOR Business Model OverviewBusiness Model Overview

CASHPOR will act as the Business Correspondent (BC) agent to ICICI Bank

Eko Technologies will provide the technology solutiongy

Use existing credit infrastructure

Customer-owned mobile handsets along with CASHPOR agents (Center Manager) to perform transactions

CASHPOR Delivery Channels are:

SCSPLocated at the branch

CM (CSP)

• the branch for new customers that are not CASHPOR loan clients

• Center Meetings for existing CASHPOR loan clients

Non Clients Existing Membersclients

Loan business uses Center Manager’s mobile-based application from ATOM Technology

Cashpor Service using Eko technology

*543*9811234389*

BENEFICIARYBENEFICIARY AMOUNTAMOUNT AUTHORIZATIONAUTHORIZATION

*543*9811234389*999*1598271234#

Authorization is based on using an Okekey PIN Booklet

Missed Call | Only Numbers | Works on Ultra-low cost handsets | FREE

CARD Bank Business Model OverviewBusiness Model Overview

Revenue drivers = cross selling d t i t di ti f d dproducts, intermediating funds and

ATM fees

Customer segment = existing customers living below $2.50/day plus general public

Delivery Channels:

SalesOffcers

Account Officer

Delivery Channels:

• Deposits during center meetings• Bank branches• Withdrawal through ATMs• Withdrawal through ATMs• MFS for loan disbursements and

payments

• Dedicated Sales Officers – SMS

General PublicExisting Members

• Dedicated Sales Officers – SMS deposit pick-ups

Example of Business Model Canvas CARD MFS

Partners• Platform ProviderPartners• Platform Provider

Key Activities• Agent network that is liquid andKey Activities• Agent network that is liquid and

Value Proposition• Do CARD transactions in theValue Proposition• Do CARD transactions in the

Segments• Customers of CARD: UrbanSegments• Customers of CARD: Urban

CARD MFS

• Platform Provider• Grameen Foundation• Billers• Mobile Operators• Outsourced Service Providers• Funders

• Platform Provider• Grameen Foundation• Billers• Mobile Operators• Outsourced Service Providers• Funders

• Agent network that is liquid and high quality

• Call centre that’s available to clients

• Technology platform that never fails

• Continual development of the

• Agent network that is liquid and high quality

• Call centre that’s available to clients

• Technology platform that never fails

• Continual development of the

• Do CARD transactions in the barangay

• Pay your bills/top-up• CARD accepts me when

others don’t• More options for handling cash

and managing money

• Do CARD transactions in the barangay

• Pay your bills/top-up• CARD accepts me when

others don’t• More options for handling cash

and managing money

• Customers of CARD: Urban and rural customers, borrowers and savers

• Non-customers of CARD: Insurance buyers, OTC bill payment/money send customers, micro-enterprises

• Customers of CARD: Urban and rural customers, borrowers and savers

• Non-customers of CARD: Insurance buyers, OTC bill payment/money send customers, micro-enterprises p

ecosystem• Change management

pecosystem

• Change management

Key Resources• Call center• MBO Agent Management

Key Resources• Call center• MBO Agent Management

g g y• Generate income and increase

footfall (agents)• Send and receive money easily• More time for yourself for the

important things

g g y• Generate income and increase

footfall (agents)• Send and receive money easily• More time for yourself for the

important things

Cost Structure• Mixed business model of value

driven and cost driven activities.

• Partnerships – value driven• Agent Management – value

Cost Structure• Mixed business model of value

driven and cost driven activities.

• Partnerships – value driven• Agent Management – value

, p(agents)

, p(agents)

ChannelsA t ffi

ChannelsA t ffi

g gCapability

• Training team• CAPEX/OPEX budget• Agent Management Unit• Technology Platform • MFS Management team

IP Assets

g gCapability

• Training team• CAPEX/OPEX budget• Agent Management Unit• Technology Platform • MFS Management team

IP Assets

• Agent Management – value driven

• Call center – cost driven• Agent Network – cost-driven• Training – value-driven• Customer Acquisition – value-

driven

• Agent Management – value driven

• Call center – cost driven• Agent Network – cost-driven• Training – value-driven• Customer Acquisition – value-

driven

Customer Relationships• Maintaining personal

relationships if desired through

Customer Relationships• Maintaining personal

relationships if desired through

• Account officers• Tellers• Savings officers• CSO• Agents• Call center• Customers

• Account officers• Tellers• Savings officers• CSO• Agents• Call center• Customers• IP Assets

• Biller/MNO Integration• Outsourced relationships• Marketing/Comms

• IP Assets• Biller/MNO Integration• Outsourced relationships• Marketing/Comms

• Service Delivery – cost driven• Technology platform – cost

driven

• Service Delivery – cost driven• Technology platform – cost

driven

group meetings monthly• Giving self-service as an option• Personalized relationships with

agents

group meetings monthly• Giving self-service as an option• Personalized relationships with

agents

Customers• Agent Management Unit

Customers• Agent Management Unit

Revenue StreamsTransaction Fees Insurance Premiums Commissions from airtime/billersLoan Income Retailing Margin G2P payment feesCross-sell Deposits

Revenue StreamsTransaction Fees Insurance Premiums Commissions from airtime/billersLoan Income Retailing Margin G2P payment feesCross-sell Deposits

3 Golden Rules to Building a Business CaseBuilding a Business Case

#1 Understand the present pbefore planning the future

Understand the present

In the case of product change or new product design using data for In the case of product change or new product design, using data for similar existing operations (and/or having access to some industry standards), is helpful

New Project

Context Financial Model Base

Degree of innovation / New project within

New OrganizationIndustry Standards, BenchmarksIndustry Standards, Benchmarks

innovation / uncertainty

Planning for existing

New project within existing organization

Current metrics and drivers historicalCurrent metrics and drivers historicalPlanning for existing 

operationsdrivers, historical data and trendsdrivers, historical data and trends

Complex Financial Model

Allocation Method for Portfolio per loan product

existing Credit and Savings

Challenged with high 14%

8%

4% 3% 1%

Challenged with high level of manual data entry prone to errors

Automation to increase

70%

Portfolio per Savings product

Automation to increase speed by 8x, increase accuracy, & allow for branch-level focus

SIKAP 1 SIKAP AdditionalMicroagri Loan Educational LoanMicro Housing Loan Other Loans 7.87%

3.00% 2.91%

0.26%0.12%

0.05%

branch level focus

‘Contrived Precision’ 62.37%23.41%

Centre Fund Tiwala SavingsKayang-Kaya Savings PangarapCurent Account MatapatTagumpay Savings Maagap

#2 K d l i l#2 Keep models simple

Keep models simple

Si li it i k Simplicity is key• For accuracy• For regular updates• For an understanding confidence in the outputs

Don’t focus on everything, but parameters that matter

Pareto principle• 80% of the effects come from 20% of the efforts

Certainty of predictions and impact on bottom line Certainty of predictions and impact on bottom line

Eff t / TiImpact on bottom lineImpact on bottom line Effort / Time spent

Impact on bottom lineImpact on bottom line

Certainty / accuracyCertainty / accuracy

Cashpor Business Case

Using Variable Cost ModelUsing Variable Cost Model

Income• Account Opening fee • Transaction fees for deposits and

withdrawals • Float

Expenses• Incentives for field officers• Automation of account opening p g

Application and staff• Administrative, e.g., Couriers• Training Costs • Liquidity Cost

#3 Rephrasing the questions p g qand objectives often

Rephrase questions & objectives oftenp q j

Needs have to be clearly identified Needs have to be clearly identified Requires discussion from a number of

stakeholders Communication critical when building modelCommunication critical when building model

What is the caseload for 1 Savings Officer?

Parameters Notes

Total Monthly Cost of an SO 16 009 Compensation, transports… (data checked, as of March 2013)

Interests paid to customers 1.5%% of balance generated available (regulation) 75%Estimated cost of capital 6.5% From latest Microsave Costing Model

Cumulative balance necessary to cover cost 4 000 718At maturity, balance necessary to justify SO position financially (breakeven)

Average balance of customer 1000Currently PHP 654. Study of 14 months Matapat history shows downward trend.downward trend. 

Total caseload / SO 4001

At maturity, with previous hypothesis, an SO position would have to maintain a Php 4M savings balance to cover its costs. This represents 4000 active customers, if the average customer balance is P 1000.

Current Product Mix

additional products

Matapat Maagap TiwalaKayang‐

Kaya TotalInterests paid 1.5% 1.5% 3.0% 2.0%A t b l 1 000 1 452 127 131 12 907 2 748Average account balance 1 000 1 452 127 131 12 907 2 748

Current Product Mix: 65% 28% 0.7% 6% 100%

Total caseload / SO 934 405 10 92 1 441Total caseload / SO 934 405 10 92 1 441

Cumulative balance 934 152 588 123 1 246 134 1 192 149 3 960 557Financial Opportunity 3 738 2 386 5 050 4 835 16 009

Savings Officers are currently opening other types of savings accounts: only 65% of accounts opened are Matapat.accounts: only 65% of accounts opened are Matapat.

Change in Product Mix

• Changing the mix of SO portfolio, especially with higher balance g g p , p y gproducts like Tiwala and Kayang‐Kaya, reduces the caseload

• Example: A portfolio of 150 Maagap Accounts, 22 Tiwala and 55 Kayang‐Kaya  reduces the total caseload to 455 accounts

additional products

Matapat Maagap TiwalaKayang‐

Kaya TotalInterests paid 1.5% 1.5% 3.0% 2.0%

***

pAverage account balance 1 000 1 452 127 131 12 907 8 687

Current Product Mix: 65% 28% 1% 6% 100%Modified Product Mix: 50% 33% 5% 12% 100%

Total caseload / SO 228 150 22 55 455

Cumulative balance 228 006 217 823 2 796 887 709 859 3 952 575Financial Opportunity 912 884 11 334 2 879 16 009Financial Opportunity 912 884 11 334 2 879 16 009

* Maagap and Kayang‐Kaya avg balances include staff, as systems don’t separate staff from non‐members for these products* For Tiwala: 3% average interest rate assumption

Simplified model – 5 years projection

AssumptionsYear 1 Year 2 Year 3 Year 4 Year 5

Assumptions

SO opens non‐members accounts only, and collects from all clients

SO Cost 192 110 195 952 199 871 203 868 207 946Accounts openingCumul.  accounts  opened 360 720 1 080 1 440 1 800Cumul. Balance 1 296 000 2 592 000 3 888 000 5 184 000 6 480 000

C ll i

inflation rate 2%

openings monthly 30

from all clientsCollectionsAmount col lected 2 700 000 5 400 000 8 100 000 10 800 000 13 500 000

Cumul. Balance 270 000 540 000 810 000 1 080 000 1 350 000

Interests  Paid  23 490 46 980 70 470 93 960 117 450 *openings monthly 30average acct balance 3600

collections monthly 250average deposit 900% deposits building balance 10%

Available for credit (75%) 1 156 883 2 313 765 3 470 648 4 627 530 5 784 413

Est. financial opportunity 75 197 150 395 225 592 300 789 375 987as % of Costs 39% 77% 113% 148% 181%

Bottom Line 116 912 45 557 25 721 96 921 168 041 % deposits building balance 10%Bottom Line ‐116 912 ‐45 557 25 721 96 921 168 041Cumul. Bottom line ‐116 912 ‐162 469 ‐136 748 ‐39 826 128 215

Findings:• Portfolio gets big enough to cover monthly cost on Year 3

* Average account balance higher than in previous slides, as it reflects non‐members account openings only

• Portfolio gets big enough to cover monthly cost on Year 3• Cumulated costs are covered by financial opportunity on Year 5

Conclusion - Summary

4M PhTargeted portfolio 4M Php

4000 1400 450 less ?

P1000 avg balance 

(Matapat like)

65% Matapat28% Maagap6% Kayang‐

50% Matapat33% Maagap12% Kayang‐

Targeting high balance clients

Related caseload(Matapat like) 6% Kayang

Kaya1% Tiwala(today)

12% KayangKaya

5% Tiwala

Additional Recommendations

• Importance of strong data systems andImportance of strong data systems and reporting practices

• Identify staff skill gaps& organize trainings• Identify staff skill gaps& organize trainings• Document - for current and future users• Separate assumptions design & model design• Identify strong dependencies first

A ti itActivity

Business Model Canvas

The Business Model CanvasKey Partners Key Activities Value Proposition Customer Relationships Customer Segments

Who are our key partners?Which key resources are we acquiring from partners? Which key activities do partners perform?

What key activities do our Value Proposition require? Our distribution channels?Customer  Relationships? Revenue streams?

What value do we deliver to the customer?Which one of our customers problems are we helping to solve? What bundles of products and services are we offering to

What type of relationships does each of our Customer Segments expect us to establish and maintain with them?Which ones have we established?How are they integrated with

For whom are we creating value?Who are our most important customers?

Examples:Mass market

Key Resources

services are we offering to each customer segment?Which customer needs are we satisfying?

How are they integrated with the rest of our business model?How costly are they?

Examples: Personal assistance, Self Service, Automated services

Mass marketNiche MarketSegmentedDiversifiedMulti‐sided Platform

Channelsy

What key resources do our Value Proposition require? Our distribution channels?Customer Relationships?Revenue streams?

Through which channels to dour customer segments want to be reached?How are we reaching them now?How are our channels 

Cost Structure Revenue Streams

integrated?Which ones work best and are most cost‐efficient?

Cost Structure

What are the most important costs inherent in our business model?Which key resources are most expensive?Which key activities are most expensive?

Is your business more:Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive 

Revenue Streams

What value are our customers willing to pay?What do they currently pay?How are they currently paying?How would they prefer to pay?How much des each revenue stream contribute to overall revenues?

Source:  www.businessmodelgeneration.com

( , p p p , ,outsourcing?Value Driven (focused on value creation, premium value proposition)

Types: Asset sale, usage fee, subscription fees, lending/renting/leasing, licensing, brokerage fees, advertising