The Forgotten Half of Microfinance Not Forgotten at XacBank

6 July 2010 at 00:56 6 comments

By Kevin Henderson, KF11, Mongolia

“What is microfinance?” I’ve been asked this question a lot during my time as a Kiva Fellow. I used to answer by saying “microfinance is extending credit to people who do not have access to the traditional financial system” then remembering Kiva Fellows training I would add, “but not just credit, it’s providing other financial services, too.”

I think because Kiva is a lending platform and the field partner I primarily work with in Mongolia, Credit Mongol, is exclusively a lending institution*, it’s easy to forget about the “other” part of the equation. So I was very interested to learn about a program at XacBank, Kiva’s other field partner here, that is using funds from Kiva to provide more than just credit. Since August 2009, XacBank has provided Kiva borrowers with savings accounts when their Kiva loans have been repaid. To start the borrowers-turned-savers off XacBank returns 9% of the interest a borrower pays over the course of his or her loan.

Offering the poor a safe, liquid option for savings can be as valuable as providing credit. Savings can protect against interruptions in income caused by, for example, the loss of a job or illness. Providing a secure location for deposits can also remove the temptation to spend frivolously (see a great article on this topic by Nicholas Kristof in the New York Times). Deposits are also beneficial for the sustainability of the lending institution because they are a source of capital.

Savings programs are actually commonly called the forgotten half of microfinance. Due to the high administrative costs of accepting small deposits most banks have been unable to offer this service. Unlike microcredit, which is often funded by donor aid and organizations such as Kiva, there haven’t been many organizations committed to funding savings programs.

XacBank began offering the savings account program for Kiva borrowers when they were looking for a way to share the benefit of Kiva’s 0% interest capital. Since Kiva loans are usually pre-funded from the bank’s source of capital and there isn’t a guarantee they will be funded on the Kiva website, XacBank can’t offer a lower interest rate to Kiva borrowers and instead decided that returning interest in the form of savings accounts would be the best way to contribute to Kiva and XacBank’s common goal of alleviating poverty.

The greatest challenge in implementing the savings program has been extending it to all Kiva borrowers. XacBank can only afford to offer the program to borrowers who repay their loans as scheduled. 55% of borrowers are ineligible because they repay early. However, of borrowers who do receive accounts, Xacbank has found that so far they have all kept their accounts open and some clients have even started making small deposits.

I’m getting better at explaining that microfinance is about more than just lending. For me the best reminders are these press releases from XacBank describing proud Kiva borrowers receiving their account passbooks. XacBank translated these press releases into English to share them with Kiva lenders.

XacBank branch in Arhangay province started opening savings accounts for its Kiva borrowers

January 29, 2010. Branch staff informed our clients of this happy news via phone. Microentrepreneurs all were very happy no matter if they received 1000MNT or 10,000 MNT in their savings account. Mongolians are very superstitious. The day we organized the event to hand them a savings book was a special day in the Buddhist calendar that wealth is increased a lot if someone has wealth on this day. One of XacBank’s repeat clients Ms. Davaadorj wore her best traditional dress because she respects this event and her understanding was that she was getting a benefit from an international organization. She was very proud of herself for becoming a Kiva borrower. All microentrepreneurs who received Kiva benefits through savings accounts expressed their gratitude to both Kiva Microfunds and its lenders and also to Munhmandah and her colleague Ms. Botagoz who are working on this project. In this picture: Kiva borrower and Micro Entrepreneur Davaadorj C., branch manager Galya Ch. along with branch staff.

Motto: Let’s take the Kiva loan. Let’s pay it back on time. Let’s get the benefit from it.

April 30, 2010. Invitation to the Kiva event in Uvurhangay province was distributed to XacBank’s micro entrepreneur clients. The event was held on the following day. Best performing micro borrowers were awarded a Kiva savings passbook with total amount of MNT 418,000. At the event XacBank promoted its microfinance services and products to participants. Furthermore, XacBank’s success stories and microclient successes were presented during the meeting. There was high satisfaction shown on our borrowers’ faces.

* I don’t want to imply that Credit Mongol has forgotten about the importance of savings in microfinance. As a non-bank financial institution they are prohibited from accepting deposits.

Kevin Henderson is serving in Ulaanbaatar, Mongolia as a member of Kiva Fellows 11th Class

You can lend to a borrower in Mongolia here!

Entry filed under: blogsherpa, Credit Mongol, KF11 (Kiva Fellows 11th Class), Mongolia, XacBank.

The social impact of…pigs? A Case of Multiple Borrowings


  • 1. Mapping Microloans | Dennis' Blog  |  16 May 2011 at 05:07

    […] by both a visit there, and the admirable social lending practices of XacBank, including both microsavings reinvestment, and green loans) as well as several countries along the former Silk Roads (derivative Central […]

  • […] who earned a savings account through XacBank for being on schedule with their Kiva loan payments! Click here for more information about XacBank’s Kiva-related savings product. Loan officers and branch staff […]

  • 3. Mary Lynn  |  12 July 2010 at 07:46

    Thanks for explaining a forgotten but important piece of the puzzle to those of us learning about mirco-finance. Your well written article expains the big picture and it was very effective using the translated press release of XacBank. Kiva has given me more than an opportunity to just say “Good luck’, to to individuals like Ms.Davaadorja receiving their savings accounts!

  • 4. Magdalena  |  7 July 2010 at 17:14

    In the Dominican NGO where I am placed for my fellowship, there are two sets of savings built into each group loan: mandatory savings (5%) and additional voluntary savings (amount chosen by borrower). I overheard at the last repayment meeting I attended that if it weren’t for these the borrowers would not have any other means of saving for a rainy day or an emergency. One woman also added that this is also a lot more safe than keeping it at her house where it can be stolen or taken by her teenage kids. She stressed how happy she was to have that service. At my NGO (Esperanza Internacional) both savings cannot be withdrawn until the loan is paid off. But, in fact, most repeat borrowers just roll it over to the next loan, letting it accumulate.

    Great story. Thanks!

  • 5. Kathy Lane  |  7 July 2010 at 05:49

    Thank you for bringing up microsavings as they are an important part of the microfinance offering. There are ways around the high cost of providing savings accounts. At CARE, for example, we bring groups of women together who then collectively save money and then provide loans to each other. They are basically setting up their own village savings and loan associations. It’s a simple solution to reach the poorest of the poor — in order for them to graduate to more bigger and more formal loans.

  • 6. Neal Camp  |  6 July 2010 at 21:44

    Comprehensive, articulate report! Thanks!
    Have a happy day!!

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