Untapped demand for microfinance

01 Jul 2006

UNDP study reveals that there is a huge untapped savings potential among the lower income groups in Turkey.

New Horizons - Following UNDP's recent survey, which revealed Turkish commercial banks' interest in microfinance, another research, again commissioned by the UNDP indicated that there are more than 2 million potential customers, who can benefit from bank saving products and at least 1.5 million households are interested in microcredit from commercial banks under suitable conditions in Turkey.

The UNDP study has been conducted in four regions (West, Southeast, Northeast and Central Anatolia) of Turkey among 388 households. The sample is statistically significant (allowing for a 5% error margin), taking into account the fact that 36% (5.7 million households) of the Turkish population is considered economically vulnerable.

The study reveals that the median savings potential per household is 90 YTL per month. 21% of the target group (i.e. 1,197,000 households) already have a bank savings account. Another 24% (i.e. almost 1.4 million households) would like to save money in a bank if suitable products would be offered. Hence commercial banks could reach out to more than 2,5 million households in the short run. The key message for banks is: start with savings services; link savings to microcredit options and lend to households rather than just to micro-enterprises.

The other key findings and recommendations of this study are:

  • The total microcredit potential for banks is estimated to be 27% of the target group or 1.5 million households. 12% are repeat borrowers and 15% are potential new borrowers willing to take bank loans if suitable products are offered. The median loan repayment capacity per household is 90 YTL per month. 3% of the target group are bank drop-outs, 31% are hard-core non-borrowers and 39% do borrow but are not yet interested to take bank loans.
  • Permanent wage earners are the prime market segment from the banks' point of view: they have a regular and above-average savings potential / loan repayment capacity; and they already use various bank services.
  • Self-employed persons are the second most interesting market segment for banks. They are mostly family operations, which are not separated from the household. Therefore banks should serve them as households rather than as enterprises. They have a good -but irregular- savings potential / loan repayment capacity; and they already use various simple bank services.
  • Recommended products for the market segments “Permanent Wage Earners” and “Self-employed” are: emergency savings accounts linked to emergency loan options; target savings accounts linked to investment loan or private loan options.
  • The recommended lending technology for the market segments “Permanent Wage Earners” and “Self-employed” is individual lending. Loan appraisals must be based on the total household repayment capacity and the client's savings behavior. Loans can be collateralized by savings balances, personal guarantors and assets.
  • 45% of the target population can be served by commercial banks if they offer suitable savings products. These products can be linked to loan options. In addition, the bank can cross-sell other financial services such as money transfer services to the savers.
  • 55% of the target population cannot easily be served by banks. They should be served by specialized NGOs or microfinance institutions. The survey showed that informal savings or credit groups are already quite widespread. 15% of the households are already members and another 37% know about a group but are not members. This could be a possible entry point for microfinance amongst the non-bankable households. With external support, the solidarity groups can start savings collection and inter-se lending. Mature groups can later take up external loans from microfinance institutions. As an alternative to these institutions, NGOs can help to link savings and credit groups to commercial banks, which will collect, group deposits and grant group loans. The most mature group members have an option to “graduate” from the groups and become individual borrowers either in a microfinance institution or in a bank.

UNDP, upon the announcement of 2005 by the United Nations as the Microfinance Year, has been carrying out a project for the last one year in order for microfinance to become more widespread in Turkey. The surveys have been conducted in the framework of this project. There has been no information on the demand and supply sides of microfinance.