As you may know, since August 2009, XacBank has offered Kiva borrowers an incentive to pay their loan principal and interest back on time – an interest rebate in a savings account! If a Kiva borrower pays back on time, then XacBank deposits 9 percent of the interest the borrower has paid on their loan into a savings account. As a Kiva Fellow, I have worked with XacBank to update their policies regarding how Kiva borrowers are considered eligible for interest rebates and simplify how the MFI offers the savings accounts to new Kiva borrowers.
Originally, until December 2010, a Kiva borrower would only be considered eligible for the 9 percent interest rebate if he or she always paid their monthly loan repayments back on time, and in exactly the scheduled amount. This means that if a borrower is late on one monthly payment by one day, then he or she is disqualified from the savings program.
Additionally, in the original policy, it was not just those who couldn’t make their payments on time that were denied eligibility for a rebate. It was also prepaying borrowers, or, those who paid too much, too soon. So, for example, a borrower who had a scheduled monthly repayment of 30,000 MNT (US$24.50), but paid 31,000 MNT (US$25) instead, would have been denied eligibility for the interest rebate and related savings account. On any given month, about 78 percent of XacBank Kiva borrowers prepay up to 5 percent of what’s expected, which means that the majority of borrowers under the old policy were deemed ineligible for the interest rebate. And only for paying early.
Under the old policy, some of the Kiva borrowers who were actually eligible for a savings account wouldn’t open them. One reason was because XacBank didn’t attempt to notify eligible Kiva borrowers of their interest rebate and savings account option until after the loan was finished. At that time, it was much more difficult to get the Kiva borrowers back into the office to sign papers and learn about the savings account options. As you can imagine, borrowers living far in the countryside were reluctant to return to the branch office to fill out more paperwork. It was a logistical mess to coordinate the computer information, contact the eligible borrowers, and communicate between the headquarters and branch offices to make this happen on a large scale.
These hurdles affected the number of people who actually took the interest rebate in a savings account – only 11 percent of eligible Kiva borrowers, those who paid exactly on schedule, opened an account. Therefore, out of all Kiva borrowers (including those who were not eligible, the prepaying and delinquent, plus those who were eligible) only 4 percent took the interest rebate in the savings account. As a Kiva Fellow, I’ve been working with XacBank to change the way this product is offered in order to increase these percentages.
In December 2010, the policy was rewritten to include all Kiva borrowers who prepaid or paid on time each of their loan repayments. Now the prepaying and on schedule clients are eligible for the interest rebate in a saving account, but the delinquent are not. In this policy, XacBank is retroactively including all Kiva loans that ended in 2010. The MFI can either deposit the interest rebate into a borrower’s current savings account or it can create a new account.
The updated process allows the Kiva borrowers to open up one of four types of XacBank savings accounts at the beginning of the loan. If the client already has a savings account, then that one can be used. Here are the XacBank Kiva borrower savings account options:
- Future Millionaire children’s savings account: Specially designed for children and has a long term with a high interest rate. This account restricts withdrawals until the child turns 18 years old.
- Regular, short-term time savings account: No withdrawals are allowed until the maturity date (1-24 months) but deposits are allowed to be made at any time.
- Long-term savings account: Designed for those who feel that their future pension is not enough, or if they do not receive health insurance fees due to working in a personal business
- House, long-term savings account: Designed for those who want to save for a down payment on a house
At the end of the loan, if the client is eligible to receive 9 percent of their paid interest back, the money is deposited into their already-opened savings account. The process no longer requires the borrower to make a long journey to the branch for further signatures. Plus, the Kiva borrower can begin depositing money into the savings account right away by visiting the branch or through mobile phone money transfers. This has turned out to be a more streamlined process for XacBank employees, and is able to benefit more Kiva entrepreneurs as well.
Amber Barger is currently serving as a Kiva Fellow in Mongolia. She has lived for the past two years in rural Mongolia as a community economic development Peace Corps Volunteer. Along with her Kiva Fellowship, she is extending a third year with the Peace Corps as a Peace Corps Volunteer Leader.