Savings Banks: Rediscovering a Well-Trod Path to Financial Inclusion
- Monday, June 7, 2010, 18:50
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4 Comments on “Savings Banks: Rediscovering a Well-Trod Path to Financial Inclusion”
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Mr. Rozas,
Thank you for this insightful post. It brings to light great questions about financial inclusion and how we achieve it. I found your point about pro-poor providers especially intriguing—just because the majority of the financially excluded are poor, it does not mean that pro-poor providers are always the best-suited to expand financial inclusion.
At the Center for Financial Inclusion we have been working with a definition of financial inclusion that says that financial inclusion is a state in which a full suite of financial services is provided to all who can use them in a convenient, affordable, and suitable manner. We also believe that a variety or providers, including the private sector and non-financial service retailers, all play key roles. (http://www.centerforfinancialinclusion.org/Page.aspx?pid=1940)
In your essay you discuss how postal banks, although not financial service providers, can at times be the best-suited actor for expanding access to savings in areas where the financially excluded live—rural, underdeveloped, and sparsely populated locations.
I wanted to ask you two questions about this model:
1. Has your research shed light on the ability to easily leverage postal banks for other financial services as well (such as payments, insurance, and credit)? Banco Bradesco in Brazil offers a full range of products but I wondered if this is common and reproducible in other postal banks?
2. Do you think that other banking agents (such as gas stations or mom-and-pop shops) can be as effective as postal offices in closing the location gap and expanding quality financial services?
Thank you again for this great post! Looking forward to your thoughts.
Many thanks to Daniel and Microfinance Focus for a job well done.
I would only like to add four points:-
1. As Daniel says, the Microcredit Tanker and Thinker is in most countries unmoved by all the recent attention on savings. To change that rigidity is to first demystify the argument Daniel mentioned on “Saving Down” of Stuart Rutherford. It gave an excuse to governments, donors and academics and even to poor people to adopt a debt-mode. But as the reality of poor families and the environment in which they live dictate, savings and other ways of prudent money management are difficult and always under threat. More importantly, income of poor people is often unstable and insecure. That is why in case of microcredit a lender gives a secure regular burden on a stressed budget, whilst the income is not. Savings requires regular planning based on the depositor’s income – debt repayment frustrates such planning and lending focus makes a MFI-lender to ignore that reality.
2. Poor people are often unbanked, financially illiterate and they obviously are ashamed or embarassed when passing a formal bank. Often they feel distressed and reticent towards formal banking organisations and often they regard bankers as rich people for rich people, greedy and speculative! To change that attitude requires many things. It first requires a strategy and products that can accompany a financial institution to attract the deposits of poor people. These depositors, being weary and under financial stress always, will first demonstrate an erratic short term deposit-behavior that in part explains that most deposits in banks in countries with large masses of poor people are mainly short term, often less than a month. To turn those deposits into real savings you need a gradual approach that turns into a legal savings contract where deposits become fixed term and for a specific objective. Deposits and savings thus need to be treated distinctively.
3. As Daniel said, not only in India, but even in modern developed rich Japan, the largest financial institution is the Postal Savings Bureau. Their regulation and supervision are in most countries excluded from Central Bank. The deposits, savings are not part of the financial sector, not part of financial intermediation. Their success in some countries is the result of a “love-hate” relationship: deposits are assured and receive a subsidised interest rate, but it comes with obscurity and operational discomfort (and often with rumors of mismanagement and corruption).
4. Only in a few countries has the transformation and integration of postal banks into the bank sector with a business model for inclusiveness been realised successfully, such as in the Netherlands (ING Bank, a result of a merger between the “Emperial Postal Savings Bank” and the “National Middleclass Bank” and the creation of a third essential partner “the Exploitation of the Postoffices Network Ltd” in which both post and bank have ownership), and only in the last years in Germany (where Deutsche Bank bought the recently privatised savings banks) and in France. In countries such as the USA the postal savings bank was “killed off” by competition and lobby from the commercial banks. Since 1994 the Postbank has been agreed on in South Africa as the most promising tool for banking the 60% unbanked mostly black citizens – and over 16 years they still hold that promise …. In 1998, so 12 years ago, the World Bank had a special unit to support the modernisation of the postal services and of the postal financial services. It organised a great summit on postal banks in Sandton-Johannesburg in that year. The department was closed soon after ……..
Also WSBI and UPU regularly launch great slogans and Codes of Ethics but so far seem to demonstrate little success in supporting postal banks transforming into commercial banks committed to inclusion. And to say the truth, such transformations need to be part of politically very sensitive and long local processes, complex and difficult indeed.
But if we agree that postal and deposit oriented (savings) banks have a role to play in realising the potential of Microfinance to build an inclusive banking sector and to improve financial management of the poor, then we better learn more about local processes instead of discussing models.
Kind regards, Peter
Thank you for this great article, Daniel. A short reply to Anita and Peter. We (UPU) have just released an economic research paper on the different models of provision of financial services through postal networks. Anita will find detailed answers to her questions in the last post of our blog “Postal Financial Inclusion” (postfi.wordpress.com) where you can download our research paper. As for Peter, while I fully agree with the importance of understanding local processes, I would like to highlight that postal services now face much stronger incentives for diversification of their services relative to the late nineties (mail declines, electronic substitution, …). On the one hand, the postal sector and markets have substantially changed over the last decade with most postal organizations gearing towards more customer-focused models or at least conscious and convinced that this kind of evolution is absolutely necessary for their economic survival. On the other hand, financial regulatory authorities and central banks are more open to a dialogue with postal financial institutions and ready to integrate them into the financial system – while preserving some of their specifics, particularly when it comes to the role they play in terms of financial inclusion (this was reflected in the conference on postal banking and financial inclusion we organized jointly with the Alliance For Financial Inclusion (AFI) in November 2009). Last but not least – and this is highlighted in our research as well – out of 1.5 billion users of postal financial services, only 400 millions are also account holders. Postal networks have thus a potential of 1.1 billion account holders out of their current consumer basis of postal financial services. Knowing about 2 billion people are unbanked in the world, this means that about half of these populations are potentially “bankable” through Posts. Yet there is no unique model or “one-size-fits-all” solution.
Hi Anita,
to your first question, I believe payment processing at post offices is their #1 financial service, and Jose’s post below provides some numbers to give you an idea of how large that is. I don’t know about the relative size of postal insurance and credit, but I believe both are significantly less widespread than savings accounts. There are no doubt multiple examples of such one-stop shops, and Xavier Reille recently highlighted Morroco Post as another recent addition to that list (http://microfinance.cgap.org/2010/05/14/a-new-microfinance-giant-in-morocco/).
As for other agents for financial transactions (local shopkeepers, etc.), the answer would have to be a strong yes, especially when combined with recent mobile banking technologies. David Roodman has suggested that indeed, this type of model might outclipse the postal bank (http://blogs.cgdev.org/open_book/2009/03/going-postal.php). However, I think it’s important to separate two aspects of postal banking: 1) its broad geographic reach, and 2) the implicit trust of the soundness of its operations. While the 1st point can certainly be replicated by banking agents, the 2nd is a bit harder. Especially in countries that don’t necessarily have a sound banking system, the post might be perceived as the one truly safe place to put aside one’s money. This brand advantage of the post may in fact be difficult to replicate in some places.
Daniel