World Bank and Brookings Institute Global Conference on Access to Finance

– Washington, May 2006

SAVINGS BANKS AND THE DOUBLE BOTTOM-LINE

Stephen PeacheyConsultant to World Savings Bank Institute

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What is WSBI and what does it have to do with Access to Finance

. . . . . . . The challenge before us is enormous. And the work of WSBI’s membership is important to us because it reaches out to the largest body of people to offer financial services, more than any other group I know. For that reason I want to salute these banks and encourage them to continue in their theme of a double bottom line: to think not just of profit, but to think also of social responsibility which savings banks carry out so well.from

James D. Wolfensohn, Opening remarks to WSBI / World Bank conference on Access to Finance, Brussels (October 2004)

WSBI is one of the largest international banking associations and the only global representative of savings and retail banks. Founded in 1924, it represents around 1,000 financial intermediaries from 84 countries, At the start of 2004, assets of member banks totalled more than €7,300 billion. WSBI members are typically savings and retail banks or associations thereof. They are often organised in decentralised networks and offer their services throughout their region.

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Structure of the presentation

• I will present the framework for this session of the conference, describing double bottom-line institutions and the place occupied by savings banks within that group.

• I will then present the results of my own study into savings banks and the double bottom-line, completed for WSBI – the World Savings Bank Institute.

• Then I will draw out some specific examples of savings bank initiatives in the field of microfinance.

DOUBLE BOTTOM-LINE INSTITUTIONS:

what do we know about their provision of accessible financial services?

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. . . a simple proposition to fix the issues regarding access

For this reason the debate about access to finance in developing economies is just part of the wider debate about access to basic needs

By contrast the debate about financial exclusion in advanced industrial economies is firmly lodged in wider debates about social exclusion

• The percentage rate of access in the poorest developing economies is about equal to the percentage rate of exclusion in richest, advanced industrial economies:

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Near-full access – what it means for people in advanced economies

Country % of Population Country % of Population

Denmark 99.1 Netherlands 98.9

Sweden 98.0 Finland 96.7

Germany 96.5 France 96.3

Luxembourg 94.1 Belgium 92.7

Spain 91.6 US 91.0

UK 87.7 Portugal 81.6

Austria 81.4 Ireland 79.6

Greece 78.9 Italy 70.4

EU 15 average 89.6

about 2~2½ accounts per adult

as much as half these with a savings bank

Surveyed adults with access to current/giro account or similar. Reproduced from Pesaresi and Pilley [2003] with US added (taken from Caskey [2002]).

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Who supplies access in developing & transition economies ?

• Mainstream commercial banks operate at average loan and deposit sizes that are not relevant for the bulk of people or enterprises in many in developing and transition economies.

• Therefore accessible accounts tend to be at specialist institutions – microfinance NGOs/NBFIs and private bank microfinance schemes, credit unions / co-ops and community microbanks plus policy lending institutions and savings banks

• These institutions all operate a double bottom-line:– the normal financial bottom-line (making a profit); – and a social bottom-line couched in terms of bringing access to

those excluded from most commercial banking services

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Suppliers of accessible* accounts in developing/transition economies

* Accounts at double bottom-line institutions, i.e. microfinance NGOs/NBFIs and private bank microfinance schemes, credit unions / co-ops / community microbanks plus policy lending institutions and savings banks

Policy lending

inst., 167

Savings banks, 1150

C.Unions / Co-ops, 53

NGOs / NBFIs, 47

Private bank m-f, 5

TOTAL: 1.4 billion accessible accounts

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But who mobilises savings is different from who provides credit

SAVINGS / PAYMENTS TOTAL = 1400 million

Savings banks

Private bank m-f

NGOs/ NBFIs

C.Unions / co-ops

Policy lending

inst.

LOAN ACCOUNTS - TOTAL = 197 million

NGOs / NBFIs

C.Unions / Co-ops

Policy lending

inst.

Savings banks

Private bank m-f

SOURCE (THIS AND PRECEDING SLIDE): CGAP Occasional Paper No 8. augmented by data from WSBI, WOCCU and FAO~GTZ Agri-bank Stat

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Classic microfinance – extending access at the margin

SOURCE: Honohan [2004], ‘Financial Sector Policy & the Poor – Selected Findings & Issues’, World Bank WP 43

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Full access is hard without a strong public-purpose banking movement

The dark line shows total accessible accounts per adult in each developing/ transition economy analysed. The grey columns indicate the share of savings banks and deposit-taking policy lenders within this total. The white space below the dark line indicates the share of microfinance NGOs, etc

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SAVINGS BANKS AND THE DOUBLE BOTTOM-LINE:

A profitable and accessible model of finance

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Unlike most policy lenders, savings banks are generally profitable

by profitability band

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Losses 0~1% 1~2% 2~3% 4~5% over 5%

Net profit as a percentage of average total assets (RoA)

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Their savings business scales down through country income bands

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Individual savings bank in country income band

Median for country income band

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And their identifiable retail credit business is in the microfinance zone

274%

55%31%

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Except in the very poorest countries

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Savings banks can be mapped by outreach & country levels of access

When we do this we find more savings banks with a demonstrable capacity to do low average value lending that have broad outreach and support deeper levels of access in their country, than we find payments and savings only banks in the same market position.

TYPE OF SAVINGS BANK REGION

BREADTH OF SAVINGS BANK OUTREACH

Narrow outreach

savings bank in a shallow

access country

C O U N T R Y I N C O M E

B A N D

D E P T H

O F

A C C E S S

Broad outreach

savings bank in a deep access country

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And breadth of outreach does not adversely affect profitability

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Breadth of outreach ===>

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But it appears that broad outreach savings banks have to be cost-efficient

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Breadth of outreach ===>

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SAVINGS BANKS AND THE DOUBLE BOTTOM-LINE:

turning payments and savings into credit: selected developing country savings bank initiatives in microfinance

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Two examples of state bank microcrediting from Asia & L.America

– Government Savings Bank of Thailand. Its “Peoples Bank” project combines savings mobilisation and educational training for entrepreneurs with microcrediting at a flat 1% per month for loans of up to $750 first-time and $1,250 for subsequently. €400 million had been disbursed by 2004 and almost a million loans per year are being processed with more than a 90% approval rating and only a 3.5% delinquency. The “Village Fund” takes government grant money to pump-prime micro-crediting at 1.75% above current fixed deposit rates and has generated almost €4 billion of lending to11 million villagers, off the back of a €1.6 billion funding and with only a 6% delinquency rate.

– Banco Estado Chile runs a micro-enterprise programme that is a national leader with over 40% of the market. In 2003 it served 90,000 microentrepreneurs; about one third of them achieving access to a financial institution for the first time. Service is through 91 specialised units throughout the country and has a recovery rate of 99%. Half of all customers are women and more than 90% of credits are processed without guarantees. Banco Estado also operates the state small business guarantee fund (FOGAPE).

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Two examples of group-based microfinance from Africa

– PosteFinances in Senegal has since 1985 provided deposit accounts for women’s groups granted direct aid by donors in the form of equipment and facilities. The accounts accumulate funds needed to maintain and replace equipment. Through the accounts some 80~100,000 women in a thousand groups have saved nearly $1million of savings. NSB also provides loan processing services – loan disbursement, payments collection, etc – for a series of national and regional microcredit schemes that have been set up to support the women’s groups.

– Tanzania Postal Bank started in 2001 on a pilot basis in one district but then rolled out to other locations. Lending is group based, typically to groups of five, who can borrow between $50 and $600 at 2.5% per month for six to twelve months. In less than two years, the total value of disbursed microcredits reached US$1.9 million extended to 4,235 clients (80% female) in 676 groups out of whom 41 had fully liquidated their first round loans.

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Turning payments to microfinance – two examples from Latin America

Remittances and social payments are providing a platform for microsaving and ultimately small-scale credits in two schemes run by WSBI members in Brazil and Mexico:

– Caixa Economica Federal in Brazil’s card based CAIXA AQUI account is built around simplified application procedures and access through point-of-sale terminals at correspondents such as the State Lottery. The accounts take regular payments such as pensions but can also take cash deposits. The account opening includes a pre-agreement to provide credit and this can be activated after ninety days of account use, provided all is in order.

– Bansefi of Mexico provides the technology and products to allow affiliated popular savings and credit institutions to credit incoming social payments and remittances direct to savings accounts. Bansefi research shows that within three to four cycles of a client receiving such inflows, their account typically starts to be used for voluntary deposits of cash as well. Inflows can also be credited to a number of pre-borrowing savings schemes run by Bansefi that eventually allow access to low cost public loan schemes.

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A final chain of thought

Money – even in the small amounts typical of grassroots development – is much more powerful when it circulates through banks than when it is handed out to spend . . .

. . . the faster it circulates the more powerful it is and the more we can monetise local economic development the faster money will circulate

. . . therefore we need affordable microsavings and micropayments as well as microcredits and that is what savings banks do well.