SUMMARY - Access to finance – Measuring the Contribution of Savings Banks

By World Savings Banks Institute -WSBI-(August, 2005)

http://www.savings-banks.com/Content/Default.asp?PageID=184

Abstract

In this paper, the WSBI looks in depth at data available from its members to better understand the role of savings banks in achieving full access to finance. It builds on previous estimates of the overall supply of accessible finance, shows how significant savings banks are for this market, and makes policy recommendations to both savings banks and policy makers.

Key takeaways of this paper are:

• Savings banks have been underestimated in the role they play in the supply of access to finance. This paper estimates savings banks hold above 1 billion accounts worldwide.
• Overall supply of accessible finance accounts via savings banks, postal and non-postal accounts, banks, co-ops and credit unions is 1.4 billion.
• Savings banks and microfinance schemes are complements not substitutes. In addition, they provide credit of similar sizes to those offered by microcredit institutions.
• Savings banks have higher staff productivity and lower ratios of costs to assets than microfinance institutions.

Summary

Savings banks are socially committed retail banks and typically address at least three issues with respect to access:

Geography of access- savings banks go to places where mainstream banks don't go.
Product design - They keep products comprehensible to the most marginal members of society.
Combine risks and costs in a sustainable manner - They commoditize products developed for niche markets and provide them at affordable sizes and prices.

In a recent paper, CGAP had estimated the existence of 750 million accounts at institutions that target the market for basic financial services. Indeed, 300 million of those accounts were associated to savings banks, while non-postal savings banks were estimated to hold 150 million. The new research implemented by WSBI on actual data from its members shows that savings banks are a much bigger player in the market of accessible finance than previously thought, holding close to 1 billion accounts.

WSBI based its new estimates on 4 special cases, chosen because of their large presence: China, India, Pakistan and Russia.

Industrial Bank of China - The largest savings bank with 428 million accounts. National Savings Scheme in India - Mobilizes savings for close to € 64 billion. Estimates of the number of accounts in non-postal banks could be as high as 300 million, but a more conservative estimate is 75 million. Central Directorate of National Savings in Pakistan - It is likely that the 4 million account estimate by CGAP was an underestimation of the actual number, due to an unrealistic discrepancy between the average balance of postal savings and the national savings directorate. Savings bank in Russia - Presents the opposite problem. WSBI data shows that there are 250 million accounts in total, which would mean a total of 2 accounts on average per adult. A truer figure would be 100 million accounts or a coverage ratio of 80% of the population.

By adding up the four cases above, there are at least 600 million accounts. Another 148 million accounts can be added from other 19 non-postal bank members according to WSBI data. Thus, there are at least 750 million accounts at just 22 non-postal savings banks across developing and transition economies. Based on these results, WSBI estimates the number of accounts for the other 21 savings banks for which there is no data. In aggregate, WSBI reaches the conclusion that there are nearly 800 million accounts (more than 5 times CGAP's estimate) at non-postal savings banks. Add to that the 300 million postal savings accounts acknowledged by CGAP, brings the total to 1.1 billion accounts. In addition, CGAP's data from microfinance providers, rural and development banks, credit unions and co-ops suggests another 300 million accounts. Thus, overall supply of accounts reaches 1.4 billion or nearly one account for every 2 _ adults or 1 account for every 2 households.

This number is only an average and could well be biased upwards by a few countries with relatively good access. The results by region are:

South East Asia, Middle East and North Africa as well as Central Asia show strong upward biases because of at least one country in the region (i.e. China, Egypt, Morocco and Russia).

Results per income group show that savings accounts hold around 75% of total accessible accounts except in the poorest group, where their share drops to 37%. Deposit balances average 20% of income per capita for all groups, except for that where China falls in.

Savings banks not only provide deposit services, but are also credit providers. On average, East and Central Asian as well as South American savings banks led above 40% of its deposits, while in areas such as South and East Asia, Mid-east and Africa, the share goes above 60%. Although this data needs validation, there are probably 30-40 million small scale loans made by savings banks to add to CGAPs 150 million estimates.

Given that savings banks hold _ of all accessible accounts in developing countries, it is possible to argue that a country cannot build a full-access financial system off the back of specialist microfinance schemes alone. However, microfinance schemes are more significant for those countries with repressed access to finance (defined as one account per 5 adults) or in countries with a recent history of civil or political instability or conflict. In any case, microfinance schemes and savings banks need to be seen as complements rather than substitutes.

Savings banks have large networks of branches that provide geographic access to the market. Additionally, they have a long history of dealing and adapting its products to low-levels of literacy and other socio-economic challenges. Moreover, savings banks services have greater affordability. Operating costs over total assets account for 1-4%, while those of MFIs are between 20-30%. Staff is more productive, managing 900 accounts on average, while MFI employees manage 150. Savings banks tend to charge for the use of accounts roughly 2-3% of average balances, which would need to be compared with charges assessed by commercial banks.

Policy recommendations for savings banks: Participate in the debate on how access is measured; additional work is needed to understand the impact of cost structures on barriers to usage; look further into minimum requirements for opening and maintaining accounts, which may need rationalizing; lobby governments and regulators on the interpretation of AML and antiterrorist law; and find grounds of cooperation between savings banks and microcredit specialists.

Policy recommendations for policy makers: The "access to finance" debate must distinguish between infrastructure (which is clearly there) and usability (where there are clear problems); avoid being captured by individual finance industry lobby groups or by competing research groups; work on better measuring affordability as a barrier to access; get donors and international financial institutions to help foster cooperation between players.