Safeguarding deposits: learning from experience

The book notes that encouraging rural people to deposit funds fulfils two major functions. Firstly, it fosters investment. Secondly, it builds linkage between the immediate institution and the depositor. The book suggests that this linkage, which has aspects of responsibility and belonging, has been shown to be particularly effective as the basis for successful financial intermediation. However, it highlights that these beneficial aspects only apply when the deposits are secure. It also notes that the position of savers in banking crises in developing countries is vulnerable compared to the situation in industrialised economies.

This publication is concerned with money deposited for the joint purposes of earning a return and security. Despite differences in the motivations of savers, one expectation is common to all – safety of deposits.

The book aims to address some of the issues involved in ensuring that the savings deposits of the public are secure. It highlights the key role played by an appropriate regulatory environment, by depositor education and, above all, by sound management of financial intermediaries. In addition it outlines the points for and against risk management mechanisms such as deposit insurance and also outlines rehabilitation measures which can be taken following a bank crisis.

Chapter 1 discusses the role of savings in economic development and the different types of institutions taking deposits in lesser developed countries (LDCs) are introduced. Chapter 2 looks at the increasing instability of the financial market, which presents as increasing threat to the safety of savings. The following three chapters provide information on banking crises in various environments and on the methods used to safeguard savings in different circumstances. More specifically, Chapter 3 deals with crises and relevant facts in three European countries (Finland, Italy and Hungary), and assesses the lessons for LDCs. Chapter 4 presents two cases from the semi-formal cooperative sector, one from Malaysia and one from Kenya. In Chapter 5, the strengths and weaknesses of the informal sector are approached from the point of view of the depositor. The aim of Chapters 5, 6 and 7 is to draw the key lessons from the existing evidence for banking in the LDC environment. They deal with the key policies in preventing instability in financial institutions, with the principle elements of the safety net and with methods to protect the safety of savings when financial institutions become insolvent.

Amongst others, the book is aimed at the management and staff of banks, especially those operating in the rural areas of developing countries. It is also targeted at policy makers and others who are concerned with measures to ensure the well-being of rural populations as regards their access to secure deposit facilities.

  • Resource type
  • Author FAO
  • Organisation
  • Year of Publication1995
  • Region
  • LanguageEnglish
  • Number of pages181 pp.
  • EditionAgricultural Services Bulletin

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