Savings Banks and the Double Bottom-Line
Previous studies published in this “Perspectives” series have highlighted the essential role and the excellent record that savings banks have in providing access to finance. Their products and services are easy to use, are largely accessible and offered in a formal but sufficiently flexible structure. They also satisfy the functional needs of their customers. The research behind this edition of Perspectives was designed to examine whether the profitability of a savings bank is compromised by its built-in commitment to provide access to as many people as possible. Or, to put it another way: is the double bottom-line dimension a valid business model?
Savings banks have been described as the original microfinance institutions of the nineteenth and even eighteenth centuries (Siebel ) but they come in various forms. Set up, sometimes by publicly-minded private philanthropists but just as often by local or national public finance bodies, savings banks are explicitly designed to provide a safe and reliable home for the savings of the mass population as well as some basic mechanism for making payments. One very common format is the local municipal savings bank set up by local government to provide these core savings and payments services. Another form, also dating as far back as the eighteenth century, is the mutually owned or co-operative savings bank which is often tied to a specific region or municipality. In countries with less of a tradition of public banking, community-based commercial banks have emerged to meet the same needs.
In some ways the savings bank movement is now a self-selecting body of banks and other financial institutions that wish to make clear their strong commitment to providing universal access to a wide range of financial services. For the specifically established savings banks this commitment to provide universal access to the services they offer is typically included in their founding statutes. A study conducted for the WBSI in 2005 discovered that there were 1.4 billion savings and loan accounts in institutions with a declared “double bottom line”, i.e. the traditionally known one of the profit and loss account and the equally longstanding public policy goal of ensuring the financial needs of groups not well serviced by commercial banks. 1.1 billion of these were in savings banks. Savings banks even provide as many small-scale loans in numbers terms as the whole of the specialist microfinance community combined.
So this study concludes that savings banks have a built-in commitment to providing access and score relatively well on World Bank’s identified dimensions of access:
- their simple, affordable products are useable for even low value and irregular financial needs;
- their branch network and staffing make them open to all levels of society and households;
- current regulation can give them the benefits of formality without compromising accessibility;
- many savings banks have products to satisfy the full spectrum of customers’ functional needs.
Savings banks demonstrably deliver on their commitment to provide access. They are the biggest single suppliers of accounts among double bottom-line institutions and in the poorest fifth of countries where they operate they probably supply a quarter of all access. The report also concludes that savings banks can broaden their outreach without compromising profitability. Cost effectiveness plays an important part in sustaining profitability and broadening outreach and this links with keeping products simple and useable so they can run profitably on low volumes.
The implications of all this for policy-makers are that regulation must be applied in a way that enhances systemic stability without compromising access. It is particularly important that regulations designed for high risk, high value complex corporate transactions and/or city-based commercial business are not applied arbitrarily to lower value, less regular retail activity in less populated and remoter areas.