Going Postal?

This table is from CGAP's Financial Institutions with a Double Bottom Line report. It shows the estimated number of savings and loan accounts at various kinds of "alternative financial institutions" in the entire developing world. The first column is for microfinance institutions (MFIs). Its bottom line exceeds the Microcredit Summit Campaign's new 100 million figure, mainly because it more consistently counts savings as well as loan accounts. More interesting to me is the "postal banks" column, which contains far huger numbers:The idea of running banks through post offices appears to have originated with Samuel Whitbread, member of the British Parliament and heir to the fortune his father made as a founder of the Whitbread brewing company. (The firm lives on today, no longer brewing.) In his 1807 speech introducing a bill to create the system, Whitbread said:

A poor man would often be glad to put out small sums to interest, who cannot make up enough to induce a man of property to take it: and in the length of time necessary to raise a larger sum, so many temptations occur for spending the little fund, that it requires a degree of forbearance and self-denial which few possess, to resist them.

Whitbread proposed for the bank to take savings and sell life insurance. The plan had a compelling logic. "Dr. Malthus" had called for the creation of small country banks to take savings. But why not a national bank, operated through an existing national institution with vast reach? And by the time the plan was made law, in 1861, the British postal system had accumulated years of experience transferring money. From Britain the idea spread through Japan (in 1874), other European countries, European colonies, and so to most of the world. (That's why I paid my electric bill at the post office when I lived in Saigon.)Since savings and credit accounts can serve the same purposes, as I explain in chapter 2, the table above makes me wonder: why all the excitement about microfinance and so little talk of postal savings banks? Buried in that question is the old state vs. markets debate: should government provide financial services or facilitate private organizations doing so?A two-part report produced by the World Bank and ING helped me understand the issues (vol I, vol II). One problem with postal savings is corruption, as the report delicately explains:

In some countries, mainly in Africa,...deposits have not been managed with transparency and are transformed into substantial unfunded liabilities.

And a lot of accounts on the books appear inactive:

Data confirm that national postal operators in the Asian region keep more than 335 million accounts, an estimated 20–25 percent of the adult populations. This is significant, but the accounts are not frequently used: reports suggest 1.1 transactions per year per account. Some of the savings products are indeed long-term programs that would require only 1 transaction in 2 or 3 years. The majority of the accounts are demand deposits, however, so one would expect higher transaction volumes or else presume large numbers of accounts to be dormant.

And, it should be said, we don't know if postal savers are as poor as microcredit borrowers.Though the report doesn't put it this way, the biggest problem appears to be the lack of junk mail. In other words, most postal system perpetually run deficits, unlike in the U.S., where junk mail cross-subsidizes Christmas cards. Modern post offices in developing countries are not the vital (in more than one sense) British system of the mid-19th century. Many are overextended and underfunded, which leads to corruption and incompetence. And mobile phones and the Internet are making them look even more like dinosaurs: "In various cases across Africa, there are more financial transactions over the post-office counter than sales of stamps."There have been successes. "In less than five years...Brazil's Banco Postal [opened] more then 5 million new accounts." But "while the concept of offering of postal financial services is not new for most postal organizations, there are more failures than success stories." On balance, I'd say postal banks deserve more airtime than they get. Yet given the ongoing revolution in communications, I do wonder: is the true heir to Whitbread today mobile phone banking?