From microfinance to inclusive banking : why local banking works / Reinhard H Schmidt; Hans Dieter Seibel; Paul Thomes and edited by Sparkassenstiftung fŭr internationale Kooperation,

Includes bibliographical references

TOC List of Abbreviations IX List of Figures XIII List of Snapshots XV List of Tables XVII Foreword XIX Preface XXI I. INTRODUCTION: REFLECTIONS ON MICROFINANCE 1 Microfinance banks savings and cooperative banks 3 1.1 Microfinance: From humble beginnings to hype and disenchantment 3 1.2 Banks as providers of microfinance services 7 1.3 The relevance of savings banks and cooperative banks 8 1.4 Conclusions and consequences 10 2 Basic definitions 13 2.1 Why precise definitions are desirable but difficult to provide 13 2.2 Terms that need to be defined 14 3 The broader context of social and development-oriented banking 21 3.1 How new forms of financial institutions emerge and survive 21 3.2 The role of the state and other third parties 23 3.3 The art of financial institution building 25 3.4 The objectives of socially-oriented, inclusive financial institutions 31 4 Does history matter? 35 5 Our main propositions 39 II. GERMAN SAVINGS BANKS AND CREDIT COOPERATIVES A BLUEPRINT FOR INCLUSIVE FINANCE? 1 Objectives Why a historical perspective? Why credit cooperatives and savings banks? Why Germany? 43 2 Saving and borrowing A socioeconomic historical approach 49 2.1 Satisfying needs A vital challenge 49 2.2 Saving and borrowing An everyday exercise 53 2.3 Winds of change Pawnshops, widows and orphans funds, and savings and loan societies as innovative inclusive instruments of change management 55 2.4 Savings as a fundamental condition for change and growth 56 3 Out of the box An international comparative survey of 19th century savings-based microfinance trends 59 4 The emergence of the German savings bank model Inclusion from the beginning 65 4.1 Divergence and convergence Comparing the early savings banks 68 4.2 Diffusion in the wake of early industrialization and growing incomes 72 4.3 The Prussian Savings Bank Regulations of 1838 A legal template for future development 77 4.4 Urgent need for profound change Towards the economic takeoff 81 4.5 The savings business around 1900 Cradle-to-grave incentives 84 4.6 The credit business A fluctuating and attractive combination of microfinance features 95 4.7 Debit and credit Reserves and non-profit appropriation 107 4.8 Administrative and organizational success factors Supervision, skill enhancement, and networks 108 5 Case study The Aachen Association for Promoting Industriousness [Der Aachener Verein zur Beforderung der Arbeitsamkeit]: A holistic local inclusion approach 111 5.1 Money and Intellect An integrated welfare concept combining insurance, savings, and education 112 5.2 The savings bank of the Aachen Association A successful experiment 116 5.3 The end The disastrous consequences of World War I 124 5.4 Evaluation The holistic concept as a role model? 125 6 Out of the box An international comparative survey of 19th-century credit-based microfinance trends 131 7 The emergence of the German credit cooperative model Tradition meets innovation 135 7.1 The liberal approach Schulze-Delitzsch and his Volksbanks (People s Banks) 137 7.2 The Christian charity approach Raiffeisen and his fight against rural usury 144 7.3 Dispute over principles Jockeying for position and an optimization process 147 7.4 Wilhelm Haas and other agents of change Salt in the soup? 150 7.5 Case study The Hachenburg Credit Cooperative [Vorschussverein Hachenburg] 153 7.6 Volksbanks and Raiffeisen cooperatives A remarkable success story 158 8 Savings banks, credit cooperatives, and commercial banks Complementarity versus rivalry 163 9 Summary, conclusions, and outlook Are there lessons to be learned from the History Lab? 169 9.1 Organizational findings 169 9.2 Practical findings 171 9.3 Connecting past and future 174 9.4 Overview Constitutive elements of local banking in Germany: From microfinance to inclusive banking 177 III. GLOBAL DEVELOPMENT AND CURRENT STATUS OF MICROFINANCE PRACTICE 1 An overview of institutions, concepts, and approaches 183 2 The spectrum of microfinance institutions 187 2.1 A typology of microfinance institutions 187 2.2 Informal microfinance 190 2.3 Community-based microfinance, or village banks 198 2.4 Cooperative microfinance: What role for government? 212 2.5 Microfinance banks 226 3 Sources of data on access to finance 265 3.1 Self-reporting by individual institutions 266 3.2 Global reporting by networks of financial institutions 269 3.3 Global data sets 274 3.4 Market saturation 280 4 Microfinance as a field of international aid and cooperation 283 4.1 Early forms of development finance and the emergence of microfinance 284 4.2 The turn towards modern microfinance 292 4.3 Strategies for creating efficient and sustainable microfinance institutions 296 4.4 Commercial microfinance and its challenges 308 4.5 Why microfinance is losing its clout 314 IV. LOCAL FINANCIAL INSTITUTIONS LEARNING FROM THE HISTORY OF SAVINGS BANKS AND COOPERATIVE BANKS FOR DEVELOPMENT POLICY TODAY 1 Summing up the historical survey 321 2 The general relevance of the historical survey for the design of development projects 325 3 The direct relevance of the historical survey for the design of development projects 331 4 A concluding comparative remark and a plea for diversity of banking structures 337 5 Summing up: Insights and recommendations for national and international decision makers based on 200 years of inclusive microfinance and local banking history 343 References 347

The authors take into account developments from a historical, social science and economic point of view. Analysis and data interpretation is backed by case studies. They identify parameters both for failure and for success and also indicate how to optimize existing potentials.

Economics

Sagar Shahanawaz