Economic & Social Affairs ST/ESA/2001/DP.22 DESA Discussion Paper No. 22 Postal Savings and the Provision of Financial Services: Policy Issues and Asian Experiences in the Use of the Postal Infrastructure for Savings Mobilization Mark J. Scher December 2001 United Nations DESA Discussion Paper Series DESA Discussion Papers are preliminary documents circulated in a limited number of copies and posted on the DESA web site http://www.un.org/esa/papers.htm to stimulate discussion and critical comment. This paper has not been formally edited and the designations and terminology used do not imply the expression of any opinion whatsoever on the part of the United Nations Secretariat. Citations should refer to a “Discussion Paper of the United Nations Department of Economic and Social Affairs.” Mark J. Scher Acknowledgements Mark J. Scher has been coordinating a project on I am grateful for the generous and substantial support postal savings with Keio University, Tokyo, on behalf of Keio University in funding this research project of the Department of Economic and Social Affairs, through a grant from the Japanese Ministry of where he has been an Economic Affairs Officer in the Education and Culture. The paper benefited from Finance and Development Branch, Development discussions with officials and experts in many Policy Analysis Division, Department of Economic and countries and the Universal Postal Union. I also Social Affairs. The views and interpretations in this express appreciation to colleagues in DESA and the paper are those of the author and do not necessarily many interns who have assisted him in the preparation represent the views of the United Nations. Comments of this paper. Although I benefited from the assistance should be addressed to the author at the United of a great many people in writing this paper, I claim all Nations, Room DC2-2112, New York, NY 10017 of its shortcomings as my own. (e-mail: [email protected]). Additional copies of the paper are available from the same address. Authorized for distribution by Ian Kinniburgh, Director Development Policy Analysis Division United Nations Abstract In many countries postal savings and giro remittances have long enabled provision of financial services to all segments of the population, particularly women, rural communities and the urban poor and to have helped mobilize savings for investment in development. This paper reviews the postal financial systems of twelve developing Asian countries, including savings product development, investing mobilized funds, receiving overseas remittances and utilizing financial technologies. Also examined are experiences of developed countries where market liberalization and privatization have challenged savings operations. Policies are proposed for more effective utilization of the postal infrastructure in delivering financial services in developing and transition economies. Key words: Postal savings, remittances, financial services, saving, postal system, development investment, postbanks, giro, privatization, microsavings, women, households, poor, rural areas, Asia JEL classification code: O16; E21; G21; H31; L33; N24; N25. Contents Page I. Introduction ..................................................1 A. Evolution of the system ..........................................2 1. Creation of a global postal network .................................2 2. Creation of postal savings and giro remittance services........................2 3. Postal savings for the people .....................................3 B. The public’s confidence in postal savings .................................3 C. Giro: safe and cost-effective remittances ..................................5 II. The changing economics of the posts: market liberalization, privatization, cross-border entry and acquisition ......................................5 A. Market liberalization: new technologies and privatization .........................5 B. The charge of “cross-subsidization” as a threat to public savings institutions ..............6 C. Cross-border entry: the express package delivery wars ...........................7 III. Financial services through the postal infrastructure .............................8 A. Current situation ..............................................8 B. Governance structures of the posts ....................................10 IV. Postal systems and ‘Postbanks’: creation, separation, privatization and synergies of reintegration ....11 A. Postbank creation and separation from the posts .............................11 B. Loss of postal network and savings services after privatization ......................11 1. Commercial bank strategies replace savings linked to development .................12 C. Tackling the problem of financial exclusion ...............................14 1. Who you are and where you are: the unbanked in the United Kingdom ...............14 2. Restoring the network .......................................14 D. Transitional economies and privatization: bailouts at public expense ...................15 E. The private-sector finds opportunities in postal financial services .....................16 1. Restoring synergies: the reintegration of postbanks and postal services ...............17 F. Conclusions ...............................................17 V. Asian experiences in postal savings......................................18 A. Introduction ...............................................18 1. The legacy of colonialism......................................18 2. Post-independence: mobilizing savings ...............................18 B. Management and competition issues in Asian systems ..........................19 1. The organization of postal savings: four models ..........................19 2. Agency problems: disincentives to mobilizing savings .......................22 3. Are postal savings in competition with commercial banks? The case of Japan............23 4. Financial technology: choosing appropriate systems ........................24 C. Mobilizing savings: product development and market analysis ......................25 1. Postal savings in rural areas: making a link to credit ........................25 2. Overseas remittances via the posts .................................27 3. Economic growth: is tax exemption necessary in mobilizing funds?.................28 D. The intermediation and investment of mobilized savings........................28 1. Mobilized postal savings funds and economic development.....................29 2. Is the market approach a realistic option for developing countries? .................29 VI. Policy conclusions and proposals on postal savings in developing countries ................30 Table 1. Postal savings data from DESA Survey ....................................9 I. Introduction The outstanding advantage in providing financial services through a postal system is the post’s ubiquitous One of the most pressing concerns for the econo- character. Financial services can be made available to all mies of the developing world is the need for mobilizing by virtue of the broad network of postal facilities. They are domestic financial resources. Despite the variety of vehi- usually provided as a public service, including in those cles that are intended to mobilize and allocate financial cases where the posts act as an agent, providing the ser- resources in developing countries, all too few offer strat- vices on behalf of another institution or bank, or when the egies for meeting the needs of poor and lower-income postal system itself is privately owned—a relatively new people for financial services. This paper reviews the ex- phenomenon. The essential characteristic distinguishing periences of various countries that have made use of one postal financial services from the private banking sector is of the few institutions that does aim to provide financial the obligation and capacity of the postal system to serve services to these population groups, the postal system, the entire spectrum of the national population, unlike con- through postal savings, postal remittances, postal check- ventional private banks which allocate their institutional ing and “giro” services, which are collectively referred to resources to service the sectors of the population they as postal financial services.1 Postal savings funds also deem most profitable. Indeed, for many developing coun- play a significant role in financing public debt and in a tries, especially those with fragmented and dispersed pop- number of countries the funds are intermediated through ulations, the posts may represent the only significant a variety of policy-based financial institutions with de- contact a large number of people have with their govern- velopmental objectives, returning the funds to the direct ment and the most visible institution symbolizing national benefit of the community of savers, which we will be unity and identity on a positive, grass-roots level. noting throughout this paper.2 Postal financial services, and postal savings in partic- The paper examines major policy and manage- ular, begin with a social mandate which embraces the ment issues confronting postal financial services today strength of the postal network’s “brick and mortar” facili- in developed and developing countries. It is based on ties. When postal financial services are themselves run un- the author’s work in this field over several years in a va- der agency agreements for separate savings banks or riety of countries on several continents, including 13 private financial institutions,