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Credit Cooperatives and Savings Banks

A template for SME finance and development?

-An approach in historical perspective

Paul Thomes

Business • Technology Innovation • Society



© 2012

Agenda

Relevance and objective: A historical approach, why?

history as dialogue between present and past about future

perspective by retrospectiveexploiting the „history lab“

Broadening the methodological perspective Process and orientational knowledge,

Creative capacity = combining strengths

Business Model Analysis

Assessment

Conclusion and Message



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Data and Knowledge Base

- Knowledge 35 years of research in economic and social history

- banking history esp. savings banks and credit coops- regional development and structural change - change management processes

economic and business mixed method holistic approach

- Data

quantitative and qualitative data from banks all over Germany and beyond (1778-2012)



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MF =Inclusive

Regionally Integrated Banking

IRIB

Yunus Nobel-PrizeGrameen Bank

disappointment

need for optimization

Adaption of concepts

self-reflectionimpertinence

searching for alternatives

euphoriahype

Coop BanksSavings banks

Circle of Sentiment„New“ MF-Models vs. „Old“ MF-Models

Roodman, 2012

Bateman, 2010



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MF as Change Management Instrument CM Model: Lewin/Schumpeter/Thomes

Kurt Lewin (1890-1947), Drei-Phasen-Veränderungs-Modell (1947) Joseph Schumpeter (1883-1950), Theorie der Innovation (1911)

Changing

MFCOOP Banks

Savings BanksRefreezing Unfreezing

Old Structure/Paradigme

New Structure/ Paradigme

InnovationDiffusion

Invention

Structures =Institutionsconventions

arrangements to optimize transaction costs and

interaction



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Plausibility Check in Historical Perspective

18th/19th century Europe 20/21th century developing countries

no or limited financial integration of large social groups

general problems to be solved

fast growing populationrural exodus – urbanization

structural change from agrarian to industrial societymelting social institutions

pauperism infrastructure

Individual perspective: poverty, lack of finance, unsecurity



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Cooperative Banks as Financial Inclusion Scheme

Raiffeisen (1850s): Credit-Unions Darlehenskassen-Vereine Aims: „poverty relief of rural population“

„material and moral improvement“ Concept: paternalistic-christian approach

including the whole parish or borrough – rich and poor

Schulze Delitzsch and Haas (1850s): Credit Societies, Banks for the Mass Vorschussvereine, Volksbanken

Aims: „Welfare of the mass“ Concept: liberal grass roots democratic

„A Coop means freedom, economic freedom, too“ (Haas)„It … aims at the credit needs of the small firm sector , rural and urban …

It cares for the tiniest credit need as well for big firms ....“ (SD, 1855) =

spatial and social inclusionStarting with credits, adding savings since 1870s



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§ 1 Purpose of the association Furthering industriousness (Arbeitsamkeit) among the poor by creating occasions to improve their options

Aachen Fire Insurance (est. 1825)

Pension scheme

Savings bank (1834)including regional branches and bonuses on savings

Kindergardens

Girl schools

Acquirement of knowledgeguide books nationalregional

50% of profits until 1874

Process designdirect indirect

Verein zur Beförderung der Arbeitsamkeit (1834)

Non-profit PPP interplant organisation“innovation-lab“

Undertaking - Sponsoring

Fröbelseminar

Sponsoringeducation and

sciences RWTH (1870)

Sponsoringhealth care

Relief fund

Endowments

Holistic Regional Change Management Schemesmoothening industrialization



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Volume of credits Number of credits

credit-portfolio Delitzscher-Vorschussverein (according to Schulze-Delitzsch), 1854-1858

Impact 1850s



Minimizing Usury

Access to FS

for alltransparent & fair

SME Finance

Money transferImprovingeducation and social security

CharityWelfare Infrastructure

Enablement by saving

Impact around 1900

Economic stability

Mobilizing hoarded money

MFCOOP Banks

Savings Banks

Individual and societal impact



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Delivering Results - MF matters and MF works Parameters to achieve results above average

Parameters that do matter Parameters that do not matter

INTEGRATEDREGIONAL CONCEPTS

organisational design

Local reinvestment consumption of

profits

education

cross institutional cooperation

PPPflexibel legal

frame profit vs. non profittop down

vs. bottom up

general pre-conditions: growing economy and population

competition

private vs. public

Implicit welfare

orientation

transpa-rency

integrated finance

SCI



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About terminology and content Towards an inclusive MF-Definition

Concept …, offering basic financial services (credit and saving facilities, insurance) to clients, who are not in the focus of normal banking institutions

… Quality of Services: transparent and fair … Goals of Services: participation, inclusion, prevention… Scope of Business Model: regional, including investment or

consumption of earnings

Key Concept Features: integrative, inclusive, sustainable, resilient, regional



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Success factors – „Innovative“ Socio-Economic Inclusion

saving and credit

sustainable – price worthiness

bearer - SME

PPP

rivlary - regionality

transparency - reliability

flexible legal framework

bandage building

responsability

Leadership

Diversity

Innovation

Protection

Empowerment

Cooperation

Knowledge

Proportionality and Framework(G20 Principles for Innovative financial Inclusion, 2011)

Past / Future Commonplace



• Kredit• basisdemokratisch• Eigeninitiative• gewinnorientiert• Individualität• privat• filiallos• lokal

• individueller wirtschaftlicher Erfolg

• Sparen• patriarchalisch• Verordnung• sozial orientiert• Gemeinwohl• öffentlich• filialhaft• regional

• gesellschaftspolitisch motivierte Daseinsvorsorge

Alle einschlägigen MF-Kriterien erfüllt !

Divergenz und Konvergenz

VR Banken Sparkassen



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Time incongruity and growing competition



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Asset buisness of the prussian savings banks 1860-1914



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ImpactInklusion:

1913 every German household with a bank account at a savings or cooperative bank

Mobilization of hoarded money until then deprived of the economy

Structural change: market integration and merket entry through finance of traffic and supply infrastructure

stability in crises

Mix of individual and social Impact

Documents

[email protected] Credit Cooperatives and Savings Banks A template for SME finance and development? - An approach in