The role of german savings banks in preventing financial exclusion

Abstract

In today's Germany, like anywhere in the world, the use of financial services is essential to participate in economic life. Bank accounts are needed to pay the rent or to receive income. The usage of loans and investment opportunities helps to manage income fluctuations, often caused by insecure employment situations or unplanned events such as divorce or illness. Life risks can be managed and minimized with insurance policies. Despite a rising financial inclusion of private households over the last decades, certain social groups and people in certain areas generally tend to be excluded from the access to financial services. For Germany, a comprehensive study of the level of financial exclusion does not exist. This can have several reasons. On the one hand, there might be no studies showing significant financial exclusion in Germany because financial exclusion simply does not exist or is not perceived as an important issue. On the other hand - assuming financial exclusion exists in Germany - defining and measuring financial exclusion is tricky. Statistics gathered by official German sources are not intended to answer questions about financial exclusion. From research of financial exclusion we know, the excluded groups are often characterized by low income, unemployment, lack of education or high crime environments, to name a few examples. Therefore, the financial exclusion debate is mostly associated with poverty problems1. However, for the purpose of this paper, we would like to include in the groups most likely to be financially excluded not only private households but also small enterprises. Small and medium sized enterprises (SME) play a vital role in economic development of Germany and their financial exclusion can have a significant effect on economic development of the country. There are numerous strategies possible to overcome financial exclusion2. For example, the government could regulate the financial industry. One advantage would be the enforceability of a specific right. High costs for control and bureaucracy could be counterproductive though. The industry could alternatively agree upon voluntary codes of conduct in order to avoid costly state regulation. The main risk of this strategy is that not all providers of financial services may adhere strictly to the codes. Another strategy could be that the financially excluded will find a way to organize themselves. The last strategy has a long tradition in Germany. In 1778, the "Ersparungsklasse" of the Allgemeine Versorgungsanstalt was founded in Hamburg as the first savings bank3. The first formations of savings banks by private associations were intended to decrease poverty and foster selfdirected life precautions through the means of savings. The industrial development in Germany around 1800 caused widespread poverty among small businesses in towns and among farmers. Starting in 1830, the establishment of savings banks by municipalities was aimed at the provision of credit to individuals as well as to small commercial and agricultural businesses4. In 1850, the Eilenberger Vorschußverein was founded by Hermann Schulze-Delitzsch in Delitzsch as a first example for a cooperative credit institution in towns. In rural areas, cooperative credit institutions were founded as "Darlehenskassenverein", based on the ideas of Friedrich Wilhem Raiffeisen5. Today, the succeeding institutions are organized in the savings bank sector and in the cooperative bank sector. Looking at the balance sheet total of all banks6 on December 2005, these two pillars (out of three) account for 62 % of the German banking sector. © Springer-Verlag Berlin Heidelberg 2007.