1. With thanks to our sponsor
Dorothea

2. Sparkassenstiftung für internationale Kooperation
Finanzgruppe
Sparkassenstiftung für
internationale Kooperation
The Financial Inclusion Challenge – A Bankers´ Perspective London, 5 December 2016 2

3. 200 years of Sparkassen in Germany How Banks earn Money
Agenda
200 years of Sparkassen in Germany
How Banks earn Money
Financial Inclusion – or not
Project Example: Tanzania 3

4. Beginning of industrialisation Support for local population
years of Sparkassen in Germany Historical Background of Sparkassen
Beginning of industrialisation
Support for local population
Create local „banks“
Disintegration of traditional family structures
Rural-urban migration
Result: increased poverty in urban and rural areas
Question: what can be done locally ?
Efforts of individuals and local communities
Objective: support the local population/economy
Solution: Built up local savings banks
Collect local savings
Give loans to local craftsmen/ farmers etc.
Finance local infrastructure
Statutes of Sparkasse Berlin, 1818
The Savings Banks have a long history in Germany. They were founded at the time of the industrialisation, when poverty was widespread.
The first Sparkasse was founded around the end of the 18th century to offer the lower strata of the population a possibility to deposit their savings safely.
In the course of the time they also got involved in the loan business, offering personal, business and mortgage loans, always focussing on the population in their region.

5. Profitability is a necessary prerequisite for sustainable development
years of Sparkassen in Germany Sparkassen today: professional with a social mandate
Sparkassen are …
Banks …
German Banking Act
Supervision by ECB
Full regulatory requirements for banks
… with a Social Mandate
Defined in state laws and statutes
Objectives:
Provide financial services to all segments of the population, everywhere in the country (“account for everyone”)
Provide SMEs with loans and other services
Promote local entrepreneurial activity
Promote social and cultural development
Profitability is a necessary prerequisite for sustainable development
Conclusion:
This can be summarized in two sentences:
In the course of more than 200 years, the German Sparkassen (savings banks) have developed into one of the largest financial groups worldwide. Sparkassen combine a high level of professionalism with a strong commitment to their social mandate.
Sparkassenstiftung’s essential task is to convey this profound experience to banks and financial institutions in developing and transition countries, thus strengthening regional respectively local financial structures.

6. 1. Sparkassen today Core figures (group of 403 local banks)
Market share of …
in %
Number of customers
in million
Savings deposits
Loans to customers
Principal bank account 50 50 38 52 50 62 48 30 24
Number of …
in million 11
Savings accounts
Commerz-bank
Deutsche Bank & Postbank
Cooperative banks 55
Savings banks have around 50 mio. customers which is by far much more than the other banking groups in Germany have
compared to a total population in Germany of around 82 mio.
Notable market shares in different segments
With around 100 mio. current and savings accounts the savings banks are the principal bank for more than half of all the German customers
The largest German banking group
According to balance sheet totals, the Savings Banks Finance Group is one of the largest banking groups in Europe.
Strong position in retail market
The Savings Banks Finance Group is Germany’s long-standing number one in credit business, deposit business and financing for SMEs - a result achieved through day-to-day competition.
Group ratings underpin the business model
The Floor-Ratings of A+ (Fitch) and A(high) (DBRS) as well as the Corporate Family Rating of Aa2 (Moody’s) underpin the Savings Banks’ business model and risk management, as well as the consolidated group formed by independent credit institutions.
The largest German Retail Banking group
According to balance sheet totals, the Savings Banks Finance Group is one of the largest banking groups in Europe with a clear focus on private clients, self-employed and small-and-medium-sized businesses.
Savings Banks are not state banks
Savings Banks are predominantly credit institutions under public law. Their responsible public bodies (but not owners) are the municipalities.
Savings Banks are not a consolidated group
Each Savings Bank is an independent credit institution. Savings Banks focus on their own business territories, with co-operation organised within the Group. The Joint Liability Scheme provides protection for all Savings Banks
Credit / debit card 52
Current account 45
403 Sparkassen (savings banks)
Others
*Germany‘s total population: 81 million

7. Financial Inclusion 2. How Banks Earn Money … different perspectives !
The overall economic point of view:
Financial services should be delivered responsibly to everybody and contribute to a sustainable development
The banker’s point of view:
All activities need to generate profit and contribute to a sustainable business model
page 7 7

8. Sources of Income Retail Banking … Investment Banking …
2. How Banks Earn Money Sources of Income
Sources of Income
Interest Margin
Fees and Commissions
Return on Investments
Retail Banking …
Investment Banking …
page 8 8

9. 2. How Banks Earn Money Interest Rates for Small Loans - Components
typical range …
components …
influenced by …
(Ø 2.6 %)
Expected Profit ?
type of institution
Operating Expense
(e.g. staff, equipment,
rent, taxes) %
(Ø 14,0 %)
efficiency
Loan Losses %
(Ø 3.6 %)
professionalism
Cost of Funds
(if in Forex:
incl. exchange rate risk)
donors,
savings business,
lending currency, inflation rate … %
(Ø 7.8 %)
Data for developing countries as of 2011: (CGAP 2013, Rosenberg et.al.)

10. 3. Financial Inclusion – or not Challenge 1: costs per loan
Challenge: most operational costs are fixed (e.g. salaries, rent, IT)
Result: higher costs for small loans (as percentage of loan amount)  higher interest rates for smaller loans !
Solution: reduce costs esp. for smaller loans ! - efficient workflows and procedures - economies of scale (e.g. more loans per credit officer) - standardized products (amounts, terms etc.) - reduced transaction costs (technology e.g. POS terminals) - outsourcing (e.g. cooperation with agents, NGOs and others)

11. 3. Financial Inclusion – or not Challenge 2: non performing loans
Challenge: non performing loans are extremely expensive: follow-up costs + loss of loan + loss of expected income
Result: general rule for small loans: total costs = 2 * loan amount
Solution: reduce risk of loan losses ! - standardized workflows and procedures - use of technology - training of staff - risk sharing agreements (e.g. with NGOs)

12. 4. Project Example: Tanzania Training and Strengthening of MFIs, Financial Inclusion
Partners: Tanzania Association of MFIs (TAMFI), Tanzania Postal Bank (TPB) and Karagwe Rural Development and Environmental Conservation Agency (KARUDECA)
Objectives: Increase outreach of TPB, training of staff in MFIs and TPB, professionalize MFIs in Tanzania, savings mobilisation, business skills of micro-entrepreneurs
Results: - new TPB Training Center (for TPB and TAMFI) - modernization/extension of TPB branches (incl. workflows) - savings mobilization campaign (World Savings Day etc.) - business simulation game for micro-entrepreneurs

13. If there are any further questions, do not hesitate to contact me.
Niclaus Bergmann, Managing Director
Phone: