ECONOMIC COMMISSION FOR AFRICA
13 May 1993
Original: ENGLISH
DEVELOPMENT OF POSTAL SAVINGS
BANK IN AFRICA
I. INTRODUCTION l
1.1 The purpose ■
1.2 The methodology
1.3 Prsentation of the paper *
1.4 Executive summary l
II POSTAL SAVINGS BANKS IN AFRICA 7
2.1 Origin of postal savings banks services • ?
2.2 Organization of postal savings banks *
2.3 Availability of postal savings facilities in Africa 12
2.4 Range of services offered j^
2.5 Utilization of postal savings banks in Africa jj>
2.6 Share of postal savings banks in the national savings 17 III. FACTORS INFLUENCING DEPOSITS IN THE POSTAL SAVINGS BANKS 19
3.1 Economic factors ^19
3.2 Socio-cultural factors ^U
3.3 Inadequacy of savings facilities 21
3.4 Competition withother savings institutions 21
IV PROBLEMS ENCOUNTERED BY POST OFFICE SAVINGS BANKS IN AFRICA25
4.1 Problems related to ownership and status 25
4.2 Lack of adequate working capital 26
4.3 An inefficient and unreliable data processing system 26
4.4 Limited range of products and services 26
4.5 Inadequate trained staff ^
4.6 Low quality of services f7
4.7 Poor image of the postal banks 27
V. PROMOTION OF POSTAL SAVINGS BANKS IN AFRICAN COUNTRIES . . 28
5.1 Promotion of the existing banks 28
5.2 Introduction of post office savings banks 33
VI MANAGEMENT POLICY OF POST OFFICE SAVINGS BANKS IN AFRICA . 39
ANNEX I Postal Savings Banks Services Statistics
INTRODUCTION
1.1 The purpose
1. The purpose of this study is to examine all available data and existing studies on the experience and development of postal savings banks in Africa with a view to proposing ways of improving the existing postal banks and assess the feasibility of introducing new ones in African countries where they don't have the services.
1.2 The methodology
2. The method used in this study was:
to undertake a desk study of relevant data on the development of postal saving
banks in Africa available at ECA.
to conduct field missions to selected postal administrations of Eastern and Southern African countries to obtain additional data on the experience of postal
savings banks in these countries.
3. During the field mission, discussions was held with officials of Uganda, Tanzania, Zambia and Zimbabwe postal administrations and management of postal savings banks in these
countries.1.3 Presentation of the paper
4. This paper is divided into six parts. The first chapter is an introduction to the paper and
gives the summary of the major findings in the study. Chapter two reviews the present situation
of postal savings banks in Africa. Origin of postal savings banks, its organization and
relationship with postal administrations and Ministry of Finance, availability of its facilities, range of service offered, use of postal banks and its share in the national savings are the major points covered under this chapter. The third chapter discusses the external factors which influences deposits (the major service of the bank) such as, economic and socio-cultural factors.
In addition, it reviews the competitive position of postal banks against commercial banks and other savings institutions.
5. Chapter five reviews ways and means of promoting the postal savings bank services in African countries. It discusses the various measures to be taken to attract the savings of both large and small savers. Moreover, for postal banks who wish to make a break-through in achieving a high level of development, appropriate measures such as, modernisation, simplifications of procedures, diversification of services, introduction of incentives and effective publicity drives are briefly reviewed. Furthermore, for those countries which have not yet introduced the postal savings bank services, advantages of introducing postal banking for both the public and the government, forecast of potential and problems associated with its introduction are identified. Finally, in chapter six management policy options which should be followed in the future by postal savings banks in Africa are given based on the current strengths, problems and weaknesses of the existing banks. Lastly, statistical data which indicates the performance of postal savings banks in terms of number of accounts, total deposits and its share as percentage of the national savings are attached as an annex to this study.
1.4 Executive summary
6. Postal saving banks, operating through the network of the post offices, were created with the main objective of encouraging thrift and promoting savings among the population. It is the only financial institution known to the public particularly in the small towns and rural areas.
This can be attributed to the widespread and extensive post office network in the rural areas
where the commercial bank and other financial institutions have a smaller number of branches
or no branches at all.7. Most postal savings banks in Africa initially operates as a division under the postal
administrations. But the growth in volume of transactions, number of accounts, range of
services and above all the toughness of competition with commercial banks and other financial institutions required the reorganization of postal banks by separating the management of the banks from postal administrations. This was followed by simultaneous creation of autonomous management for postal savings banks. Nevertheless, the fact that the post office offered an admirable and extensive network throughout the countries, the postal banks are using the post office network on the basis of a "Principal- Agent" relationship. The principal being the postal savings banks while the post office being the agent. This form of relationship is beneficial for both the postal banks and post offices. The former can concentrate on the overall management and formulation of appropriate strategies to promote the services while the later operates the savings services through its extensive network. Moreover, assigning clearly specified responsibilities by introducing a "Principal-Agent" agreement helps to solve the problem of contradicting assignment of decision-making powers and monitoring of right and obligations of the two parties.8. Postal saving banks services have been in use in some African countries for a long time.
However, despite its long history the rate of its expansion is very slow. Of the 37 African countries who sent statistical information about their services to the Universal Postal Union (UPU) for the year 1991, only 21 countries have postal savings bank services. Even in those countries the savings bank services is not available in all post offices. However, compared to the commercial banks and other financial institutions postal banking services are offered and used by a wide spectrum of the urban and rural population. As for its contribution to the national savings, based on the UPU statistics (1992) and world development report of the World Bank (1992), the average share of postal savings in the national savings for African countries
for the year 1990 was worked out to 7.57 per cent. For the same period, the average for developed countries was 15.37 per cent. This indicates that the postal savings banks in Africa has still a long way to go before reaching the same level as the postal banks in developed countries.
9. The level of development of the postal savings banks in African countries is influenced by a number of external and internal factors. The external factors such as, economic factors - low level of savings as a result of low level of income and investment , socio-cultural factors (barriers) - lack of awareness and trust in modern savings institution, backward cultures like expensive traditional and religious festivals which diverts potential savings from savings institutions affects the savings capacity of the people. Apart from the above factors, African postal banks faces fierce competition from Commercial Banks, Acceptance Houses, Building Societies, and Financial Houses. It is true that compared to its competitors the post office saving banks have some strong points in areas of its extensive network, possibility of depositing and withdrawals facility at any of the post offices, more opening hours including weekends and evenings, low minimum deposits and tax free interest payment for the depositors. However, they are also characterized by a number of weaknesses, partially caused by the Governments policy of introducing postal banks as a single-purpose savings mobilization institutions. Lack of autonomous status and proper organizational arrangements which enables them to operate as a commercial undertakings reduces the competitive position of postal banks. Internal problems, such as, limited rage of services, low interest payments on deposits, under- capitalization, inefficient data processing system, poorly trained staff, low quality of services and poor image of postal banks in general undermines its competitiveness and discourage important customers from using the bank.
10. Despite the external and internal problems encountered by postal savings banks, today the majority of the banks plays an important role in the collection of small savings. However, there is a pressing need for revitalizing the efficiency of the banks not only to compete with
commercial banks and other financial institutions but also for the sake of its own survival and growth. The postal savings banks in Africa should be able to attract large savers and utilize the existing widespread network of the post offices. Promotion of the postal banks by modernizing the operational procedures, diversifying the range of services, introducing competitive interest rate and various incentive schemes will help to achieve a healthy and sustainable development of the postal banks. Moreover, using the various publicity media will help to promote the image
of the postal banks and attract a number of potential customers.
11. In addition to upgrading the services of the existing postal banks through various promotional measures, on continental level postal banking services can be promoted by introducing the bank in African countries which have not yet introduced the services. From the experience of African countries with postal savings services, it is proved that the bank offers the most convenient method of savings open to all members of the public. Introducing the service is advantageous both to the public, the government and to the postal administration. For the public postal banks offers savings facility through readily available extensive network of the post offices, while it is used to mobilize potential savings from a large body of customers which will become immediately available to the government for further investment. The postal administrations also benefit from the establishment of postal banking services by offering the services through their extensive network and earn additional income in the form of commission or agency fee. Despite the problems associated with operational matters and persuation of potential depositors to use the postal banks at its earliest stage of introduction, there is a high potential to mobilize domestic savings in African countries which have not yet introduced the
bankings services.
12. Finally, the success of postal savings banks in building up a competent and more efficient
savings system highly depends on the willingness of individual African governments in allowing
them to adopt a coherent management policy. Some of the policy measures to be implemented
by postal savings banks involves diversification of services and products, adoption of competitive
interest rates, introduction of management information system, introduction of banking oriented training and motivational schemes and upgrading the image of the banks through continuous publicity and direct selling techniques. However, the implementation of these policy measures by postal savings banks depends on the willingness of the Government of African countries to provide them with autonomous status and appropriate organizational structure which enable them to observe sound banking principles.
CHAPTER H
POSTAL SAVINGS BANK IN AFRICA
2.1 Origin of postal savings banks service
13. Traditionally the basic function of the post is to convey mails for internal as well as external delivery through providing postage stamps. However, besides the basic function post office may provide other services. One of the major services provided for customers through the post office counters is post office savings bank services. Post Office Savings Banks (POSB) were created with the main objective of encouraging thrift and promoting savings among the poorest sections of the population. Operating through the network of post offices, they kept on accepting savings from small savers and passed on the savings to the central government to be
used in national development programmes.
14. The idea of operating a savings bank service by utilizing the post office network is not
recent in origin. In some countries of the world it was conceived and implemented more than
a century ago. To mention some examples, in Great Britain, Bangladesh, Belgium, Pakistan,
Japan, Singapore and India Postal Savings Bank were introduced in the years 1961, 1963,1965,
1973.1975, 1977 and 1982 accordingly. The table below shows the years in which post office
savings bank service were introduced in some African countries.
Table 2.1 Years of introduction of POSB in African countries
Name of countries
Nigeria Egypt Zimbabwe Kenya Algeria Madagascar Senegal Uganda Zambia
Year
1986 1901 1904 1910 1914 1918 1922 1926 1926
Name of countries
Tanzania Mauritius Tunisia Morocco Benin
C6te d'lvoire Mali
Malawi Gabon
Year
1927 1951 1956 1959 1959 1960 1960 1964 1964
Source: UPU Publication, No. 517, 1984.
15. Most postal savings banks in Africa initially operates as a division under the postal administrations. As the number of savers continued to grow, the range of services and products was enlarged and the postal banks started to compete with other banks. These new developments calls for reorganization of postal banks by separating them from postal administrations and granting more autonomy to the management of the postal banks. However, the fact that the post office network offered an admirable and extensive network throughout the country the postal banks are still providing the saving service through the network of postal services.
2.2 Organization of post offjr-e savings bank
16. For most postal administrations in Africa the post office savings banks service is an agency function, the service being carried out either on behalf of the Ministry of Finance or the central bank or an autonomous saving organization. In this case the working relationship between the post office savings bank and the post office is "Principal-Agent" relationship. The principal (post office savings bank) is responsible for the policy and management of the bank and operate banking services throughout the country through the services of the agent. While the agent (post office) is responsible for rendering the savings bank's service at all post offices in the country including the prudent performance of related incidental services to savings bank business against an agreed on fee calculated on the basis of the volume of banking transaction.
17. The organization and status of post office savings banks in Africa differ from country to
country. In Tanzania, upto 1991 the post office savings bank was one of the departments of
Tanzania Posts and Telecommunications Corporation. In May 1992, the Tanzania* Postal Bank
was established as a fully fledged savings, commercial and development bank by an Act of
parliament. The Act provided that the bank shall be an independent institution with its own
Board of Directors through the ownership of share holding by the United Republic of Tanzania
(41%), the Revolutionary Government of Zanzibar (10%), the Tanzania Posts and
Telecommunications Corporation (30%) and individual shareholders (19%). The Tanzania
Postal Bank has been given autonomy to develop its own business policy taking into
considerations the main objects of the bank which are: to mobilize and promote local savings,
to provide adequate and proper banking services, to deal with negotiable monetary instruments
of all types and to administer special funds placed at its disposal. However, in the pursuit of
its business the bank is obliged to operate through the network of the Tanzania Posts and
Telecommunications Corporation by the Act of parliament. For this reason, the bank has entered
an agency agreement with the Tanzanian Posts and Telecommunications Corporation to operate
through the posts network and on matters relating to personnel, administrations, finance, marketing and auditing.
18. In Uganda, the post office savings bank is legally separate from Uganda Posts and Telecommunications Corporation and was stablished by a special ordinance in council in 1926.
It is owned by the Ministry of Finance. However, the Uganda Posts and Telecommunications Corporation is required by law to exercise management and control of the operations of post office savings bank on behalf of the Government. The bank has got its won Board of Directors with members composed of successful personalities in their individual capacities, Uganda Posts and Telecommunications Corporations and Ministry of Transport and Communications. The Bank was established to:
promote and encourage thrift
mobilize and tap resources through postal network that conduct savings bank business;
invest any surplus deposits mainly into Government Securities and other investment portfolio offering a good rate of return.
The facilities of the bank were intended to be complementary to the service provided by commercial banks and were particularly aimed at small depositors mainly in rural areas who constitute the majority of Uganda's population.
19. In Zambia, Upto 1973 Zambia Post Office Savings Bank was operating as one of the divisions under Zambia Posts and Telecommunications Corporation. In 1973 by Act of parliament the National Savings and Credit Bank took over the operations of post office savings bank. National savings and credit bank is a government owned institution under the Ministry
of Finance with its own Board of Directors. The board is the top management body which spell
out the policy of the Bank. In addition to its traditional dual role, which are: enhancing economic and social security for individuals and families and mobilizing domestic savings for national development purposes, the business of the bank includes making of loans for different purposes, carry on related banking business, and administer any funds on behalf of any person or agency. The bank has entered an agency agreement with posts and telecommunications corporation to operate through the posts network and on matters relating to administration andauditing.
20. Zimbabwe Post Office Savings Bank is a government bank owned by the Ministry of
Finance. It is administered under the terms of the post office savings bank Act by the Posts andTelecommunication Corporation. The Bank has got its own Board of Directors whose members are appointed by the Minister of Finance. The Post Master General of posts and telecommunications corporation is the chief executive of the bank but the bank has got its own
system of organization out of the posts and telecoms corporation system. The bank operates thesavings bank business through the network of the post office. All expenses incurred in administering savings bank business by the post department is reimbursed by the bank.
21. As it was briefly indicated in the above paragraphs, post office savings banks are not
owned and managed by postal administrations. They are owned by the government and allpolicy and management related issues of the bank are handled by the Ministry of Finance or an
autonomous government saving organization. It can therefore be said that the services examined in this study are not really post office banks. Nevertheless, the postal administration has interestin promoting government savings bank activities, if it only contributes to increase the
commission paid to it. Furthermore as a public service organization it has a duty to participate in an activity which is vital to the economic growth of a country.2.3 Availability of postal savings facilities in Africa
22. Postal savings bank services have been in use in many African countries for a long time.
Of the 37 countries listed in Annex 1, 21 African countries have postal savings bank service.
In most administrations savings bank services are available at all permanent post offices. Only sub post offices or postal agencies where cash cannot be kept securely or cash supply and withdrawal cannot be regularly and smoothly effected, are not allowed to operate the savings bank.
23. The percentage of post offices with savings bank facilities in relation to the total number of post offices (including sub post offices and postal agencies) in four countries shown in Table 2.2.
Table 2.2 Percentage of post offices with savings bank facilities
Country
Uganda Tanzania Zambia Zimbabwe
Total number of post offices
open for the public
284 837 427 294
Post offices providing savings bank services
121 453 203 177
Percentage of post offices providing saving services
43 54 48 60
Soi UPU statistics, 1991 and data from Postal Administrations
24. In addition to the postal network, post office savings banks in Tanzania, Zambia and Zimbabwe have got their own branch offices run by their own banking staff. These type of offices are available in bigger cities where there is stiff competition with commercial banks and other financial institutions. The Tanzania postal bank has got one office of such type in Dar-es- Salaam while Zambia National Savings and Credit Bank and Zimbabwe post office savings bank has got 13 and 15 branch offices respectively, in bigger cities and towns.
25. In general, in many African countries post office savings bank is the only financial institution known to the public particularly in the small towns and rural areas. This can be attributed to the wide spread and extensive post office network in rural areas where the Commercial banks and other financial institutions have a smaller number of branches or non at
all.
2.4 Range of services offered
26. In many African countries, the post office savings banks offers limited range of services.
For many years the functions of post offices savings banks have been to accept deposits from the public and to invest them in Government Securities. The major types of services offered by post office savings bank are briefly explained in the following paragraphs.
27. Ordinary savings account passbook: A savings bank ordinary account may be opened with a minimum deposit at any of the post offices with saving facility. The amount of the minimum deposit varies from country to country. The minimum deposit for some African
countries as of November 1992 are:Tanzania - 500 Tanzania Shilling =1.61 US$
Zambia - 200 Zambia Kwatcha = 0.65 US$
Uganda - 200 Uganda Shilling =0.17US$
Zimbabwe - 5 Zim dollars = 1 US$
The savings bank issue a bank book in which transactions are recorded. The bank book may then be used to make deposits and withdrawals at any post office transacting savings bank business. Repayment of deposits with interest is guaranteed by the government.
28.. Under ordinary savings accounts one may open individual accounts, children's accounts, joint accounts, trust accounts, association accounts and corporate accounts. Interest is paid per annum on deposits. The interest on ordinary savings accounts varies from (6%) in Zambia to (14.25%) in Zimbabwe, (20%) in Uganda and (26%) in Tanzania. Because interest earned on deposit in the post office savings bank is not subject to income tax the percentage is small compared to interest paid by commercial banks and other financial institutions for savings deposit.
29. Save-as-you-earn account: This account which was introduced in 1977 in Tanzania (Local name is WADU) is mainly aimed at encouraging regular savings from salaried employed
persons.
30. Commercial savings account: unlike ordinary savings accounts, deposit and withdrawal is possible only in a branch where the account is opened. It has a highest interest rate (43% in Zambia. The minimum balance for opening account is higher than the ordinary account (13 US$
in Zambia). This service is offered by National Savings and Credit Bank of Zambia.
31. Fixed deposit accounts: These are fixed deposits placed with the savings bank for a specified period (12 months in Zimbabwe, 3 to 12 months in Tanzania, 2 to 12 months in Zambia) with interest rate in most cases higher than offered by the commercial banks. Interest rates ranging from 17 to 29 per cent in Tanzania and 47.5 to 54 per cent in Zambia and 14.5 per cent in Zimbabwe. Deposits must remain in the account for a specified period in order to earn full interest. Withdrawals made in less than the stipulated period will result in loss of interest.
32. Leasing services: This type of service is available only in Zambia where the bank purchase equipment or vehicles and lease it to customers over primary period of 2 years and secondary period of 3 years. After 5 years the equipment or vehicles will be sold to the customer or to the public who offers a higher price. Leasing service has got over a 100 per cent
return on investment to the bank.33. Although, the above types of services do not cover all the services offered by postal savings banks in Africa, the most dominant type of services are ordinary savings accounts and fixed deposit accounts. Today, post office savings banks are conscious of the need to diversify the range of services and products offered to the public. As a result, most post office savings banks are working towards creating better conditions to commercialize their banking business, not only with the view to competing with the banks but also for the sake of its own survival and
growth.
2.5 Utilization of post office savings banks in Africa
34. Post office savings banks have been in use in many countries of the World for a long time. In Africa, according to the UPU postal statistics (1991), at present postal banking service is being provided by 21 countries. Postal savings banks are useful for both the governments and for the public. It encourages thrift by allowing the public to invest sums which would otherwise be haorded at home - either because no other facilities existed or because existing facilities do not cater for small amounts. It therefore helps to tap the unexploited source of capital (through
mobilizing rural savings) which become immediately available to the government for furtherinvestment.
35. Table 2.3 indicates the use of postal savings banks in 18 African countries. Two
important parameters are used for the assessment the number of accounts in population and
amount deposited per head of population. The figures are extracted from Annex 1 of this study.
The number of accounts in population tells us the use made of the service, while the amount of money deposited shows how much use is made of the service and gives an indication of the amount of money (capital) which will become available to the government for reinvestment.
Table 2.3 Use of savings banks in Africa
Average
Range
Highest
Lowest
Number of accounts in population
Iin39
1 in 5 Mauritius
1 in 160 Sudan
Amount deposited per head of population (US$)
7.84
50.32 Zimbabwe
0.01 Uganda
36. It can be seen from the above table that in Mauritius one in every five people has got an account in the savings bank (the highest range) while in Sudan one in every 160 people has got account (the lowest range). The average for 18 African countries is that out of 39 people one has got account and the average deposit per head of population is USA$ 7.48. From this, it will
not be difficult to conclude that post office savings banks are generally well used in Africa.
However, compared to selected developed countries (Great Britain, Germany, France, Spain, Norway, Japan, Austria and Netherlands), where on the average one in every two individuals has got an account with the post office saving banks and the average deposit per head of population is 608 US$, the level of development of African post office savings banks are still at a lowest stage.
2.6 -Share of post nffice savings franks in the national saving
37. Of all financial institutions in African countries, post office savings bank has a widespread network which operates through out the country. The function of postal bank and its performance in the savings field is an integral part of the country's effort towards maximization of domestic savings. According to the UPU postal statistics (1991) and World Development Report (1991), the share of post office savings banks in the country's total savings varies among African countries. Figures are worked out for African countries in Table 2.4
below.
Table 2.4 Share of post nffice saving hank in the National savings (1990)
Country
Benin
Burkina Faso Cameroon
Congo Egypt Gabon Madagascar
Mali Morocco
Percentage
39.5 15.3 2.8 0.02
10.7 0.9 1.9 0.3 4.1
Country
Mauritius Niger Senegal Sudan Tanzania Tunisia Uganda Zambia Zimbabwe
Percentage
4.3 0.2 3.1 1.8 10.9 15.1 0.7 2.2 22.5
38. It can be seen from the above table that the post office savings bank in Benin has the
largest share of the total national savings (39.5%) where as post office savings bank in Congo
has the smallest share (0.02%). On average the share of postal savings banks in the total
savings works out to 7.57% for the above 18 African countries. The average share of post office savings in the national savings for selected developed countries (Great Britain, Germany, France, Spain, Norway, Japan, Austria and Netherlands) for the same period (1990) was 15.37%
. This indicates that the contribution of post office savings banks to the national savings in African countries was relatively low compared to developed countries. Thus, post office savings banks in African countries have still a long way to go before reaching the same level as the postal banks in developed countries.
CHAPTER ffl
FACTORS INFLUENCING DEPOSITS IN THE POST OFFICE SAVINGS BANKS
39. Savings mobilization is the collection of idle money outside the financial institutions
system. Idle money is that part which is not utilized by the house-hold sector. Thus, savings is that part of national income which is not consumed. Here post office savings banks plays an important role in mobilizing idle funds available, in the economy, particularly in the small towns and rural areas because of the relatively deep penetration of the post offices in the rural areas
compared to other savings institutions. In this case post office savings banks endeavour tomobilize idle funds influenced by a number of factors, such as, economic, socio-cultural, inadequacy of saving facilities and competition with other financial and savings institutions.
3.1 Economic factors
40. It is typical of African economy that both public and private savings are lower not only in per capita, but also as a percentage of nation income. As it was indicated in the World Bank - world development report (1991), the average share of domestic savings to the Gross Domestic
Product (GDP) worked out 11 percent for African countries while the same average fordeveloped economies was 23 percent. This shows that the domestic savings is very low in African countries. At a macro level, the major reason for low savings, like in all developing
countries, is the low level of income because of low level of investment. The economic sectorswith high potential to save are not developed. High cost of industrial and agricultural inputs,
low level of technology and unfavourable world market prices for the export of primary productsdeteriorating the domestic national product. This effect, in turn, lowered the domestic savings
capacity.
41. Apart from these national problems, at a lower level due to unattractive interest rate offered on savings account the contribution of post office savings banks to the total national savings is quite low for most African countries. This arises from a highly centralized national monetary policies and strategies followed by African Governments in respect of post office savings banks which limits the autonomy of the banks in setting their own competitive interest rates to induce domestic savings.
42. In general, the success of post office savings banks as mobilizer and promoter of domestic savings highly depends on the individuals ability to save (availability of surplus income) and incentive to save, i.e. the degree where the sacrifice involved in savings will bring a better further reward.
3.2 Socio-cultural factors
43. Apart from low level of income and lack of appropriate incentive schemes to promote saving, there are a number of socio-cultural factor (barriers) that affect saving capacity of the people in many African countries. Lack of confidence in the saving institutions including post office savings banks, which arises out of suspicion in the safety, continuity and secrecy of banks
specifically by rural savers will have a negative effect on mobilization of rural savings.
Backward cultures, such as, traditional and religious festivals, expensive weddings, expensive
funeral ceremonies and revering the dead, extended family assistance etc. will divert potential savings from saving institutions. Illiteracy also is another obstacle to saving mobilization. Lack of awareness and trust in modern saving institutions will make illiterate people to keep their money in their houses rather than saving it with banks.44. In order to minimize the effect of socio-cultural factors in saving mobilization, saving
institutions should launch an aggressive publicity campaign which help both the urban and rural
potential savers to understand simply and clearly the advantages and benefits of the varioussavings systems. In this regard, post office savings banks can play a significant role in promoting savings because of its accessibility to the rural population as a result of its widespread
network in most African countries.
3.3 Tnadequacv of saving facilities
45. Opportunity to save, i.e., presence of secure and accessible saving institution is one of the preconditions for savings mobilization. It is usually stated that the problems of promotion and mobilization of savings are caused by inadequacies of savings institutions. In most African countries, the savings institutions are limited in structure and not adequately distributed through out the countries. This is mainly because of various economic conditions, such as inadequacy
of infrastructure specially transport.
46. However, post office savings banks are widely represented saving institutions in African countries compared to Commercial Banks. The reason, here, is due to the relatively deep penetration of post offices in these countries. But that doesn't mean that saving bank services are given in all post offices. For instance, if we take the proportion of post offices with savings bank services (from Table 2.2 of this study) in Tanzania (54%), in Zambia (48%), in Uganda (43%), in Zimbabwe (60%). This shows that there is still a vast room for expansion of saving
bank services through using the post office network in these countries.3.4 Competition with other savings institutions
47. Post office savings bank as a savings institutions are one of the oldest banks in Africa.
Its savings operations were conducted in all main post offices located through out the countries.
However, their services are dominantly targeted on household and smalt savers. In many
countries it is known as a poor man's bank. Limited range of banking products and services and
low interest rate offered on savings deposits undermines the competitive position of postal banks
in the continent. Specially in bigger cities and towns where the public preferred to do their banking transaction with institutions offering a varied and wide range of services the commercial banks acquired strong position in the market. However, despite the success of commercial banks in the banking business it is only relatively big savers who make use of their services and a very wide spectrum of the population in African countries remains untouched by their activities. This is true of both urban and semi-urban areas and most particularly true in deep rural areas.
48. At present, African postal banks faces fierce competition from commercial banks, acceptance houses, building societies and financial houses. Compared to its competitors post office savings banks have the following strengths.
Extensive network due to deep penetration of post offices in small towns and rural areas.
For customers of post bank, withdrawals and deposits are possible at any branch post office as long as one presents the pass book, where as for customers of commercial banks withdrawals and deposits are possible only at a branch were they have an account.
For local customers transacting with post office savings banks is too simple and familiar than commercial banks.
The post office savings bank has got more opening hours even on Saturdays, Sundays and holidays.
No transfer charge for customers to transfer money from one branch to another.
Low minimum deposits which enables the poorest part of the society to open account in the savings bank.
Interest paid both on saving accounts and fixed deposits are tax free while
commercial bank interest payments are subject to income tax.49. Post office savings banks in many African countries are on the other hand characterized by a number of weaknesses compared to commercial banks and other financial institution. Some
of the weaknesses are:
limited range of services;
low interest payment on deposits;
under compitalization of banks;
poor quality of services;
lack of decent and proper facility (accommodation).
low limit of withdrawal and low maximum deposit;
indirect communication between the bank management and its customers;
low level of promotional activities.
50. The weaknesses are partly caused by the policy of African Governments towards postal
banks. Most of them were introduced as a single purpose savings mobilizations institutions.
Their mission was to accept deposits of small savers and invest them in Government securities.
Therefore, it is very unlikely to expect postal banks to compete with large commercial banks with highly diversified saving, borrowing and lending operations and a varied supply of services in insurance, real state and foreign banking transactions. But now a days the trend is changing in many African countries. Some of the postal banks are either reorganized or on the process of reorganization. For example in Tanzania the post office savings bank is already transformed into a share company. In Zambia, the National Savings and Credit Bank is operating for the purpose of winding up its affairs in readiness for takeover by post bank limited on the date yet to be announced by the Minister of Finance.
51. In general, the performance of post office savings banks faces a very strong competition from commercial banks and other financial institutions. Considering that they provide only the traditional savings account services, the task ahead is to improve the existing services and examine possibilities of offering a wide range of banking products and other savings schemes and credit to make postal banks more relevant and responsive to the changing needs of society.
CHAPTER IV
PROBLEMS ENCOUNTERED BY POST OFFICE SAVINGS BANK IN AFRICA
52. Post office savings banks are well used by the lower income group of the society particularly where the commercial banks don't have branches. Even in the largest cities due to its extensive network, procedural simplicity, accessibility at hours outside normal business hours and possibility of withdrawals and deposits at any of the post offices; they are well used by the household sector. But that doesn't mean that postal banks are operating without any problems.
Today, they are faced by a number of problems. Many of the problems have been indicated in the preceding parts of this study as a passing remark. However, some of the major problems of postal savings banks in Africa are summarized in the next paragraphs.
4.1 Problems related to ownership and status
53. Owned by the treasury or Ministry of Finance and run by either posts and
telecommunications corporation (PTC) or independent postal bank management, what most postoffice savings banks encountered was due to duplication of authority between the PTC, Ministry of Finance and post office bank management. Particularly in countries where the post bank is administratively integrated into the postal administrations, this form of organizational arrangement results in contradictory assignment of decision making powers and monitoring of rights and obligations. Decisions regarding management and operational problems of the bank will take a long time before it gets solved. In most cases, the agency agreement between the bank and posts and telecommunications corporation is outdated. A new agreement fair to both sides should be negotiated. The relationship between the bank and the post should be clearly indicated on the "Principal - Agent" agreement which incorporate the obligations and rights of each party concerning remittance of deposits, level of reserve, form and terms of remuneration
and transfer of documents.
4.2 Lack of adequate working capital
54. Acute undercapitalization (case of Zambia and Tanzania post banks) or no capitalization (Uganda post bank) remains the core problem of post office banks. This problem has given rise to other problems directly or indirectly such as, using depositors balances to finance the purchase of fixed assets (office equipments, computer, office buildings etc) which inturn resulted in a reduction of investment income, (the bank's major source of income) and liquidity problems and serious annual losses.
4.3 An inefficient and unreliable data processing system
55. Lack of computerization or dependency on PTC computer systems creates a problem in upgrading customer records. The processing of the bank data, such as, updating the customers balance, calculating interest payments and replacing a pass book in case of lose continued to be slow mainly owing to inadequate data processing facility. This problem is very serious in
Uganda post office bank where the customer accounts and other records are in arrears since
1981. This is the major cause of customer dissatisfaction with the service such as inability to credit interest at the end of the accounting year and to deal expeditiously with cases of lost pass books since they do not have up-to-date account balances.4.4 Limited range of products and services
56. At the moment, post office saving banks in African countries are offering limited range of products, mainly, the ordinary savings pass book account and fixed deposit accounts. They do not provide other savings schemes nor credit/loan facilities to their customers. This leads to the loses of some customers to other financial institutions which can assist them better. As a result, the bank loses the commission/interest that it would have earned if it had a wider range
of products. The consequence of all this is that the banks resource base will remain small and therefore unable to generate adequate income to meet its operating costs.
4.5 Tnademiatelv trained Staff
57. Postal banks are faced by a shortage of qualified staff in specialized fields such as banking, accounts and marketing. At lower levels, since the postal clerks are not well trained to carry out banking transactions the bank faces minor thefts and forgeries. Moreover, lack of well organized incentive and motivational schemes are some of the major problems of postal
savings banks in Africa.
4.6 T,ow quality of services
58. Lack of quality of service costs post office savings banks in Africa a big share of their savings and revenues. Long queue and unfriendly manner of counter clerks, inefficiency in data processing due to poorly staffed and equipped data processing centres, and lack of commercial oriented culture to get the trust of large savers are quality related problems encountered by
postal banks.
4.7 Poor imape of fre postal banks
59. Failure to detect changes in customers attitude and needs, low interest payment on deposits, low limit on fixed deposits and savings accounts, limits on the frequency of withdrawals, lack of trust by large savers due to unsuitable and poorly maintained post offices premises and poor working conditions and moreover low level of promotional activities resulted in undermining the image of post office savings banks and discourage important customers from
using the bank.
CHAPTER V
PROMOTION OF POST OFFICE SAVINGS BANKS IN AFRICAN COUNTRIES
5.1 Promotion of the existing banks
60. In developing countries post office savings banks started as and virtually remained the bank for small savers, whereas in developed countries they have reached out to almost all classes of society including the higher income groups. The reasons for this diversity between the two are post office savings banks in developed countries have introduced wide range of services to satisfy the needs of their customers. In addition to the traditional ordinary savings account, services, such as, fixed deposit accounts with higher interest, cumulative time deposits, loan schemes, savings certificates, cheque account and travellers* cheque account and travellers' cheque account facilities are provided for the public. Moreover, the banks adopt basic publicity policies and conducts publicity at national level using various publicity media.
61. It is true that post office savings bank in Africa is at varying levels of development.
However, the potential for its development exists in all administrations because of the already established widely spread network of post offices. Since the bank already has this advantage, initiatives to promote it in other directions are also necessary. Some of the promotional measures are described as follows:
5.1.1 Making the banks more attractive to the large savers
62. Today post office savings banks in Africa plays an important role in the collection of small savings. The same effort should be taken to attract the savings of the relatively affluent section of the public, namely, the large savers. Some of the measures to be taken to attract large savers, most of which are equally beneficial to small savers, are:
modernization of operational procedures
Diversification of the range of products and services offered.
Introduction of competitive interest rates.
Exemption from income tax on depositors interest earnings.
Introduction of various incentive schemes.
Raising the limit on maximum deposit and number of withdrawals.
63. It is true that in some African countries (Tanzania, Zambia, Zimbabwe etc.), the post office savings banks are already in the process of implementing some of the measures listed
above.
5.1.2 Modernization nf operational procedures
64. The need to modernize the operation of post office savings banks is recognized by the
management of the postal banks in many countries. The reason is not only with a view to
competing with commercial banks but also for the sake of its own survival and growth. In this
regard to minimize the average time required for making deposits and withdrawals, to enable
the customer to make withdrawals in evenings and during weekends, installation of computer
terminal at bigger offices to provide instant counter services, to improve the image of the post
office premises and staff them with trained bankers are some of the measures to be taken by post
office savings banks if they are to compete with commercial banks.
5.1.3 Diversification of the range of products and services offered
65. At present, most postal banks in Africa are offering only the traditional ordinary savings accounts to their customers. This resulted in loses of customers to commercial banks and other financial institutions. To make the postal banks more relevant and responsive to the needs of the customers, they have to improve the existing services and examining possibilities of offering a wide range of banking services. Some of the options includes:
Fixed deposit accounts with competitive interest rate;
Cumulative time deposits, such as, bonus savings accounts, collection deposits, education deposits, housing deposits, retirement savings scheme etc.
Loan facilities, such as, industrial credits, personal loans, farming loans, mortgage loans, renovation and furnishing loans;
Savings certificates, such as, bonus savings certificates, progressive interest savings certificates, capitalization certificates, school savings certificates and treasury certificates of fixed value.
Cheque account facilities and travellers' cheque facilities are some of the options available for post office savings banks.
5.1.4 Introduction of competitive interest rate
66. The level of interest rate on savings deposits in many African countries is determined by either the central banks or Ministry of Finance. However, the economic restructuring
programmes which are undertaken in some African countries allowed financial institutions to set
their own interest rate. This helped some postal banks to introduce higher interest rates similar to commercial banks. This is true in the case of Zambia, Tanzania and Zimbabwe post office savings banks, where they offer flexible interest rates based on the money market, particularly for demand deposits. The level of interest paid on postal savings accounts is a source of customer complaint in most African countries. Thus, introduction of competitive interest rate is one of the preconditions for healthy and sustainable development of post office savings banks.
5.1.4 Exemption from income tax on depositors interest earnings
67. Post office savings banks were created with the main objective encouraging thrift and promoting savings. To strengthen this idea most postal banks are given the privilege of offering payment of interest free of tax for the depositors by their Governments. However, the
application of tax exemption on interest earnings differ from one country to another. In somecountries (Zimbabwe and Uganda) there is a limit to the amount of interest which is exempted from income tax. While in others (madagascar) the degree of exemption goes to the extent of deposits made in the post office savings banks savings schemes entitle the account holders to rebates for the calculation of taxable income. In general, income tax exemption is one of the strengths of post office savings banks compared to commercial banks, which are not allowed to offer tax free interest payment. Therefore, postal banks should maintain this privilege so that they can attract a number tax conscious depositors to use their services.
5.1.5 Introduction of various incentive schemes
68. Introduction of incentives (prize schemes) to popularize post office savings banks services
is not well used in African countries. Prize schemes, such as, drawing of lots among a groupof accounts selected according to certain criteria, gifts of pass books to children born on a
historic date, award of cash prizes are some of the schemes used to promote savings in different countries. Introduction of prize schemes motivates not only the existing account holders to increase their savings, it also attracts potential depositors.
5.1-6 Raising the limit on maximum deposits and number of withdrawals
69. Fixing a limit on the maximum amount of deposit and number of withdrawals deter large savers from using the post office savings banks. For instance, the maximum permissible balance in Zimbabwe for both savings accounts and fixed deposits is 60,000 US$ for individuals and 30,000 US$ for companies. This will discourage large savers from using the postal banks.
Fixing the number of withdrawals from savings accounts (in Zambia once in a week) also limits the access of the depositors from their accounts. Thus, in order to attract large savings and improve accessability of accounts post office savings banks in Africa should consider the raising of the upper limit and increase the number of withdrawals from depositors accounts.
5.1.7 Publicity activities (measures^
70. Promoting post office savings banks services in African countries certainly requires effective publicity. Publicity in these countries is in its primary stage. Funds for publicity are usually meagre or even non existent. However, the loses of customers to commercials banks as a result of aggressive marketing activities obliged many post office banks to strengthen their publicity campaigns and to improve their image as a modern and efficient bank. As a result of this post office savings banks in Tanzania, Zambia and Zimbabwe started aggressive promotional activities by using various publicity media.
71. Proper publicity programmes can be carried out by using mass media, such as, radio (spot advertising), television (advertising at peak viewing hours, childrens' programmes), press (advertisements and articles), films and videos, posters, brochures, sport adverts and leaflets.
Personal promotional activities and organized talks given in schools, social welfare centres, village committees, youth clubs and other social institutions will encourage the public to save.
5.2 Introduction nf post office savings banks
72. According to the Universal Postal Union postal statistics (1990), at present only 21 countries have established post office savings bank services. The rest of countries have not yet introduced the services. From the experience of African countries with post office savings bank services, it is proved that the bank offers the most convenient method of savings open to all members of the public in every community. Thus, it is the responsibility of postal administration of African countries without postal banking services to make aware their governments the need to provide such facilities.
73. A post office savings bank offers advantages both to the public at large and to the Government, advantages which can not be obtained by complete reliance on a commercial
banking system.
5.2.1 Advantages of post office savings banks
74. Advantages for the public: network - the post office aims eventually to serve all parts of the country. A post office can be stablished in places where it would be uneconomical to operate commercial banking particularly as the cost of establishing and running a post office is shared between all branches of post office business. The postal agency and mobile post office systems are additional ways of providing services economically. Since, the post office already serves more places than commercial banks the idea of providing savings services through the
post office is the best way of mobilizing savings.
75. Hours of opening: the post office has more opening hours than the commercial bank branches. Post offices are also obliged, legally, to open for a minimum hours on Sundays and public holidays. The public has, therefore, more opportunity of using the post-offices for depositing his savings. For instance if we take Ethiopia (a country without savings bank service) the following table illustrates the position of hours of opening for post offices and commercial banks.
Post offices Commercial banks
Most branches 8 a.m. - 12 a.m.
1 p.m. - 5 p.m.
8 a.m. - 11 a.m.
1 p.m. - 3 p.m.
Branches in big cities 8 a.m. - 7 a.m.
1 p.m. - 3 p.m.
8 a.m. - 11 a.m.
Sundays and public
holidays 8 a.m. - 11 a.m Closed
76. Facilities: A post office savings bank usually offers better facilities for the small depositors than commercial banks these include:
Acceptance of small amounts at initial and subsequent deposits (in countries with postal banking services the initial amount required to open an accounts is generally lower in post banks than commercial banks)
Limited amounts of money can be withdrawn without prior notice being given and without formalities.
Limited amounts may be withdrawn at any post office, irrespective of the office
at which the account was opened.Potential customers will be used to going to the post office and postal agents for
stamps and other purchases. There is no psychological barrier to be overcome before the would-be depositor opens an account.5.2.2 Advantages for the Government
77. In general, savings bank will encourage thrift. It will also encourage the public to invest savings which otherwise be hoarded at home either because no other facilities existed or because existing facilities do not cater for small amounts. It will therefore help the Governments to mobilize unexploited source of capital which will became immediately available for further investment. Moreover, establishment of post office savings bank services in the rural areas will accelerate the changeover of the economy from barter to cash transaction.
5.2.3 Fnrpcast of potential
78. Post office savings banks have been in use in many countries for a long time. In order to assess the potential for a savings bank in African countries without the savings banks services, the position of African countries with the savings banks services are examined; details of which are in Annex I. Of the 37 countries in Annex I, 21 have a postal savings bank, but the figures
are available for only 18.79. The assessment of the position of savings banks analyzed against two important figures.
The number of accounts which tells us the use made of the service and the total amount of
money deposited which gives us an indication of the amount of money (capital) which will
become available to the Government for reinvestment. It can be seen from Table 2.3 of chapter 2, for the 18 African countries the average number of accounts in population is 1 in 39 which is one out of every 39 individuals have opened an account with the highest range 1 in 5 (Mauritius) and lowest range 1 in 160 (Sudan). The average deposite per head of population is US$ 7.84 with the maximum deposit of US$ 50.32 for Zimbabwe and minimum deposit US$
0.01 for Uganda. Table 5.1 below shows the potential number of accounts and potential amount of deposits for the 16 African countries without savings banks after applying (equalling) the average, the highest and lowest range given above for countries with postal banking services in operation.
Table 5.1 Potential accounts and deposits
Countries without POSB
Angola Burundi Cape Verde Ethiopia Ghana Guinea
Guinea-Bissau Libiya
Lesotho Liberia Mozambique Rwanda
Sao Tome & P.
Swaziland Tchad Zaire
Potential account holders
Average
220.5 141.0 8.6 1233.4
383.9 145.1 24.6 108.4
38.4 66.6 402.4
192.3 3.0 17.4 132.8 897.4
in '000 Maximu
m
1720.0 1100.0 67.6 9620.9 2994.8 1132.1 192.0 846.0 300.0 520.0 3139.2 1500.0 24.0 136.2 1036.0 7000.0
Minimu
m
53.7 34.4 2.1 300.6
93.5 35.3 6.0 26.4 9.3 16.2 98.1 46.8 0.7 5.6 32.3 218.7
Potential deposits
Average
67.4 43.1 2.6 377.1
116.8 44.7
7.8 32.9
11.8 20.4 125.4 58.8 0.9 5.5 40.7 274.4
(US$ mill) Maximu
m
432.7 276.7 16.6 2420.4
749.8 286.8 50.3 211.3
75.5 130.8 805.1 377.4 6.0 25.2 261.7 1761.2
Minimu
m
0.09 0.06 0.003 0.48 0.15 0.06 0.01 0.04 0.02 0.03 0.16 0.08 0.001 0.01 0.05 0.35
80. As it shown in the table above, for instance, if the amount deposited per head of population in Ethiopia equalled the average (US$ 7.84), the Government would have at its disposal a sum of US$ 377 million, and even if the amount only reached the lowest figure (US$
0.01), the sum would be US$ 0.5 million. In order to have a full picture of the situation, these figures need to be related to the total money supply in Ethiopia (extracted from the annual report
of the National Bank).
US$m.
1. National bank
Total money supply 2984.5
Savings deposits 786.6
Average yearly increase in savings 8.7
2. Post office savings bank:
potential deposits
Maximum 2420.4
Average 377.1
Minimum 0.48
81. As the yearly increase in savings in Ethiopia is much greater than the minimum potential for the proposed postal savings bank, it seems reasonable to assume that a saving bank would quickly attract deposits above the minimum potential, especially as it would set out to attract savings from sources as yet unexploited by existin3 methods of savings. The case of Ethiopia which was illustrated above can be applied for the other countries without postal banks.
However, it would not be appropriate here to attempt any precise forecast of the amount which
could be expected to be deposited. The mobilization of postal savings in these countries highly
depends upon the speed and extent to which post office services, and consequently post office
savings bank services, can be extended throughout the country. In general, from the above
illustration it will not be difficult to generalize that those African countries which have not yet introduced the post office savings bank should tap the potential savings by introducing postal bank services in their postal administrations.
5.2.4 Problems associated with the introduction of a post office savings services
82. At the earliest stage of its introduction, it might appear that the post office savings bank service will not be in a strong position to attempt competition with the commercial banks.
However, it is true that the commercial bank savings schemes mostly used by the relatively large savers while the majority of the urban and rural population remains untouched by their activities
in the saving field. Even in large cities the post office compete on reasonably equal terms with
its easier operational facilities, acceptance of lower initial and subsequent deposits and possibility of withdrawals at any post office irrespective of the office where the account was initially opened.83. The post office savings service would be at a real disadvantage in the interest rate it could offer. However, for majority of depositors, particularly small savers, it is felt that interest rates are of lesser importance than a good service which also offers maximum security for their savings. In the smaller offices, the provision of cash to meet calls for withdrawal on demand is one of the major problems. This requires establishment of a pattern of deposit and withdrawals to keep a reserve cash on hand to meet demands. Until such pattern can be established it would be necessary to restrict withdrawal on demand facility.
84. The greatest problem associated with the establishment of the post bank savings service is the problem of persuading potential depositors to use it. The majority of the potential is
composed of people with no exposure to institutionalized saving. Methods of overcoming such
resistance are largely conducted through publicity campaign and gradual education of the public.CHAPTER VI
MANAGEMENT POLICY OF POST OFFICE SAVINGS BANKS IN AFRICA
85. The post office savings bank's structure has not brought about the desired level of mobilization of savings for investment. Thus the bank's participation in the development process has not been upto expectation. The main reason for this is the lack of coherent management policy which dictates the development of post office savings banks in African countries. In order to effectively utilize the strengths and opportunities and to correct the weaknesses of post office savings banks in Africa, there is a paramount need for the designing
and development of coherent policy and guidelines.
86. The unclear ownership structure of post office savings banks is one of the major concern which requires immediate attention by the concerned government authorities. In most of African countries, post office savings banks are legally owned by the ministry of finance or central banks which are entitled to all profits and losses that accrue to the banks - but administratively and operationally the postal banks are integrated into the posts and telecommunications corporations.
This results a contradicting assignment of decision - making powers and monitoring of rights and obligations between the owner, the operator (postal administrations) and the management of post office savings banks. In order to solve the problem of working relationship between the postal banks and postal administration, a clear cut "Principal- Agent" agreement should be designed and agreed upon by both parties. The agreement should clearly specify the obligations, responsibilities, forms of remuneration, terms of payment and other operational activities.
Moreover, the principal (postal banks) and the agent (postal administrations) can bring together
resources and work on effectively to improve the services by organizing special banking training
programmes, upgrading the quality of services and improving the image of both the postal
services and the saving services through effective promotional activities. On the part of the ministry of finance, it should make the post office savings banks more efficient and competitive by granting them an autonomous status which enables them to operate as a commercial institution.
87. Another area of great importance to be looked at is the out dated policy of limiting the activities of post office savings banks to accepting deposits of small savers and investing them in low yielding government bonds. If post office savings are expected to build up a more efficient savings system and expected to compete with commercial banks, a new management policy should be adopted which allows post office banks to widen the range of products and services and increase the flow of financial services including investing and lending activities.
88. In general, in order to improve the competitiveness and effectiveness of existing post office saving banks in Africa the implementation of the following management policy measures are recommended.
to provide them with autonomous status and appropriate organization structure which enables them to follow dynamic commercial policies.
to specify clearly the working relationship between the post office banks and postal administration through a "Principal-Agent" agreement.
to diversify the services and products with qualitative and quantitative development of the network.
to implement a policy of real interest rate high enough to induce saving.
to introduce modern management information system (computerization of customer records and operation of the bank).
to introduce training packages which geared towards commercial banking activities and productivity based incentive and motivation schemes.
to promote the image of the post office savings banks through continuous publicity and direct selling techniques.
to mobilize the potential savings by introducing the post office savings banks services in countries which have not yet introduced the service.
