Financial Institutes

Cuba, China Banking on the German System

  • Why it matters

    Why it matters

    The German savings bank model, in which banks use their customers’ deposits to lend to local businesses and entrepreneurs, is beginning to catch on in other countries. A program by the German Savings Bank Foundation for International Cooperation helps to familiarize bank employees in other countries with how the German system works.

  • Facts


    • The Savings Bank Foundation has programs in 43 countries.
    • One of the selling points for the German savings bank model is that savings banks and cooperative banks weathered the financial crisis more effectively than private banks.
    • The German savings bank model is a precursor to microfinance today.
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Popular Savings Bank or Banco Popular de Ahorro BPA facade.
Savings banks are ever more popular abroad. Source: Getty

You rarely catch banker Heinrich Haasis, 72, enraptured but turn talk to Cuba and the president of the Savings Bank Foundation for International Cooperation lights up. It’s one of the 43 countries interested in Germany’s savings banks model and as Cuba opens up politically and economically, the German Savings Bank Foundation is helping the country transform its banking system.

German savings banks have a simple, robust system converting savers’ deposits into loans to self-employed and local small businesses, putting the welfare of stakeholders ahead of profit. They resemble the savings-and-loans banks in the US but are publicly-owned by municipal governments or federal states, and, rooted in their communities, often sponsoring local festivals and financing hospitals or universities.

Before the financial crisis, such banks seemed a little old fashioned with their 200-year-old business model. Afterwards, for countries fearful of relying on “too big to fail” banks, they suddenly seemed like a good idea.

“Because the banks weren't under pressure to show high profits, they didn't have to take big risks, either.”

Reinhard H. Schmidt, finance professor

Cuba’s Banco Popular is a savings bank that hasn’t yet issued loans but will do so after a conference run by the Savings Bank Foundation, with the central bank’s blessing. Bank employees played simulation games to practice issuing loans to restaurant and store owners for example, along with how to assess business ideas and credit worthiness.

Mr. Haasis, a former president of the German Savings Banks Association, is also training people to start their own businesses, explaining everything from business ideas to book keeping and repaying loans.

Beyond Cuba, countries as diverse as China and Ireland are also interested in Germany’s savings bank model. This comes as no surprise to Frankfurt finance professor Reinhard H. Schmidt. It’s partly because they made it through the financial crisis so effectively. “Because they weren’t under pressure to show high profits, they didn’t have to take big risks, either,” he says.

He sees the savings banks as a precursor to microfinance, a theory he outlined in his recent book “From Microfinance to Inclusive Banking – why local banking works,” co-authored with Hans D. Seibel and Paul Thomes.

In Cuba, Mr. Haasis said at the outset there was some mistrust but the foundation explained it is not working in its own interest. “We help with the development, then we pull out again,” he said, and underlined that the foundation is politically neutral.

That may be partly why the model has gained fans far and wide. In Ireland, the government is considering founding savings banks, despite the lack of a legal basis for the model. A decision on whether to set up the necessary legal framework is expected by the end of the year. Mr Haasis said it would make sense: “There are hardly any banking services in rural parts of Ireland. The banks focus on profitable business.”

While early interest in the model has faded in Greece and Estonia, in China, it is growing as the country shifts from its export-oriented economic model to reviving domestic demand. The financial sector is coming into focus and the government is keen to strengthen local financial institutions. A partnership between the German Savings Banks Association and the Chinese banking association could mean even bigger things are ahead.


Frank Drost covers Germany’s banking, politics and financial regulation. To contact the author:

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