The microcredit revolution:
The Finance Ministry is advocating a revolutionary plan to turn local post offices throughut the country into sources of credit for households and small businesses. The plan aims particularly at small and relatively isolated towns.
The branches would accept deposits, as do Postal Bank outlets at this time. The innovation is that they would also provide credit services to citizens who find it difficult to obtain credit from Israel's regular commercial banks.
The plan was disclosed by the Finance Ministry Director General Yoram Ariav in an interview with TheMarker, who will be stepping down on Sunday. The plan is based on a strategic program that was commissioned by the Finance Ministry from Rotem Strategies, belonging to businessman Ze'ev Rotem.
The model is based on the microcredit program famously implemented in Bangladesh by Nobel Peace laureate (2006) Professor Muhammad Yunus through Grameen Bank, to alleviate poverty through microcredit.
"People living in peripheral towns are captives of a single bank branch, operating in their vicinity. The Postal Bank will be able to use its post office branch in towns like that to accept deposits, and also to extend credit to households and small businesses," Ariav says.
Ariav's plan replaces a move to privatize the Israel Postal Service.
The postal bank will not be licensed to operate a bank independently, Ariav clarifies, because requisite qualifications demanded by the Bank of Israel are prohibitively high.
Subject to this stipulation, postal branches will operate as bank branches for private enterprises, primarily credit card and insurance companies. The companies will be chosen through tenders issued by the Finance Ministry.
These companies will enjoy the Postal Service's broad geographical distribution of 700 branches throughout Israel, and have access to that entire population, including citizens who do not currently maintain an account at any bank, Ariav says.
It is well known that banks prefer not to do business with poor populations or small businesses, in part because of the intense and costly operational effort involved.
The Postal Service already manages 250,000 checking deposits, mainly belonging to people from the Haredi, Arab and foreign laborer communities. In other words this business comes primarily from members of lower socio-economic strata who live in outlying areas and cannot open a bank account.
The Finance Ministry intends to develop deposit and checking account management operations, and transform them into regular services in bank branches. To this end it is promoting legislation that will allow the postal bank to accept various time deposits and pay out interest on them.
Deposits at the postal bank do not currently pay interest.
The new accounts would include checking account deposits for paying day-to-day bills, and for savings.
In addition to deposits and checking account management, the plan will enable the postal bank to extend microcredit for terms of a few years to households and small businesses. The credit would not come from the postal branches but from credit companies. However, the customers will receive the funds directly from the postal branches.
The Israel Postal Service already operates a similar initiative in cooperation with the Visa C.A.L. credit company. Such cooperation allows customers to receive small-scale credit (up to a few thousand shekels) at post office branches, after a brief review by Visa C.A.L.
Credit operations at the postal bank are likely to be guaranteed by the state. The government is considering the possibility of extending deposit insurance to the postal bank to encourage deposits there.
If the plan is implemented it will be the only official deposit insurance provided by the state.
At this stage the state does not intend to undertake the credit risk itself. Another possibility under consideration is to operate existing credit funds operating with state guarantees, i.e., the small business fund and the mid-size business fund, through postal branches.