‘It gives clients a say in running of the business, improves people’s lives’
he annual GBS Mutual Bank dinner in Port Alfred is always a highly anticipated affair, with staff from the highly respected 141-year-old institution mingling and chatting with long-time clients from the coastal area.
As usual, Naartjie and Cheryl Moss catered the dinner to perfection, with superb food and inviting décor. Forgoing the usual recounting of the bank’s figures, new chairman of the board Prof Owen Skae delved into the origins and history of mutual banking.
He said his research arose from asking himself, “What is the purpose of a mutual bank and is there a future for it?”
He found valuable insights in Franklin J Sherman’s book,
Tpublished in 1934. The genesis of mutual banks came from the “Friendly Societies” established to help the sick and poor. The earliest of these might have been the Incorporation of Carters in Leith in 1555.
“From other sources I have read, the ‘Friendly Bank’ concept first arose in Switzerland in the 1700s and then spread to the United Kingdom in the 1800s,” Skae said. “Nevertheless, the best historical account that I have come across is Sherman, who highlights the role played by Dr [Rev] Henry Duncan who established a savings bank in Ruthwell, Scotland in 1810, primarily due to his questioning of the legitimacy of Friendly Societies, no less than the one founded in Ruthwell in 1796.
Similar savings banks were established in Germany, France and Switzerland over the period 1765 to 1796, but Sherman was of the view that they did not meet the definition of a true savings bank.
Duncan’s efforts soon saw widespread development of the concept. A savings bank was founded in Edinburgh in 1814, the Provident Institution for Savings in 1816 by James Savage (the first in the world by legal charter), the Bank for Savings in New City in 1819 by philanthropist Thomas Eddy, after consultation with his friend Patrick Colquhon, a London magistrate, and then The Institution for Savings for the Town of Portland and Vicinity in Maine in 1819.
Mutual (“mutually beneficial”) savings banks began primarily for wage-earners and seamen.
They also created a savings outlet for people outside of mainstream business, such as women. “Simply put, a mutual bank’s purpose is for the benefit of the depositors who have a say in the running of the bank. Why is this important?” Skae asked.
“If we consider the US, mutual banks are seen to be safe institutions. According to America’s Mutual Banks (AMB), there are 494 mutual banks in 45 states and at March 31 they had total assets of $374bn (R5.4-trillion). Their website reports that ‘since February 2007, over 525 financial institutions with over $800bn (R12-trillion) in total assets have failed. Of those, only 20 were mutual institutions with total assets of approximately $3bn (R43bn)’.”
Mutual banks generally stick to providing the basic banking services required by a community, like retail services and products, checking and savings products and make home loans, other consumer loans and loans for local businesses, Skae explained.
Mutuals generally did not engage in those activities recognised as causing the financial crisis that began in the northern hemisphere autumn of 2008.
Customer satisfaction with mutual banks is reported in both the UK and Australia.
“The visionaries who conceived of savings banks, whether men of the cloth or philanthropists, or just wanting to give people a better deal, did so because they saw a purpose to achieve a better life for members of their community.
“It is the bedrock of mutuality and it is why we stand before you today,” Skae said. “Hence my view is now more steadfast than ever that mutual banks are necessary and in fact essential to the development of our economy.”
BANKING LEGACY: GBS Mutual Bank chairman Prof Owen Skae, left, and CEO Anton Vorster, right, with Elizabeth Cooper, the daughter of former GBS chairman Kyle Stone and sister of another former chairman, Chris Stone, at the bank’s annual Port Alfred dinner