Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit unions, mutual savings banks, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses.
Institutions
Cooperative banks
Cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote. Co-operative banks are often regulated under both banking and cooperative legislation. They provide services such as savings and loans to non-members as well as to members, and some participate in the wholesale markets for bonds, money and even equities.[1] Many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members. Member control can be diluted by these outside stakes, so they may be regarded as semi-cooperative.
Cooperative banking systems are also usually more integrated than credit union systems. Local branches of co-operative banks select their own boards of directors and manage their own operations, but most strategic decisions require approval from a central office. Credit unions usually retain strategic decision-making at a local level, though they share back-office functions, such as access to the global payments system, by federating.
Some cooperative banks are criticized for diluting their cooperative principles. Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to require that members must control both the governance systems and capital of their cooperatives. A cooperative bank that raises capital on public stock markets creates a second class of shareholders who compete with the members for control.
By region
Canada
In Canada, cooperative banking is provided by credit unions (caisses populaires in French). As of September 30, 2012, there were 357 credit unions and caisses populaires affiliated with Credit Union Central of Canada. They operated 1,761 branches across the country with 5.3 million members and $149.7 billion in assets.[4]
Quebec
The caisse populaire movement started by Alphonse Desjardins in Quebec, Canada, pioneered credit unions. Desjardins opened the first credit union in North America in 1900, from his home in Lévis, Quebec, marking the beginning of the Mouvement Desjardins. He was interested in bringing financial protection to working people.
United Kingdom
British building societies developed into general-purpose savings and banking institutions with ‘one member, one vote’ ownership and can be seen as a form of financial cooperative (although many de-mutualised
Microcredit and microfinance
The recent phenomena of microcredit and microfinance are often based on a cooperative model. These focus on small business lending. In 2006, Muhammad Yunus, founder of the Grameen Bank in Bangladesh, won the Nobel Peace Prize for his ideas regarding development and his pursuit of the microcredit concept. In this concept the institution provides micro loans to people who couldn't otherwise secure loans through conventional means.
However, cooperative banking differs from modern microfinance. Particularly, members’ control over financial resources is the distinguishing feature between the cooperative model and modern microfinance. The not-for-profit orientation of modern microfinance has gradually been replaced by full-cost recovery and self-sustainable microfinance approaches. The microfinance model has been gradually absorbed by market-oriented or for-profit institutions in most underdeveloped economies. The current dominant model of microfinance, whether it is provided by not-for-profit or for-profit institutions, places the control over financial resources and their allocation in the hands of a small number of microfinance providers that benefit from the highly profitable sector.
Cooperative banking is different in many aspects from standard microfinance institutions, both for-profit and not-for-profit organizations. Although group lending may seemingly share some similarities with cooperative concepts, in terms of joint liability, the distinctions are much bigger, especially when it comes to autonomy, mobilization and control over resources, legal and organizational identity, and decision-making. Early financial cooperatives founded in Germany were more able to provide larger loans relative to the borrowers’ income, with longer-term maturity at lower interest rates compared to modern standard microfinance institutions. The main source of funds for cooperatives are local savings, while microfinance institutions in underdeveloped economies rely heavily on donations, foreign funds, external borrowing, or retained earnings, which implies high-interest rates.
List of cooperative banking institutions
Impact
2008 financial crisis
A 2013 report by ILO concluded that cooperative banks outperformed their competitors during the 2008 financial crisis. The cooperative banking sector had a 20% market share of the European banking sector, but accounted for only 7% of all the write-downs and losses between the third quarter of 2007 and first quarter of 2011. Cooperative banks were also over-represented in lending to small and medium-sized businesses in all of the 10 countries included in the report.[28]
Credit unions in the US had five times the lower failure rate of other banks during the crisis[9] and more than doubled lending to small businesses between 2008 and 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion.[10]
See also
- Building society
- Credit union
- Mutual savings bank
- Rotating savings and credit association
- Savings and loan association
- List of European cooperative banks
Further reading
External links
- International Co-operative Banking Association, a sectoral organization of the International Co-operative Alliance
- The European Association of Cooperative Banks
- NCB
- Co-operative Banks in India
- CIBP
- The Kelly Review
- Cooperative Banking in Canada
References
- The Co-operative Bank of the UK strictly limits its borrowing from the markets, according to an October 2008 statement : “... we do not borrow in the financial markets in order to lend. Our lending capital is generated from customers' investments and savings, leaving us a good deal less exposed to the vagaries of the market than many of the major lenders.”^
- E.g., 12 U.S.C. § 1752(1), available at ; CUNA Model Credit Union Act § 0.20 (2007); see also 12 U.S.C. § 1757, available at ; CUNA Model Credit Union Act § 3.10 (2007). Archived copy retrieved 2009-05-05 Archived copy retrieved 2009-05-05^