Cooperative banking Totally Explained

Everything about Cooperative Banking totally explained

Cooperative banks, also called mutual savings and loans, exist in most parts of the world. They offer financial services on a cooperative basis.
Like credit unions, cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote. Unlike credit unions however, cooperative 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. Many cooperative banks are traded on public stock markets, meaning that they're partially owned by non-members.
Cooperative banking systems are also usually more integrated than credit union systems. Local branches of cooperative banks elect their own boards of directors and manage their own operations, but most strategic decisions require approval from the central office. Credit unions usually retain strategic decision-making at a local level, though they share 'back-office' functions like access to the global payments system by federating.

In North America

In North America, the caisse populaire movement started by Alphonse Desjardins in Quebec, Canada pioneered credit unions. Desjardins wanted to bring desperately needed financial protection to working people. In 1900, from his home in Lévis, Quebec, he opened North America's first credit union, marking the beginning of the Mouvement Desjardins.

In Europe

UK

British Building Societies developed into general-purpose savings & banking institutions with "one member, one vote" ownership and can be seen as a form of financial cooperative (although many 'de-mutualised' into conventionally-owned banks in the 1980s & 1990s). The UK Co-operative Group includes both an insurance provider CIS and the Co-operative Bank, both noted for promoting ethical investment.

Continental Europe

Other important European cooperative banking systems include the Crédit Agricole, Crédit Mutuel, Banque Populaire and Caisse d'épargne in France, Rabobank in the Netherlands, BVR/DZ Bank in Germany, Federcasse and Banca Popolare di Milano in Italy, Migros and Coop Bank in Switzerland and the Raiffeisen system in many Central and Eastern European countries. Spain, Austria, Poland and other European countries also have strong cooperative banks. They play an important role in providing mortgage and business credit. The cooperative banks that are members of the European Association of Co-operative Banks have 130 million customers, $4 trillion euros in assets, and 17% of Europe's deposits.
Cooperative banking networks, which were nationalized in Eastern Europe, work now as real cooperative institutions. The 584 cooperative banks in Poland have more than 9% share of Polish banking system. They have nearly 14 billion dollars in assets and have nearly 3,700 outlets.
In Scandinavia, there's a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank).

In Asia and other continents

India

The origins of the cooperative banking movement in India can be traced to the close of nineteenth century when, inspired by the success of the experiments related to the cooperative movement in Britain and the cooperative credit movement in Germany, such societies were set up in India. Co-operative banks are an important constituent of the Indian Financial System.
   In the Indian Banking System, Co-operative banks in India are known for its rural reach and form the primary financiers of agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities.
   Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
   The Anyonya Co-operative Bank in India is considered to be the first cooperative bank in Asia.

Others

The more recent phenomena of Microcredit and microfinance are often based on a cooperative model and were first developed in third world countries, but are quickly spreading to the rest of the world. They focus on small business lending. In 2006, Muhammad Yunus founder of the Grameen Bank in Bangladesh won the Nobel Peace Prize for his development and pursuit of the microcredit concept.

Criticism

Cooperative banks are often criticised for dilution of cooperative principles. Principles 2-4 of the Statement on the Co-operative Identity assert 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. In some circumstances, the members may lose control. This effectively means that the bank ceases to be a cooperative. Accepting deposits from non-members can also lead to a dilution of member control.

Further Information

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