Dear Malcolm,
Misuse is possible due to weak legislation and I beg to differ with you on this regulation issue. Contradictory and multiple regulatory provisions, combined with the fact that those provisions allow bureaucrats and politicians to interfere and control such institutions is one of the key reasons for less than optimal performance of financial coops in India. As you would know, there have been recent attempts to get progressive coop act(s) repealed in several States to sneak-in the control by the politicians. Several Cooperators are fighting this in the court and on the ground.
Interestingly, here is what WOCCU says on the first page of its regulations and supervision guide book:
Core Principles Underlying Credit Union Supervision
• Credit unions are private sector organizations and should operate free of government interference with management.
• The appropriate role of government vis-à-vis credit unions is that of legislator, regulator and prudential supervisor.
• Credit unions should be supervised by a government agency responsible for the financial sector.
WOCCU Regulation and Supervision Guidelines
As I have learnt in recent years, Coops are not public institutions though we often confuse them to be. They are as private as any private sector bank. As Prof Sriram explained to us in our class; the key difference is of 'supremacy of member/ user in a Coop' as opposed to 'supremacy of capital in a Bank'. Otherwise, Coop banks must also run prudently and profitably, appropriately supervised by a Banking/ finance department.
For example, Credit Unions in Canada are supervised and regulated by a Superintendent's office under Finance Minister of respective Provinces; and follow very stringent, financially prudent provisions and reporting requirements. Canada has the highest per-capita credit union membership in the world: 33 per cent of Canadians are a member of at least one credit union. Facts and Figures for Canadian Credit Unions/ CCA site
Rishabh' s mail below asserts that: "Indian financial cooperative system is complex in nature but it is the largest financial cooperative system in the world, in terms of people served. Together, the urban sector, three tiered short-term rural sector and credit societies serve an estimated 267 to 390 million people. This compares to the second largest financial cooperative movement in the world in China which serves approximately 200 million people (Dave Grace, WOCCU, 2008). In India, a variety of successful initiatives adopting innovative models of micro financing through cooperatives have been undertaken."
If we add 110 million women being members of SHGs, in India; then the cooperative/ collective way of accessing financial services is perhaps not as small as one may think. Good, bad or ugly; coop sector is certainly not seem to be on the fringe.
I also think that for the analysis sake, we may pitch the debate as 'private v/s cooperative'; but overall, they can and should be able to coexist; and allowed/ regulated to have their fair spaces to compete. Let the consumers choose! Robust regulations seem to be important ingredient for the success of Credit Union sector. And as we shift our thinking from microfinance to financial inclusion, credit unions and coops banks would perhaps play an important role, especially at a time when privately capitalised banks have lost some of their credibility in recent years. Coops, as Banks, will also fail but that does not reduce their legitimacy or role, I think.
Thanks Malcolm, and over to you Cooperative experts in the group! I must admit that I am still learning about the global coop finance movement.
Best regards,
Anuj
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Malcolm Harper
Sent: Tuesday, April 08, 2014 12:05 PM
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] FW: [se-mf] QUERY: Study of Financial Cooperatives in context offinancial inclusion in India - Advice; referrals. Reply by 16 April 2014
Thanks Anuj, for leading us to this interesting exchange.
In principle, of course customer ownership, cooperative, community control, the label does not matter, is the best form of ownership for a consumer financial institution of any kind, particularly one which serves poor people. It can access its money from deposits by the same people who need to borrow, and its profits can go back to those same people.
But, most microfinance is provided by private for-profit institutions, or by government controlled ones, and the same applies to financial services everywhere, those which I use here in the UK, and in the USA, most of continental Europe; they are provided by for-profit businesses.
There are some notable exceptions, but they are in the minority, and even long-established community-owned banks are not immune from problems; the UK's only major Cooperative Bank is bust through gross mismanagement, and a fair number even of Germany's wonderful 'Peoples Banks' got into trouble in the financial crisis.
But I'd suggest that the problems of India's cooperative financial institutions, of whatever kind, are not a matter of regulation, and not likely to be addressed by further 'studies'. Politicians have to stop interfering, and the members have to have some basic education. India's state education system dramatically fails to educate the mass of its people, and it's political system allows and encourages political misuse and manipulation of local institutions. Until these problems are fixed, and I fear that decent education is the key to both of them, cooperative finance will remain on the fringe.
Malcolm
From: Anuj Jain
Sent: Tuesday, April 08, 2014 2:06 PM
Subject: [MFP] FW: [se-mf] QUERY: Study of Financial Cooperatives in context offinancial inclusion in India - Advice; referrals. Reply by 16 April 2014
This is an interesting and useful conversation happening in India on Coop /Banks, coordinated by Solutions Exchange (housed within UN).
In the course of offering this subject in our certificate program at Coady, one thing has emerged strongly. Strong regulations and supervision are essential for credit unions and coop banks to flourish. CUs have flourished in Germany, Canada, Ireland… and one of the reason for their success is strong regulation and supervision.
As my cofacilitator, CS Reddy often says, poor people do not need poor institutions, they need strong financial institutions too. Jayshree Vyas of SEWA Bank often highlights how it is indeed possible for a Board of illiterate women to be highly effective and make prudent policy decision for the Bank.
I know I am among many stalwarts of Coop movement, so won't say much more. I am pleased to share this post though, with apologies in advance for cross-posting.
Best,
Anuj
From: Navin Anand [mailto:navin.anand@one.un.org]
Sent: Tuesday, April 08, 2014 5:50 AM
To: se-mf@solutionexchange-un.net.in
Subject: Re: [se-mf] QUERY: Study of Financial Cooperatives in context of financial inclusion in India - Advice; referrals. Reply by 16 April 2014
Moderators Note: Dear members, we are happy to post the first response on the query. We request our members, especially those who represent cooperative sector, to share their views on the need of the study and also on its methodology, coverage of different cooperatives and aspects to be c overed under the study.
Dear Members,
Thanks to Mr. Rishabh Sood for initiating a discussion on financial Cooperatives. In India, financial cooperatives have been playing a vital role in context of financial inclusion since 1904 and even before. Initially, it was more in rural areas through District cooperative banks and Primary Agriculture Cooperative Societies. Gradually, urban cooperative banks and thrif t and credit cooperatives started contributing for the financial inclusion in the country focusing on urban areas. After introduction of Mutually Aided Cooperative Societies Act popularly known as Self-Reliant Cooperative Act, the scenario of financial cooperatives was further widened. In the present context, the national and state level scenario of financial cooperatives is quite complex and there is no single source to get information about the status of financial cooperatives in India. Hence, it is pertinent to have a national wide study to know the status of financial cooperatives in In dia.
In the last two decades, there have been several developments in the cooperative sector such as - Emergence of Model Cooperatives Societies Act; Enactment of MACS / Self Reliant Cooperative Societies Acts in different states; Re-engineering of old Cooperative Societies Acts through Amendments in provisions; Reduction in the Government's equity and their controls; Application of Revival package for Rural Cooperative Credit Institutions ( Vaidyanathan Committee recomme ndations); Legal reforms/amendments in cooperative credit structure/societies as a result of acceptance of revival package of Short term Cooperative Credit Structure; Putting up of 106th Constitutional Amendment Bill (2006) in the Parliament suggesting states to promote "voluntary formation, autonomous functioning, democratic control & professional management "of the cooperatives societies and approval of the Union Cabinet for introduction of the Multi-State Cooperative Societies (Amendment) Bill, 2010 in the Parliament. The recent development in the cooperative scenario was that two state governments - MP and Odisha repealed the liberal cooperative laws in their states. In the context of 97th Constitutional Amendment, liberal cooperative laws that are existing in several states are either amended or deemed to be amended to be in line with the 97th Amendment.
In terms of adoption and implementation of cooperative Acts, the existing legal scenario in different states can be classified into four categories –
· States having Self Reliant as well as the old Cooperative Societies Act
· States having only Self Reliant Act
· States having re-engineered Single Cooperative Societies Act
· ; States having more or less the same old Act
Observations and suggestions about the study: Possible Sample Frame
Keeping in view the complex scenario of the financial cooperatives in India, it is difficult to come out with a simple sample frame for the study. In terms of sample frame, following could be some options to classify and select samples organisations for the study:
· Multi-purpose cooperatives/ Thrift and credit cooperatives functioning as federation of SHGs : In context of financial inclusion, the most important sample of the study could be - various SHG Federations registered under cooperative Acts. The study of such federations is important to know the suitability of co operative Acts as an appropriate legal entity for the federations that are functioning as financial intermediaries or financial as well as non-financial intermediaries. Here, it will be important to analyse the Acts, rules and regulations, and Byelaws of various financial/ Multi-purpose cooperatives in terms of their suitability for the growth and sustainability of the federation. Secondly, it can be seen from the business point of view - Whether, financial cooperatives provides scope to opt for providing range of products and services to the members.
· Cooperative banks registered under traditional cooperative Acts at the rural levels : The second type of financial cooperatives to be studied could include - State cooperative Banks, State Agriculture and rural development Banks, Primary Cooperative Agriculture and Rural Development Bank (PCARDBs), District cooperative Banks having special focus on Micro financing and functioning as Self-Help Promotion Institution.
· Urban Cooperative Banks registered under traditional Acts or Self-Reliant Cooperative Acts or Multistate cooperative Societies Act – Urban cooperative Banks (all women as well as general) working in a particular state with focus on financial inclusion can be good samples for the study. A variety of such banks could be - all women urban cooperative banks ( i.e. SEWA Bank), urban cooperative banks working beyond one state ( i.e. Cosmos Bank, Saraswat Bank), urban cooperative banks having innovative products/ mechanism to deliver services (i.e. Cuttack Urban Cooperative Bank)
· Rural/Urban Thrift and Credit Cooperatives - There are example of thrift and credit cooperatives that functions directly with the members to provide financial services directly to the members. There are possibilities of SHGs also associated with such cooperatives, however these cooperatives are not functioning as SHG federations. Such cooperatives can also be taken up under the study.
· Primary Agriculture Cooperative Societies - Some of the Primary Agriculture Cooperative Societies that are functioning as SHPIs and catering to the needs of the poor also needs to be covered under the study. These primary societies are also engaged in creating and strengthening SHGs. Some PACS are functioning as Business Correspondents. It will be useful to study selected PACS that are contributing for the financial inclusion.
· Women Cooperative Banks – There are examples of several new age women banks such as Mann Deshi Mahila Sahakari Bank (MDMSB), Bhagini Nivedita Sahakari Bank Limited, Pune that are registered under Multi State Cooperative Societies Act and contributing to financial inclusion initiative. Selected banks can be studied to understand the financial inclusion aspects and product and services being offered by these banks.
Under the study, it will be good to understand the existing financial cooperative system in context of financial inclusion. While a macro level analysis of the regulatory and management scenario of financial cooperatives and support available from various sources including NABARD and Government of India/state governments is useful, micro level analysis of various cooperatives in terms of their products and services, delivery mechanism, coverage in term of inclusion has its own importance to know the success factors and gaps that are existing in the value chains.
Besides cooperative Banks, some of the cooperatives that are worth studying may include:
· Al-Khair Cooperative Credit Society, Patna (A cooperative model of 'Interest-free' Micro financing) ;
· Annapurna Mahila Cooperative Credit Society, Mumbai; (A successful women thrift and credit coop.)
· Rawain Women's Multipurpose Autonomous Cooperative Society Ltd. (RWMACS), Uttarkashi (promoted by Himalayan Action Research Centre, Uttarakhand)
· Marwar Sharia Co-operative Credit and Savings Society, Jodhpur (A thrift and credit cooperative of minorities established by the Marwar Muslim Educational and Welfare Society) ;
· Indian Cooperative Network for Women (promoted by Working Women's Forum), Chennai (A unique multipurpose women cooperative registered under multi state cooperative Societies Act, 1984) ;
· Ankuram Sangamam Poram, Hyderabad
There are very few financial cooperatives that are activity specific such as National Insurance Vimosewa Cooperative Ltd. This is a society registered under Multi State Cooperative Societies Act and promoted by SEWA Ahmedabad. Study of such cooperatives can also add value in various terms especially in terms of knowing aspects of sustainability of these cooperatives and effectiveness of services provided by such institutions.
While sketching the methodology of the study, it will be good to cover different geographies as the cost of delivery in mountain and remote areas and business volume is always different compared to other areas.
These are my initial remarks on the study.
Regards,
Navin Anand
Microfinance Community, Solution Exchange
United Nations, New Delhi
From: Rishabh Sood [mailto:rishabh.sood@rabobank.com]
Sent: 03 April 2014 10:17
To: se-mf@solutionexchange-un.net.in
Subject: [se-mf] QUERY: Study of Financial Cooperatives in context of financial inclusion in India - Advice; referrals. Reply by 16 April 2014
Moderators Note: Dear members, we are h appy to initiate a query that focuses on the need of studying financial cooperative system of India and documenting successful financial cooperatives in context of financial inclusion. The query seeks your inputs and feedback on the framework of the study, methodology, sample frame and areas/issues that needs to be covered in the study. The current query also seeks your suggestions on various types and level of financial cooperatives/banks that can be taken up under the study. Your inputs on the names and contact details of the successful financial cooperatives are also required so that case studies of such institutions can be taken by under the study. We profusely thank Mr. Rishabh Sood, Rabo India Finance, Gurgaon for initiating this query. We look forward to your valuable inputs.
Dear members,
The importance of financial cooperatives in the world of financial services cannot be underestimated. They are the most widespread type of cooperatives – an estimated 950,000 of them serving over 850 million people, i.e., 13 percent of the world's population.1 In Europe alone there are 4200 local cooperative banks, around 60,000 branches that account for 20 per cent mark et share. The banks serve 45 million members and 159 million customers.2 In the context of inclusive development, cooperatives are critical institutions for both social and financial inclusion. Whereas the social inclusion issue is addressed by sub-sectoral and service cooperatives, savings and credit cooperatives function as inclusive financial intermediaries. Cooperatives play a significant role in the provision of microfinance services to the poor, globally. They reach out to close to 80 million people living below $2 a day.
As per ILO publication " ;Resilience of cooperative Business Model in Times of Crisis" - Saving and Credit cooperatives also known as credit unions or SACCOs, building societies and cooperative banks all over the world are reporting that they are still financial sound, and that customers are flocking to bank with them because they are highly trusted.
It is a fact that financial cooperatives including Credit Unions are the first and original microfinance institutions in the world. The present financial cooperatives existing in the form of credit unions, thrift and credit cooperatives, Primary Agriculture Credit Cooperatives (PACS), rural and urban cooperative banks etc. are in one way or the other based on the lessons drawn from the well-k nown models promoted by Raiffeisen, Shultze – Delitzsch, Dr. Wollemborg, Desjardins and Rochdale pioneers.
Indian financial cooperative system is complex in nature but it is the largest financial cooperative system in the world, in terms of people served. Together, the urban sector, three tiered short-term rural sector and credit societies serve an estimated 267 to 390 million people. This compares to the second largest financial cooperative movement in the world in China which serves approximately 200 million people (Dave Grace, WOCCU, 2008). In India, a variety of successful initiatives adopting innovative models of micro financing through cooperatives have been undertaken. Few well-known models of micro financing through cooperatives are - Cooperative Development Foundation (CDF Model), SEWA BANK (Urban Cooperative Bank promoted and owned by Women), Cuttack Urban Cooperative Bank (Urban microfinance model), Bidar DCCB (SHG Linkage Model), Karnataka and other successful PACS-SHG linkage models in different states. Besides these models, a variety of SHG-federations have also emerged at various levels with a legal entity of cooperatives undertaking financial services, non-financial services or both.
On various forums, including Microfinance India Summit 2013, it is being realised that there is a need to do an i n-depth study of financial cooperatives in India to - identify the regulatory gaps that are existing in different cooperative Acts in context of financial inclusion; Document the successful financial cooperatives including Primary Agriculture Cooperative Societies (PACS), Cooperatives functioning as federations of SHGs and also cooperative Banks (traditional as well as new age); and also to analyse the value chains of various microfinance services (savings, credit, insurance/micro-pensions, remittances and Micro leasing) as well as financial management and governance related issues of cooperatives.
With this background, we request the members of Microfinance Community of Practice to share their views and suggestions on:
· Need of studying financial cooperative system and documenting successful financial cooperatives in context of financial inclusion – Key aspects to be covered in the study
· Term s of Reference of the study – Study Framework, methodology, Sample frame, coverage, areas/issues of study
· Various types and level of financial cooperatives/banks that can be taken up under the study – Examples of some successful financial cooperatives
Your inputs and suggestions will not only confi rm the need of taking up a national level study but also help in developing Terms of Reference for the study.
Looking forward to your valuable inputs,
Rishabh Sood
Rabo India Finance
Gurgaon
1 Report of Secretary General, United Nations on 'Cooperatives in Social Development', 13 July, 2009 (http://www.copacgva.org/publications/un/a64132e.pdf)
2 De Vries B ( 2009) European Cooperative Banks in financial and economic turmoil, Paper for the UN Expert Group Meeting on Cooperatives , April, New York
1 Report of Secretary General, United Nations on 'Cooperatives in Social Development', 13 July, 2009 (http://www.copacgva.org/publications/un/a64132e.pdf)
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