Cooperative banking is retail and commercial banking organized on a
cooperativeA cooperative is defined by the International Co-operative Alliance's Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and...
basis.
Cooperative
banking institutionA banking institution provides banking services.They include:* Banks* Credit unions* Savings and loan association* Building societies* Non-banking financial company* Some insurance companies...
s take deposits and lend money in most parts of the world.
Cooperative banking (for the purposes of this article), includes retail banking, as carried out by credit unions, mutual savings and loan associations, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses.
Definition of a cooperative bank (Source : ICBA, International Cooperative Banks Association)
A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts…).
Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. In most countries, they are supervised and controlled by banking authorities and have to respect prudential banking regulations, which put them at a level playing field with stockholder banks. Depending on countries, this control and supervision can be implemented directly by state entities or delegated to a co-operative federation or central body. Even if their organizational rules can vary according to their respective national legislations, co-operative banks share common features:
•
Customer-owned entities : in a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximise profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services.
•
Democratic member control : co-operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co-operative principle of “one person, one vote”.
•
Profit allocation : in a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co-operative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the co-operative’s products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member.
Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present – SMEs, farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people. They play an influential role on the economic growth in the countries in which they work in and increase the efficiency of the international financial system. Their specific form of enterprise, relying on the above-mentioned principles of organization, has proven successful both in developed and developing countries.
Credit unions
Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.
Credit union members are usually required to share a
common bondThe bond of association or common bond is a basic building block of credit unions and co-operative banks. Common bonds substitute for collateral in the early stages of financial system development...
, such as locality, employer, religion or profession.
Credit unions are usually funded entirely by member deposits, and avoid outside borrowing.
They are typically (though not exclusively) the smaller form of cooperative banking institution.
In some countries they are restricted to providing only unsecured personal loans, whereas in others, they can provide business loans to farmers, and mortgages.
Cooperative banks
Larger institutions are often called
cooperative banks.
Some of these banks are tightly integrated federations of credit unions, though those member credit unions may not subscribe to all nine of the strict principles of the
World Council of Credit UnionsThe World Council of Credit Unions, Inc. is a worldwide trade association and development agency for credit unions.Members of the World Council include regional and national credit union associations, cooperative associations and business service organizations...
(WOCCU).
Like credit unions, cooperative banks are owned by their customers and follow the
cooperative principleThe Rochdale Principles are a set of ideals for the operation of cooperatives. They were first set out by the Rochdale Society of Equitable Pioneers in Rochdale, England, in 1844, and have formed the basis for the principles on which co-operatives around the world operate to this day. The...
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, and some participate in the wholesale markets for bonds, money and even equities. Many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members.
Member control is 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 cooperative banks elect 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 dilution of cooperative principles. Principles 2-4 of the
Statement on the Co-operative IdentityThe Statement on the Co-operative Identity, promulgated by the International Co-operative Alliance , defines and guides co-operatives worldwide. It contains the definition of a co-operative as a special form of organization, the values of co-operatives, and the currently accepted cooperative...
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. In some circumstances, the members may lose control. This effectively means that the bank ceases to be a cooperative. Accepting deposits from non-members may also lead to a dilution of member control.
Building societies
Building societies exist in Britain, Ireland and several Commonwealth countries.
They are similar to credit unions in organisation, though few enforce a
common bondThe bond of association or common bond is a basic building block of credit unions and co-operative banks. Common bonds substitute for collateral in the early stages of financial system development...
.
However, rather than promoting thrift and offering unsecured and business loans, their purpose is to provide home mortgages for members.
Borrowers and depositors are society members, setting policy and appointing directors on a one member one vote basis.
Building societies often provide other retail banking services, such as current accounts, credit cards and personal loans.
In the United Kingdom, regulations permit up to half of their lending to be funded by debt to non-members, allowing societies to access wholesale bond and money markets to fund mortgages.
The world's largest is Britain's
Nationwide Building SocietyNationwide Building Society is a British building society, that is, as of 2009, the largest in the world. It has its headquarters in Swindon, England, and maintains a significant administration centre in Northampton. It is the only UK building society to clear its own cheques...
.
Others
Mutual savings bankA mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, bonds and other securities....
s and mutual
savings and loan associationA savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
s were very common in the 19th and 20th centuries, but declined in number and market share in the late 20th century, becoming globally less significant than cooperative banks, building societies and credit unions.
Trustee savings bankThe Trustee Savings Bank, or TSB as it was commonly known, was a British financial institution which specialised in accepting savings deposits from the poor. They did not trade their shares on the stock market and, unlike mutually held building societies, depositors had no voting rights nor the...
s are similar to other savings banks, but they are not cooperatives, as they are controlled by trustees, rather than their depositors.
International associations
The most important international associations of cooperative banks, both based in Brussels, are the
CIBPInternational Confederation of Popular Banks The International Confederation of Popular Banks , founded in 1950 in Paris, is an international, non-governmental organisation recognised by the United Nations, which associates banking and financial institutions and organisations whose aim is to...
(International Association of Cooperative Banks), which has member institutions from all around the world, and the
European Association of Co-operative BanksThe European Association of Co-operative Banks is the supranational body for co-operative banks, with member national governing bodies in 23 countries and an associate member in Switzerland....
.
List
Notable cooperative banking institutions
| Name | Country | Members
(2007) |
|---|
Assets
(2007 US$ millions) !! Type !! Alternative name !! Notes |
Crédit AgricoleCrédit Agricole SA is the largest retail banking group in France, second largest in Europe and the eighth largest in the world by Tier 1 capital according to The Banker magazine...
|
France |
|
|
Joint stock bank |
CASA |
Majority owned by federation of credit unions |
DZ BankAn acronym for Deutsche Zentralgenossenschaftbank or German Central Co-operative Bank, DZ Bank AG is a commercial bank and, together with WGZ-Bank, the central administration for approximately 1,400 co-operative banks or credit unions covering more than three quarters of all Volksbank and...
|
Germany |
|
|
Bank |
Deutsche Zentralgenossenschaftbank
German Central Cooperative Bank |
owned by three quarters of all Volksbank and Raiffeisenbank (cooperative banks) in Germany and Austria |
| Caisse d'Epargne |
France |
|
|
|
literally “savings bank” |
Credit union federation |
| Rabobank Rabobank is a financial services provider with offices worldwide. Their main location is in the Netherlands. They are a global leader in Food and Agri financing and in sustainability-oriented banking...
|
Netherlands |
1,500,000+ |
|
|
|
Credit union federation |
Nationwide Building SocietyNationwide Building Society is a British building society, that is, as of 2009, the largest in the world. It has its headquarters in Swindon, England, and maintains a significant administration centre in Northampton. It is the only UK building society to clear its own cheques...
|
UK |
|
|
Building society |
|
World's largest building society |
Groupe Banque PopulaireGroupe Banque Populaire is a French Group of cooperative banks. It is controlled by 18 regional banks, the CASDEN Banque Populaire and the Crédit Coopératif....
|
France |
3,400,000 |
|
|
|
|
| Desjardins Group |
Canada |
5,795,277 |
|
Credit union federation |
|
Leading bank in Quebec |
| Raiffeisen Zentralbank |
Austria |
|
|
Bank |
RZB Österreich |
Credit union federation |
| Nonghyup The National Agricultural Cooperative Federation is a federation of agricultural cooperatives in South Korea.It delivers supply, processing, marketing, and banking services through more than 4000 branches...
|
South Korea |
|
|
Banking division of agricultural cooperative |
National Agricultural Cooperative Federation (NACF) |
Approx US$230 billion in loans |
| ICCREA |
|
|
|
|
|
|
| Raiffeisen Schweiz |
Switzerland |
|
|
|
|
Credit union federation |
| Banco Cooperativo Español and Caja Rural |
Spain |
|
|
|
|
|
| OP-Pohjola Group and Pohjola Bank OP-Pohjola Group comprises 229 independent member co-operative banks and the Group's statutory central institution, OP Bank Group Central Co-operative.The subsidiaries of the OP Bank Group Central Co-operative and their products:...
|
Finland |
|
|
|
|
31% share of Finnish credit market, and 32% share of savings and deposit market |
Co-operative BankThe Co-operative Bank plc is a commercial bank in the United Kingdom and Guernsey, with its headquarters in Manchester.The bank markets itself as an ethical bank, and refuses to invest in companies involved in the arms trade, global climate change, genetic engineering, animal testing and use of...
|
UK |
Not applicable |
|
Bank |
|
Subsidiary of consumer cooperative |
| Navy Federal Credit Union Navy Federal Credit Union is a credit union headquartered in Vienna, Virginia, chartered and regulated under the authority of the National Credit Union Administration of the U.S. federal government. Navy Federal is the largest natural member credit union in the world, both in asset size and in...
|
US |
3,004,352 |
33012 |
Credit union |
|
World's largest natural member credit union |
Shared InterestShared Interest Society Limited is a fair trade financial co-operative based in the United Kingdom formed in 1990. Today it provides credit and financial services to fair trade producers, retailers, importers and exporters throughout the world. Shared Interest works with both Fairtrade Labelling...
|
UK |
|
|
Cooperative lending society |
|
Finance for fair trade Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries and promote sustainability. The movement advocates the payment of a higher price to producers as well as social and environmental standards in areas related to the production of...
|
Quebec
The
caisse populaire movement started by
Alphonse DesjardinsGabriel-Alphonse Desjardins , born in Lévis, Quebec, was the co-founder of the Caisses Populaires Desjardins , a forerunner of North American credit unions and community banks.- Early life :...
in
QuebecQuebec is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking identity and the only one whose sole official language is French at the provincial level....
,
CanadaCanada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean...
, pioneered credit unions. Desjardins wanted to bring desperately needed financial protection to working people. In 1900, from his home in
Lévis, QuebecLévis is a city in eastern Quebec, Canada. It is located on the south shore of the St. Lawrence River, opposite Quebec City. A ferry links Old Quebec with Old Lévis, and two bridges, the Quebec Bridge and the Pierre Laporte Bridge, connect western Lévis with Quebec City...
, he opened the first credit union in North America, marking the beginning of the
Mouvement DesjardinsThe Desjardins Group is the largest association of credit unions in North America. It was founded in 1900 in Lévis, Québec by Alphonse Desjardins....
.
United Kingdom
British
building societiesA building society is a financial institution, owned by its members, that offers banking and other financial services, especially mortgage lending....
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 some
de-mutualisedDemutualization is the process by which a customer-owned mutual organization or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form...
into conventionally owned banks in the 1980s and 1990s). The UK Co-operative Group includes both an
insuranceInsurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
provider, the
CIS, and the
Co-operative BankThe Co-operative Bank plc is a commercial bank in the United Kingdom and Guernsey, with its headquarters in Manchester.The bank markets itself as an ethical bank, and refuses to invest in companies involved in the arms trade, global climate change, genetic engineering, animal testing and use of...
, both noted for promoting ethical investment.
Continental Europe
Important continental cooperative banking systems include the
Crédit AgricoleCrédit Agricole SA is the largest retail banking group in France, second largest in Europe and the eighth largest in the world by Tier 1 capital according to The Banker magazine...
, Crédit Mutuel, Banque Populaire and Caisse d'épargne in France,
RabobankRabobank is a financial services provider with offices worldwide. Their main location is in the Netherlands. They are a global leader in Food and Agri financing and in sustainability-oriented banking...
in the Netherlands, BVR/
DZ BankAn acronym for Deutsche Zentralgenossenschaftbank or German Central Co-operative Bank, DZ Bank AG is a commercial bank and, together with WGZ-Bank, the central administration for approximately 1,400 co-operative banks or credit unions covering more than three quarters of all Volksbank and...
in Germany,
Banco PopolareBanco Popolare is an Italian cooperative bank, formed in 2007 from the merger of Banco Popolare di Verona e Novara and Banca Popolare Italiana . In June 2009 the company became the first Italian bank to receive state aid from the Government of Italy due to the ongoing financial crisis. It sold...
,
UBI BancaUnione di Banche Italiane S.c.p.A., branded as UBI Banca , is the fifth-largest banking group in Italy by both market capitalisation and number of branches. The firm is primarily a holding company for a number of Italian cooperative banks, although it also controls the publicly-traded online bank...
and
Banca Popolare di MilanoBanca Popolare di Milano is an Italian cooperative bank.-History:The second cooperative bank in Italy , it was founded in 1865 in Milan by Luigi Luzzatti, who later served as the nation's Prime Minister...
in Italy,
MigrosMigros is one of Switzerland's largest enterprises, its largest supermarket chain and largest employer. It co-founded Turkey's largest retailer, Migros Türk, which became independent of Migros Switzerland in 1975....
and Coop Bank in Switzerland, and the
RaiffeisenRaiffeisen Zentralbank is a co-operative bank based and founded in Austria and operating throughout central and eastern Europe. The bank has been led by Walter Rothensteiner since 2003....
system in several countries in central and eastern Europe. The cooperative banks that are members of the
European Association of Co-operative BanksThe European Association of Co-operative Banks is the supranational body for co-operative banks, with member national governing bodies in 23 countries and an associate member in Switzerland....
have 130 million customers, 4 trillion euros in assets, and 17% of Europe's deposits.
The International Confederation of Cooperative Banks (CIBP) is the eldest association of cooperative banks at international level.
In
ScandinaviaThe Nordic countries make up a region in Northern Europe and the North Atlantic which consists of Denmark, Finland, Iceland, Norway and Sweden and their associated territories which include the Faroe Islands, Greenland and Åland...
, there is a clear distinction between
mutual savings bankA mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, bonds and other securities....
s (Sparbank) and true credit unions (Andelsbank).
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. Cooperative banks are an important constituent of the Indian financial system. They are the primary financiers of agricultural activities, some small-scale industries and self-employed workers. The Anyonya Co-operative Bank in India is considered to have been the first cooperative bank in Asia.
Microcredit and microfinance
The more recent phenomena of
MicrocreditMicrocredit is the extension of very small loans to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit...
and
microfinanceMicrofinance refers to the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services....
are often based on a cooperative model They focus on
small businessA small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. The legal definition of "small" often varies by country and industry, but is generally under 100 employees in the United States and under 50 employees in the...
lending.. In 2006,
Muhammad YunusMuhammad Yunus is a Bangladeshi banker and economist. He previously was a professor of economics where he developed the concept of microcredit. These loans are given to entrepreneurs too poor to qualify for traditional bank loans. Yunus is also the founder of Grameen Bank...
, founder of the
Grameen BankThe Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans to the impoverished without requiring collateral. The word "Grameen", derived from the word "gram" or "village", means "of the village"...
in Bangladesh, won the
Nobel Peace PrizeThe Nobel Peace Prize is one of the five Nobel Prizes bequeathed by the Swedish industrialist and inventor Alfred Nobel.-Background:...
for his development and pursuit of the microcredit concept.
See also
- Building society
A building society is a financial institution, owned by its members, that offers banking and other financial services, especially mortgage lending....
- Credit union
A credit union is a cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. Many credit unions exist to further community...
- Savings and loan association
A savings and loan association , also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans...
- Mutual savings bank
A mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, bonds and other securities....
- List of co-operative banks in India
External links