Cooperative banking

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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 autonomous association of persons or organizations

A cooperative is "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise". Cooperatives may include:

Contents

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.

Credit union member-owned financial cooperative

A credit union is a member-owned financial cooperative, controlled by its members and operated on the principle of people helping people, providing its members credit at competitive rates as well as other financial services.

A mutual savings bank is a financial institution chartered by a central or regional government, without capital stock, that is owned by its members who subscribe to a common fund. From this fund claims, loans, etc., are paid. Profits after deductions are shared among the members. The institution is intended to provide a safe place for individual members to save and to invest those savings in mortgages, loans, stocks, bonds and other securities and to share in any profits or losses that result. The members own the business.

A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Kingdom and Australia, and used to exist in Ireland and several Commonwealth countries. They are similar to credit unions in organisation, though few enforce a common bond. However, rather than promoting thrift and offering unsecured and business loans, the purpose of a building society is to provide home mortgages to 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. The term "building society" first arose in the 18th century in Great Britain from cooperative savings groups.

A 2013 report by ILO concluded that cooperative banks outperformed their competitors during the financial crisis of 2007-2008. The cooperative banking sector had 20% market share of the European banking sector, but accounted for only 7 per cent 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. [1] Credit unions in the US had five times lower failure rate than other banks during the crisis [2] and more than doubled lending to small businesses between 2008 - 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion. [3] Public trust in credit unions stands at 60%, compared to 30% for big banks [4] and small businesses are eighty percent less likely to be dissatisfied with a credit union than with a big bank. [5]

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. [6] 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.

Rochdale Principles

The Rochdale Principles are a set of ideals for the operation of cooperatives. They were first set out in 1844 by the Rochdale Society of Equitable Pioneers in Rochdale, England and have formed the basis for the principles on which co-operatives around the world continue to operate. The implications of the Rochdale Principles are a focus of study in co-operative economics. The original Rochdale Principles were officially adopted by the International Co-operative Alliance (ICA) in 1937 as the Rochdale Principles of Co-operation. Updated versions of the principles were adopted by the ICA in 1966 as the Co-operative Principles and in 1995 as part of the Statement on the Co-operative Identity.

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. 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.

The Statement on the Co-operative Identity, promulgated by the International Co-operative Alliance (ICA), 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 principles that direct their behavior and operation. The Statement with the latest revision of the cooperative principles was adopted by ICA in 1995.

Credit unions

Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. [7] Its members are usually required to share a common bond, such as locality, employer, religion or profession, and 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.

Bond of association

The (common) bond of association or common bond is the social connection among the members of credit unions and co-operative banks. Common bonds substitute for collateral in the early stages of financial system development. Like solidarity lending, the common bond has since played an important role in facilitating the development of microfinance for poor people.

Land development banks

The special (bank)s providing Long Term Loans are called Land Development Banks, in the short, LDB. The history of LDB is quite old. The first LDB was started at Jhang in Punjab in 1920. This bank is also based on Co-operative. The main objective of the LDBs are to promote the development of land, agriculture and increase the agricultural production. The LDBs provide long-term finance to members directly through their branches. [8]

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 bond. 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 building society is Britain's Nationwide Building Society.

Others

Mutual savings banks and mutual savings and loan associations 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 banks 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 co-operative banks are the Brussels-based European Association of Co-operative Banks which has 28 European and non-European members, and the Paris-based International Cooperative Banking Association (ICBA), which has member institutions from around the world too.

By region

Canada

In Canada, cooperative banking is provided by credit unions (UNI 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. [9]

Quebec

The UNI 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 into conventionally owned banks in the 1980s and 1990s). Until 2017 the Co-operative Group included The Co-operative Bank. [10] It still retains an insurance provider, The Co-operative Insurance, noted for promoting ethical investment.

European Co-operative Banking: Facts and figures 2017. Based on the 2017 Key statistics collected by the EACB Co-operative banking in Europe - facts & figures 2017.png
European Co-operative Banking: Facts and figures 2017. Based on the 2017 Key statistics collected by the EACB

Continental Europe

Important continental 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, Banco Popolare, UBI Banca in Italy, Migros and Coop Bank in Switzerland, and the Raiffeisen system in several countries in central and eastern Europe. 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. The International Confederation of Cooperative Banks (CIBP) is the oldest association of cooperative banks at international level.

In Scandinavia, there is a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank).

United States

Credit unions in the United States had 96.3 million members in 2013 and assets of $1.06 trillion. [11] [12] The sector had five times lower failure rate than other banks during the financial crisis of 2007-2008 [2] and more than doubled lending to small businesses between 2008 - 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion. [3] Public trust in credit unions stands at 60%, compared to 30% for big banks [4] and small businesses are five times less likely to be dissatisfied with a credit union than with a big bank. [5]

India

Cooperative banks serve an important role in the Indian economy, especially in rural areas. In urban areas, they mainly serve to small industry and self-employed workers. They are registered under the Cooperative Societies Act, 1912. They are regulated by the Reserve Bank of India under the Banking Regulation Act, 1949 and Banking Laws (Application to Cooperative Societies) Act, 1965. [13] Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is the earliest known cooperative credit union in India. [14]

The Cooperative Credit System in India consists of Short Term and Long Term credit institutions. The short-term credit structure which takes care of the short term (1 to 5 years) credit needs of the farmers is a three-tier structure in most of the States viz., Primary Agricultural Cooperative Societies (PACCS) at the village level, District Central Cooperative Banks at the District level and State Cooperative Bank at the State level and two-tier in some States voz., State Cooperative Banks and PACCS. The long term credit structure caters to the long term credit needs of the farmers(up to 20 years) is a two-tier structure with Primary Agriculture and Rural Development Banks (PARDBs) at the village level and State Agriculture and Rural Development Banks. The State Cooperative Banks and Central Cooperative Banks are licensed by Reserve Bank of India under the Banking Regulation Act. While the StCBs and DCCBs function like a normal Bank they focus mainly on agricultural credit. While Reserve Bank of India is the Regulating Authority, National Bank for Agriculture and Rural Development (NABARD) provides refinance support and takes care of inspection of StCBs and DCCBs. The first Cooperative Credit Society in India was started in 1904 at Thiroor in Tiruvallur District in Tamil Nadu

Primary Cooperative Banks which are otherwise known as Urban Cooperative Banks are registered as Cooperative Societies under the Cooperative Societies Acts of the concerned States or the Multi-State Cooperative Societies Act function in urban areas and their business is similar to that of Commercial Banks. They are licensed by RBI to do banking business. Reserve Bank of India is both the controlling and inspecting authority for the Primary Cooperative Banks.

Israel

Ofek (Hebrew: אופק) is a cooperative initiative founded in mid-2012 that intended to establish the first cooperative bank in Israel. [15]

Italy

Since the 19th century, Italy has had hundreds of "banche popolari" (popular banks) and "banche di credito cooperativo" (cooperative credit banks) which are different kinds of cooperative societies (governed by an assembly where every shareholder/member has 1 vote). As of 2016, the biggest was Banca Popolare di Milano (founded in 1865).[ citation needed ]

Starting in 2016, due to a new law, several cooperative banks will be forced to merge and/or be converted to società per azioni.

Microcredit and microfinance

The more 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 requires.

List of cooperative banking institutions

Cooperative banking institutions
NameCountryMembers
(2010) [16]
Assets
(2010 US$ millions) [16]
TypeAlternative nameNotes
Coop Bank Pertama (formerly known as Bank Persatuan)Malaysia300,000+RM3.4 BillionIslamic cooperative bankKoperasi Co-opbank Pertama Malaysia BerhadThe first national cooperative bank in Malaysia established in 1950
Bank Rakyat Malaysia907,918Islamic cooperative bankBank Kerjasama Rakyat Malaysia BerhadSecond national cooperative bank in Malaysia founded in 1954
Crédit Agricole S.A. FranceBank (Public S.A.)Caisse Nationale de Crédit Agricollocal banks of ther group majority owned by individuals; local banks jointly-owned Crédit Agricole S.A. indirectly, via regional bank of the group
Islami Co-operative Bank Ltd. (Instead of Sandwip Central Co-Operative Bank Ltd.) BangladeshCentral Co-Operative BankICBLFirst Islami & largest Co-operative Bank in Bangladesh based on Islami Sariyah. Signed: Registration No. 57/c, Dated: 3rd Aug 1922.

Head office: Zakir Hossain Road, Khulshi, Chittagong-4209, Bangladesh.

Crelan Belgium288,000 [17] Bankformerly Landbouwkrediet (agricultural)Independent from Crédit Agricole since 2015 [17]
DZ Bank Germany17,700,000 [18] BankDeutsche Zentralgenossenschaftbank
German Central Cooperative Bank
Owned by three quarters of all Volksbank and Raiffeisenbank (cooperative banks) in Germany and Austria
Caisse d'Epargne FranceBankliterally “savings bank”Credit union federation
Rabobank Netherlands1,500,000+BankCredit union federation
Nationwide Building Society UK15,500,000 [19] Building societyWorld's largest building society
Bangladesh Samabaya Bank LTD. Bangladesh [17] BankThe largest Co-Operative Bank in Bangladesh with 478 Registered Member Society. [17]
Groupe Banque Populaire France3,400,000Bank
Desjardins Group Canada5,795,277 [20] Credit union federationLeading bank in Quebec
Raiffeisen Bank International AustriaBank (Public aktiengesellschaft)RIowned by regional Raiffeisen Bank of Austrian states
Nonghyup South KoreaBanking division of agricultural cooperativeNational Agricultural Cooperative Federation (NACF)Approx US$230 billion in loans
ICCREA Banca ItalyBank (società per azioni)Istituto Centrale delle Casse Rurali ed Artigianeowned by credit unions of Italy
Cassa Centrale Banca – Credito Cooperativo del Nord Est ItalyBank (società per azioni)CCBowned by credit union of Northern Italy
Raiffeisen Landesbank Südtirol ItalyBank (società per azioni)Cassa Centrale Raiffeisen dell'Alto Adigeowned by credit union of South Tyrol region, Italy
Raiffeisen (Switzerland) SwitzerlandCredit union federation
Banco Cooperativo Español and Caja Rural Spain
OP Financial Group Finland1,750,000 [21] 31% share of Finnish credit market, and 32% share of savings and deposit market [22]
POP Pankki FinlandCredit union federation
Bank Australia Australia125,000+$3bbankAustralia's first customer owned bank
Co-operative Bank UKNot applicable [23] [24] BankSubsidiary of consumer cooperative
Navy Federal Credit Union US3,004,35233012Credit union
Shared Interest UK [25] Cooperative lending societyFinance for fair trade
GLS Bank Germany
The Cooperative Bank New Zealand120,000+BankCustomer owned bank
Banco Credicoop Argentina

See also

Related Research Articles

Nationwide Building Society British mutual financial institution and the largest building society in the world

Nationwide Building Society is a British mutual financial institution, the seventh largest cooperative financial institution and the largest building society in the world with over 15 million members. It has its headquarters in Swindon, with an office in Threadneedle Street, London, and administration centres based in Bournemouth, Northampton and Glasgow.

A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings, deposits, and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded; in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans — their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.

A mutual, mutual organization, or mutual society is an organization based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship. A mutual organization or society is often simply referred to as a mutual.

Alterna Savings is a credit union founded in 1908 in Ottawa. It operates branches in Ontario and direct banking across Canada through its subsidiary Alterna Bank.

The main elements of Japan's financial system are much the same as those of other major industrialized nations: a commercial banking system, which accepts deposits, extends loans to businesses, and deals in foreign exchange; specialized government-owned financial institutions, which fund various sectors of the domestic economy; securities companies, which provide brokerage services, underwrite corporate and government securities, and deal in securities markets; capital markets, which offer the means to finance public and private debt and to sell residual corporate ownership; and money markets, which offer banks a source of liquidity and provide the Bank of Japan with a tool to implement monetary policy.

Credit unions are not-for-profit financial cooperatives. In the early stages of development of a nation's financial system, unserved and underserved populations must rely on risky and expensive informal financial services from sources like money lenders, ROSCAs and saving at home. Credit unions proved they could meet demand for financial services that banks could not: from professional, middle class and poorer people. Those that served poorer urban and rural communities became an important source of microfinance.

During the 1990s and 2000s, China's banking system underwent significant changes: banks are now functioning more like Western banks than before. Nevertheless, China's banking industry has remained in the government's hands even though banks have gained more autonomy. China is now a member of the World Trade Organization, as of 11 December 2001. The central bank of China is the People's Bank of China.

The European Association of Co-operative Banks (EACB), is the leading trade association for the co-operative banking sector with 28 member institutions and co-operative banks located in 23 countries worldwide. As the representative of the world's largest cooperative banking cluster, the EACB is the voice of 2.914 small, regional and large member banks at European and international levels.

Co-operative Bank or Cooperative Bank may refer to:

Bank financial institution

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

Bundesverband der Deutschen Volksbanken und Raiffeisenbanken association of co-operative banks in Germany

The National Association of German Cooperative Banks (BVR) is the umbrella association for the cooperative banking sector in Germany. As of 2015 it had 1,021 members, which represents all the cooperative banks in Germany, including local cooperative banks, PSD banks, Sparda banks, Church banks and Cooperative financial institutions. The cooperative banking sector in Germany has a balance sheet of 1,081 billion Euros and employs around 191,000 members of staff.

London Mutual Credit Union

London Mutual Credit Union Limited (LMCU) is a not-for-profit member-owned financial co-operative, based in Peckham and operating in the City of Westminster and the London boroughs of Southwark, Lambeth and Camden. The primary lines of business include retail banking, deposit-taking and lending.

Credit unions in the United Kingdom were first established in the 1960s. Credit unions are member-owned financial cooperatives operated for the purpose of promoting thrift, providing credit and other financial services to their members.

Buldana Urban Cooperative Credit Society

Buldana Urban Cooperative Credit Society was formed on 15 August 1986. Chairman (Mr.) Radheshyamji Chandak started it with capital of 210 USD and 72 members. In a span of 27 years and mainly in last decade under managing director Dr Sukesh Zamwar, the Credit Society has grown to size of 1.1 billion dollar business with more than half a million (700,000) membership. The area of operation is mainly in central and western India in four states of India. Now the society has 333 branches and 5000 employee and 300 warehouses. Total built up area for Warehouse is 5,000,000 sq feet and capacity of 435,000 metric tons. It maintains a presence in most of the metro cities of India and also in rural areas.

London Capital Credit Union Limited is a not-for-profit member-owned financial co-operative, based in Archway and operating in the City of London and north London boroughs of Barnet, Camden, Hackney, Haringey and Islington.

References

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  5. 1 2 https://www.newyorkfed.org/medialibrary/media/smallbusiness/2016/SBCS-Report-EmployerFirms-2016.pdf#page=23
  6. 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.”
  7. E.g., 12 U.S.C. § 1752(1), available at "Archived copy" (PDF). Archived from the original (PDF) on 2009-03-30. Retrieved 2009-05-05.CS1 maint: Archived copy as title (link); CUNA Model Credit Union Act § 0.20 (2007); see also 12 U.S.C. § 1757, available at "Archived copy" (PDF). Archived from the original (PDF) on 2009-03-30. Retrieved 2009-05-05.CS1 maint: Archived copy as title (link); CUNA Model Credit Union Act § 3.10 (2007).
  8. TNAU. "LAND DEVELOPMENT BANK". TNAU Agritech Portal. Retrieved 8 January 2014.
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  10. Co-op Group sells final stake in Co-op Bank, BBC News, 21 September 2017. (retrieved 6 April 2018)
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  12. Marte, Jonnelle (August 5, 2014). "About 100 million Americans are now using credit unions. Should you join them?". The Washington Post . Retrieved September 5, 2014.
  13. D. Muraleedharan (2009). Modern Banking: Theory And Practice. PHI Learning Pvt. Ltd. p. 9. ISBN   978-81-203-3655-1 . Retrieved 3 March 2015.
  14. "Brief History of Urban Cooperative Banks in India". Reserve Bank of India . Retrieved 3 March 2015.
  15. "Ofek aims to bring 'social banking' to Israel as first credit union". jpost.com.
  16. 1 2 Figures at close of institution's 2007 financial year, from organization's annual report. If no US$ equivalent given in annual report, exchange rate of December 31, 2007, used.
  17. 1 2 3 4 "De geschiedenis van Crelan". crelan.be.
  18. Banks, BVR, Bundesverband der Deutschen Volksbanken und Raiffeisenbanken, National Association of German Cooperative. "Presse – Zahlen, Daten, Fakten – BVR – Bundesverband der Deutschen Volksbanken und Raiffeisenbanken". bvr.de.
  19. https://www.nationwide.co.uk/-/media/MainSite/documents/about/corporate-information/results-and-accounts/review-of-the-year-2018.pdf
  20. Desjardins Group figures — Information as at December 31, 2008. Available at http://www.desjardins.com/en/a_propos/qui-nous-sommes/chiffres.jsp
  21. https://op-year2016.fi/op-ryhma/omistaja-asiakkaat
  22. "Key figures". Unico Banking Institute. 2006.
  23. Co-operative Bank customers are eligible to join its parent Co-operative Group
  24. 13.1 billion GBP
  25. GBP 25.1 million