DGRV

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THE WORLD BANK Cooperative Finance Global
Good Practices The importance of networks for
the success of financial cooperatives
Dr. Paul Armbruster German Cooperative and
Raiffeisen Confederation
Washington D.C. April 10-11th, 2007
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Contents

• Introduction
• Financial Sector
• Organizational approaches of cooperative
  financial systems
• Financial Cooperatives
• Evolution and models of cooperative networks
• Best practices

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Financial sector

• Importance of a stable and efficient financial
  sector for development processes
• Main challenges are the reduction of
• MSME-financing gap
• Environmental financing gap
• Rural finance gap
• Tasks of financial institutions
• Financial intermediation
• Access to financial services for all
• Provision of financial services for all

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Organizational approaches of cooperative
financial systems

• Centralized systems
• Decision-making process centralized
• In many countries urban bias, channeling of
  savings from rural to urban areas, no backflow of
  credits, development and growth only in urban
  areas
• but remittances from urban to rural areas
• Decentralized systems
• Decision-making process decentralized
• Local knowledge about local economy
• Local/regional savings investment circles

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Financial Cooperatives

• A cooperative is a group of cooperating persons
  following the principles of
• Self-help, Self-governance, Self-responsibility
• Cooperative Banks
• Legal form cooperative
• Financial activities are based on general banking
  law ? fully licensed banks (level playing field)
• Credit and Savings cooperatives and Credit
  Unions
• Legal form cooperative/credit union
• Special legislation and special supervision
• Alternatives under banking law or rules derived
  from banking law

Stand-alone vs. networks
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Models of cooperative networks

• Centralized and highly concentrated at national
  level
• Centralized and concentrated at regional level
• Federated and decentralized but integrated by law
• Decentralized but integrated on a voluntary basis

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Evolution of cooperative systems

• From scratch starting with individual local
  cooperatives
• Top-down starting with one (central) unit
  opening new branches and new cooperatives
• Network simultaneous a) and b) networking on
  different levels

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Building-up of FinancialCooperative Systems
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Best practices

• Hungary
• Ecuador
• Brazil
• Russia

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1. Hungary

• Background
• 1990 Crash of the communist system mono-banking
  system
• 250 Rural Savings Cooperatives existing (part of
  the governmental Savings Bank)
• Start of TAKAREK-Bank by the government ?
  management crisis of TAKAREK Bank ? management
  crisis of Savings Cooperatives ? liquidity
  problems
• The project approach (1992 onwards)
• Restructuring TAKAREK-Bank ? Recapitalization by
  the Ministry of Finance
• Restructuring Program of Savings Cooperatives
  system
• Deposit Insurance OTIVA (incl. Audit and Bank
  Supervision)
• 1998 Re-privatization of TAKAREK-Bank (70 German
  Cooperative Bank, 25 local Cooperatives, 5
  Hungarian Insurance
• Today
• 143 member cooperatives (after many mergers)
• Cooperatives hold 65 shares of TAKAREK-Bank

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2. Ecuador

• Background
• 1990 300 rural and urban credit and savings
  cooperatives
• Lack of long-term credit and refinance facilities
• The DGRV project approach
• 1992 Foundation of the Fund for Refinance
• Long-term credits ? capitalization through DGRV
  and local Cooperatives
• 2000 Foundation of FINANCOOP (banking license)
  cooperative central bank
• Main functions liquidity management, refinance,
  remittances
• Parallel training institution CEDECOOP etc.

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3. Brazil

• Background
• No supervision and regulation of credit
  cooperatives
• Agricultural cooperatives are not open for
  persons that work in other sectors
• The DGRV project approach
• 1998 restructuring the regional cooperative
  central bank of Mato Grosso (with 16 rural credit
  cooperatives), today 102 branches, 177.2 Mio.
  total assets
• 2000 merger with BANSICREDI (earlier cooperative
  central bank of Rio Grande do Sul)
• Today
• Main activities consulting, training, payment
  systems
• SICREDI-group 2 bn. total assets, 1.1 mio.
  members, 890 branches, 130 member cooperatives

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4. Russia

• Background
• Crash of the financial system no rural branches,
  no access to financial services in rural areas
• Wolgograd-region 1996 start of 6 local rural
  cooperatives
• The DGRV project approach
• 1999 start of regional apex institution in the
  pilot region of Wolgograd
• Today
• 67 rural cooperatives with 200 branches
• 70 of credits are financed through savings
  mobilization
• Central unit Refinance, Liquidity management,
  delegated supervision with audit federation
  cooperating with Russian Central Bank

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Conclusions

• Overall objective Improving access to financial
  services for all
• Legal conditions (legislation, supervision,
  regulation, audit, licensing)
• Network approach from the beginning
• Definition of the main services/activities on the
  different levels
• Local cooperatives provision of financial
  services
• Apex unit Refinance, Training, Remittances, New
  Product Development etc.

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Any Questions?
Thank you! Armbruster_at_dgrv.de www.dgrv.de
www.dgrv.org Deutscher Genossenschafts- und
Raiffeisenverband e.V. (DGRV) Adenauerallee
121 53111 Bonn (Germany) Tel. [phone]
352 Fax [phone]