Cooperative banks

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 are 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.

Micro credit

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.

The Anyonya Co-operative Bank in India is considered to be the first cooperative bank in Asia.

Criticism

Cooperative banks are often criticized 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.

Links

Financial Services Industry

 Wikipedia Article