Cooperative banking

A statue of cooperative pioneer Robert Owen stands in front of the Manchester head office of the UK's Co-operative Bank

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 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.

Institutions

Credit unions

Main article: Credit union

Credit unions have the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. 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.

Cooperative banks

Larger institutions are often called cooperative banks. Some 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 Unions (WOCCU).

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, 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.

Progoti Co-operative Landmortgage Bank Limited (Progoti Bank) is a co-operative land mortgage bank which started functioning since 10 January 2009 in Kapasia, a small but very beautiful town nearly 60 kilometer north of Dhaka City. This is the first specialized land mortgage bank in Bangladesh.

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.

Building societies

Main article: Building society

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 cooperative banks, both based in Brussels, are the International Association of Cooperative Banks (CIBP), which has member institutions from around the world, and the European Association of Co-operative Banks.

By region

Quebec

The caisse populaire movement started by Alphonse Desjardins in Quebec, Canada, pioneered credit unions. Desjardins opened the first credit union in North AmericaiIn 1900, from his home in Lévis, Quebec, marking the beginning of the Mouvement Desjardins. He was interested in bringing desperately needed 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 some de-mutualised into conventionally-owned banks in the 1980s and 1990s). The UK Co-operative Group includes both an insurance provider, the CIS, and The Co-operative Bank, both noted for promoting ethical investment.

Continental Europe

Important continental cooperative banking systems include the Crédit Agricole, Crédit Mutuel, Banque Populaire and Caisse d'Epargne in France, Rabobank in the Netherlands, BVR/DZ Bank in Germany, Banco Popolare, UBI Banca and Banca Popolare di Milano 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 (Handelsbank).

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 microcredit and microfinance are often based on a cooperative model They 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.

List of cooperative banking institutions

Cooperative banking institutions

Name	Country	Members (2010)	Assets (2010 US$ millions)	Type	Alternative name	Notes
Crédit Agricole	France			Joint stock bank	CASA	Majority owned by federation of credit unions
DZ Bank	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	Netherlands	1,500,000+				Credit union federation
Nationwide Building Society	UK			Building society		World's largest building society
Groupe Banque Populaire	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	South Korea			Banking division of agricultural cooperative	National Agricultural Cooperative Federation (NACF)	Approx US$230 billion in loans
Raiffeisen Landesbank Südtirol	Italy			Bank	Cassa Centrale Raiffeisen dell'Alto Adige
OP-Pohjola Group and Pohjola Bank	Finland					31% share of Finnish credit market, and 32% share of savings and deposit market
Bank Persatuan	Malaysia	46,135	86,375,542.97	Bank	Koperasi Bank Persatuan Malaysia Berhad	2nd national cooperative bank in Malaysia
Co-operative Bank	UK	Not applicable		Bank		Subsidiary of consumer cooperative
Navy Federal Credit Union	US	3,004,352	33012	Credit union
Shared Interest	UK			Cooperative lending society		Finance for fair trade

See also

• Building society
• Credit union
• Savings and loan association
• Mutual savings bank