Cooperative banking
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.
[1] Many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members.
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.
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.
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.
[4] The caisse populaire movement started by Alphonse Desjardins in Quebec, Canada, pioneered credit unions.
In the Nordic countries, there is a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank).
[13] Anyonya Sahakari Mandali, established in 1889 in the province of Baroda, is the earliest known cooperative credit union in India.
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.
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.
Particularly, members’ control over financial resources is the distinguishing feature between the cooperative model and modern microfinance.
Although group lending may seemingly share some similarities with cooperative concepts, in terms of joint liability, the distinctions are much bigger, especially when it comes to autonomy, mobilization and control over resources, legal and organizational identity, and decision-making.
Early financial cooperatives founded in Germany were more able to provide larger loans relative to the borrowers’ income, with longer-term maturity at lower interest rates compared to modern standard microfinance institutions.
High-interest rates, short-term maturities, and tight repayment schedules are destructive instruments for low- and middle-income borrowers which may lead to serious debt traps, or in best scenarios will not support any sort of capital accumulation.
Without improving the ability of agents to earn, save, and accumulate wealth, there are no real economic gains from financial markets to the lower- and middle-income populations.
