The COOPERATIVE MODEL in Microfinance: More Current and Pertinent than Ever
The Month of Microfinance gives us the opportunity to highlight the contribution of financial cooperatives to socio-economic development, in particular their impact on poverty reduction, job creation and social integration.
In the microfinance sector, cooperatives reach significantly more individuals and families than other financial institutions making them the actors who are truly responsible for improving access to financial services for all, and thereby increasing local economic growth and reducing poverty. Knowing that 2.5 billion individuals, three quarters of the world’s poor, still do not have an account in a formal financial institution, it is easy to understand the vital importance of the cooperative formula promoted by Développement international Desjardins (DID) and its partners, the members of the Proxfin international network.
Much more than a simple alternative to the traditional banking model
Financial cooperatives make an essential contribution to social development and improved living conditions in communities. They also wield significant economic power in our globalized economy, in particular as employers.
Like all enterprises in the private sector, financial cooperatives constantly draw on their capacity for innovation in order to meet the challenges they face. However, in doing this, they sometimes find themselves operating outside the limits set by current definitions and systems. These divergences call for openness and special efforts, both from cooperatives and law makers.
The importance and the specific nature of cooperatives must be recognized in order for them to fully assume their role in redefining the global financial sector. This was one of the main themes to be addressed at the International Summit of Cooperatives which took place in October 2013 in Quebec City. DID and its partners were present and took an active part in this event, with five Proxfin representatives participating as speakers.
Cooperatives more resilient than banks
Everywhere around the world, financial cooperatives weathered the financial crisis of 2008-2009 better than private banks. Nowhere, were cooperatives obliged to seek government aid. During the entire crisis, cooperatives remained accessible and attractive to all.
During this period, numerous bank clients turned to cooperatives because they inspired more confidence: the result was increased membership, assets and volumes of savings for cooperatives. While banks were slowing down their lending activities, cooperatives were able to continue this activity that is so essential for recovery (in the United States, credit volume increased by 6.7% in cooperatives while it decreased by 0.4% for banks).
A guarantee of financial inclusion and financial literacy
- The cooperative model relies on collective ownership, local management and roots in the community.
- Cooperatives are concerned above all with the welfare of their members and therefore do not seek profit at any price, but rather a fair price for quality services.
- Governance of cooperatives is carried out by the members, in a democratic and transparent manner.
- Cooperatives contribute to educating, training and informing members and thereby help them to better understand credit, evaluate their borrowing capacity and understand the commitments they make when they take out a loan.
A major contribution to global socio-economic development
- Cooperative institutions constitute Inalienable collective wealth which creates sustainable local prosperity. They make it possible for all individuals, including the poorest, to take charge of their development and become self-sufficient.
- Their sound practices and their roots in the community are a safeguard against excesses, risks and overly aggressive practices.
- Their reliance on the savings and capital of their members as sources of financing gives them an independence which makes them more resilient to external shocks and is a guarantee of stability on the global financial landscape.
- A number of studies show that cooperatives last longer.
- They participate in the creation of quality jobs (directly and indirectly) and are a major driving force for economic growth.
- Since they are oriented towards the needs of their members and clients, they encourage innovation and sustainable development.
Concrete examples from around the world…
In Burkina Faso, over 75% of individuals with access to financial services do business with the RCPB network of financial cooperatives. The biggest inclusive financial institution in the country, the RCPB provides 1.6 million members in both rural and urban areas with diversified and quality financial services.
The network of Lithuanian financial cooperatives is the only locally-owned financial institution in Lithuania, since all banks operating there are foreign owned. It therefore provides key leverage for the country’s socio-economic development.
The Le Levier federation of financial cooperatives has played a key role in the reconstruction of Haiti since the earthquake that shook the population and the economy of the country in January 2010. This cooperative network has been able to participate actively and effectively in the reconstruction of Haiti due to its deep roots in the community.
Over fifteen years ago, Vietnam took inspiration from the cooperative model promoted by the Desjardins Group to set up a financial institution that could improve access to financial services. Today, the People’s Credit Funds constitute the biggest microfinance network in Vietnam. Its 1,071 service outlets, most of which are in rural areas, reach 1.6 million Vietnamese.
Développement international Desjardins (DID) works with developing and emerging countries towards the goal of sharing the expertise and experience of Desjardins Group, the largest cooperative financial group in Canada. DID’s goal is to provide disadvantaged communities around the world with access to secure, diversified financial services that fit their needs. DID is also the coordinator of the Proxfin international network, which brings together 29 community finance institutions from every corner of the globe. www.did.qc.ca www.proxfin.org
This text contains extracts from a position paper written by DID and its partners in 2012, to celebrate the International Year of Cooperatives. The original version of this text is available at the following address: www.did.qc.ca/media/documents/en/positionnements/COOP-highlights.pdf