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Apex organizations of financial cooperatives: Role and opportunities

Created Dec 04 2020, 9:27 AM by Rubiga Sivakumaran

by Rubiga Sivakumaran and Juan Buchenau; December 2020

 In many countries, financial cooperative institutions (CFIs) have set up apex organizations, mostly in the form of federations and confederations to overcome the constraints that arise from their small size and local nature. The way cooperatives arise when people with common interests group together, apex organizations emerge when cooperatives organize themselves in larger, overarching bodies. Their functions differ across the world: they may be promotional entities or supporting bodies, can provide shared services like IT or product development, initiate a risk management framework or carry out supervision tasks. But what is the specific role they play, now and looking into the future? Which challenges do they face? Which opportunities are there? And when the networks grow, how can they still remain close to their members and clients?

During a webinar that was organized on November 11th by the World Bank Center of Excellence on Cooperative Financial Institutions (CFIs), in partnership with Rabo Foundation, apex organization experts and representatives shared their insights on these matters. The recording of the event can be found here.

Looking back: how and why were APEX organizations created?

With his extensive practical, policy and academic experience in (cooperative) banking, Prof. Dr. Hans Groeneveld states that looking at the cooperative Rabobank, it can be noted that the forerunners were already an integrated banking group 125 years ago. Local credit cooperatives were supported, supervised, and monitored by central institutions from the beginning, all of them being clear on the fact that failure of one organization would lead to damage of another credit cooperative. This system worked so well – no local bank had ever gone bankrupt - that when the central bank in the Netherlands started banking supervision in 1952, they asked the central institutions to continue supervising the associated credit cooperatives. The cross guarantee fund ensured that no member cooperative would go bankrupt because the others would step in. Eventually all cooperative banks merged into one cooperative in 2016, becoming one bank with one banking license, the integration was complete.

Mr. Billy Rodas from the MICOOPE network in Guatemala introduces the network being a non-profit civil society organization that protects the deposits of members under an autoregulatory focus. MICOOPE was initially set up for people who are in need of financial services but who do not have access to banks.

While the histories of Rabobank and MICOOPE are rather member-driven, the ones in India and Sri Lanka show a stronger influence from the local governments. Managing Director of the Telangana State Cooperative APEX Bank (TSCAB) Dr. Nethi Muralidhar presents that credit cooperatives in India came into existence through a calibrated government push in the early years of the twentieth century. In fact, it has been documented that state cooperative laws passed in the mid-1950s gave state governments full authority in matters of cooperative governance and management.[1] This is likely to hinder the emergence of strong apexes.  Having over fifteen years of experience in the Sri Lankan apex organization, Ms. Samadanie Kiriwandeniya explains that the first (state-run) SANASA financial cooperative arose in 1906, aiming to offer a voice to the rural population and using a tool that was already implemented by the colonial government: the Raiffeisen model. While the number of financial cooperatives continued to increase, the size of the individual entities remained small and the sector highly fragmented. Consequently, the cooperatives had too little resources to achieve a size and presence noticed by the policy makers, which further inhibited the building of a strong network. When Sri Lanka opened its economy in 1978, the SANASA movement was build, creating an APEX entity that supported building the network from grassroot level: the SANASA Federation. The movement aimed for a new social order based on cooperative principles and values, striving for something bigger than a financial focus only.

Always evolving: how have the organizations changed over time?

Taking a broader perspective than the Rabobank alone, Groeneveld looks at European cooperative banks in general: together they represent 20% of the banking sector, having an average age of over 100 years indicating their flexibility and ability to combat challenges. Throughout the years, these cooperative banks have been adjusting their governance and organization as a result of three interacting factors: 1) strategic market considerations; 2) trends in society such as economic, IT, and competition; and 3) regulation and supervision. Even though all cooperative banks have different features, the role of apex organizations in Europe is converging: differences are diminishing, and consolidation is increasing.

Growing substantially over the years, SANASA’s leadership recognized it was necessary to make amendments to its structure in order to stay competitive. The demands of the Sri Lankan population were evolving, so the organization decided to evolve with it, initiating a four-pillar approach consisting of four different components: 1) a development bank, to bank the unbanked; 2) an insurance company, to make risk management more affordable to the less-wealthy; 3) an education institute, to teach about cooperativism; and 4) a construction company, to have its own infrastructure development done without being dependent on the market.

Going forward: which challenges (and opportunities) lie ahead?

Rodas indicates that looking into the future, his network in Guatemala faces several ongoing projects and challenges. The main challenge is to have the financial cooperatives act approved, therewith improving the enabling legal environment and strengthening the financial safety net for their members. Besides, the network aims to improve IT for supervision, train and specialize the supervision team, and strengthen the international relationships with other financial supervisors.

In Rabobank’s case the number of members still increases, even though facing a continuous reduction in the number of local branches. This poses challenges for staying connected to society, some of them being social capital (connections with local communities and members); local embeddedness; autonomy of local branches; checks and balances in the organization; the distinct cooperative nature and orientation; and the cooperative attitude of employees. With continuous dialogue, a cooperative renewal project, and safeguarding the autonomy of local branches in the new articles of association, Rabobank shows to be busy finding solutions.

Muralidhar looks on the bright side and mainly foresees opportunities. Because of increased scale, it is easier to take up new and viable activities. Even the Covid pandemic has not been a burden so far: it has rather increased the business opportunities for the cooperative credit system.

Being owned by members, and being instituted to optimize member value, do cooperatives need to be as efficient as any player in the market?

All panellists agree on this. “Being a cooperative is no excuse for not being efficient for your members” Groeneveld states. Not only is it important for capitalization and keeping members happy. Being efficient and generating net surplus also enables the organization to give back more to society, which is one of the main objectives of a cooperative. Apex organizations can play an important role in this: supporting CFIs to achieve economies of scale and acquire the tools that are needed to provide adequate and efficient services to their members.



[1] H. D. Seibel, quoted in Cuevas and Buchenau (2018).

  • Thanks for posting.  Very insightful as I ponder how to build 'pooled investor portfolios' aimed at a) earning a good ROI, but b) doing social good in communities.