Key Takeaways from the Symposium Cooperative Financial Institutions in Rural Development: Promise and Challenges
By Carlos E. Cuevas and Anne M. Sivley
The World Bank’s Center of Excellence (CoE) for Cooperative Financial Institutions (CFIs) along with five organizing partners – Rabo Partnerships, DGRV, DID, ICURN, and WOCCU – convened a unique gathering of CFI practitioners, regulators, supervisors, development policy experts, and industry leaders to examine the role of CFIs in rural development. Panelists and moderators from 25 global, national, and regional entities shared their knowledge and experience through seven sessions held over two weeks. Over 375 attendees from 60 countries participated in the virtual sessions. The following summarizes the outcomes of these sessions along six cross-cutting themes, and a few concluding “way-forward” messages.
Image 1 — Opening Session
1. The nature of CFIs
The unique nature of CFIs allows them to be central players in expanding rural access to finance. Key elements of that unique nature are:
• Trust and confidence: The client proximity and community involvement of CFIs gives them an advantage in rural financial inclusion. However, building and maintaining trust and confidence requires solid governance and sound financial management.
• Resilience: Participants highlighted the resilience of CFIs in the face of crises, such as the COVID-19 pandemic. Kenya’s Peter Njuguna (SASRA) commented, “SACCOs retained sustained double-digit growth…showing the resilience of CFIs even in the face of pandemic.”
• Client-centric and adaptable: CFIs adapt products and adjust terms to better serve diverse member and client profiles, a point made by Mathieu Soglonou of CIF, West Africa, in the opening session and emphasized in the Women and Youth session organized by WOCCU.
2. Digitization and Information Systems
Panelists highlighted that developing or acquiring digital tools is a priority for CFIs. Digital tools support many important areas of the functioning of CFIs, notably:
• Governance: Digital tools enable virtual meetings of governing bodies, a crucial capacity for CFIs as the pandemic prevents safe in-person gatherings. Survey findings in the ICURN/DGRV panel showed a sharp increase of virtual meetings in CFIs in 2020 relative to previous years.
• Operations: Digitization enables increased outreach to member/clients, the extension of services beyond payments, and reduced transaction costs for agricultural financing
• Supervision: Accurate off-site supervision tools are crucial for supervisors to adequately cover many small, geographically dispersed CFIs.
Panel discussions also highlighted issues associated with digitization for CFIs:
• Inadequate infrastructure and interoperability: Successful digitization depends on critical pre-conditions that are often (wrongly) assumed to exist everywhere, as described by Mastercard’s Daniel Huba.
• Relationship with FinTechs: For CFIs, FinTechs can be market disruptors or allies. Some CFIs have partnered with tech providers, while others are creating their own platforms (e.g., ACCU).
• Preserving the cooperative spirit: as the availability of digital tools engenders individualistic tendencies, CFIs are working to maintain core cooperative values of solidarity, and community.
• Protecting clients’ information and assets: While this challenge is not unique to CFIs, client protection is particularly paramount when dealing with rural households, as their financial literacy tends to be lower than average.
Image 2 — Panel 2: Keys to Promoting Successful and Contributive CFIs in Rural Areas
3. Access to Capital
Discussions reached beyond the central financing facilities that characterize many CFI systems. As these systems grow and modernize, the typical sources of loanable funds (member shares, deposits) become insufficient to satisfy increased demand for credit by member/clients running rural enterprises of growing scale. Key questions discussed in several panels are:
• Making outside capital consistent with cooperative governance. To what extent can external investments in CFIs alter the composition of governance bodies? If so, what arrangements are desirable?
• What instruments are appropriate for CFIs? Examples brought up included subordinated debt (DID panel, IDB in Peru), where investor’s covenants emphasized sound financial management and did not involve governance changes.
• Which investors align with the cooperative model?
4. Regulation and Supervision
Aspects of regulation and supervision (R&S) surfaced in all sessions in the symposium. Common themes included:
• Proportional regulation and its implementation: While the principle is widely accepted, DGRV’s Matthias Arzbach noted that, “implementation is difficult in practice.”
• Issues with auxiliary mechanisms: While cost considerations suggest some advantages, effectiveness of existing mechanisms in developing countries is still under debate.
• Compliance: Ecuador’s Margarita Hernández emphasized the importance of, and challenges with, compliance in the CFI sector.
Panelists also touched on challenges for CFIs associated with regulation and supervision, including:
• Supervising large numbers of CFIs, particularly in highly atomized CFI systems (e.g., Ethiopia, Uganda). Integration is a potential avenue to solve the “large-numbers” challenge, along with some form of auxiliary mechanism.
• Balancing protection of member deposits versus regulatory burden. Implementing regulations (via supervision) involves both enforcement costs (for the supervisor) and compliance costs (for the supervisee). In small rural CFIs there is often a scarcity of qualified people (e.g., accountants) to ensure compliant record keeping and reporting.
• Financing the supervisory agency. Discussion on R&S included contrasting approaches to funding regulatory agencies, which in G-20 countries are primarily funded by the supervised entities, while regulators in other countries are funded primarily by the government and internal resources of the regulator (i.e., indirectly also the country’s budget).
Image 3 — Panel 3: Regulation and Supervision for Small Rural CFIs
5. Incorporating CFIs into the financial system
Several sessions highlighted the varying ways in which CFIs are incorporated into a country’s financial system and the associated benefits and challenges, including:
• Access to payment systems: Direct access to the payments platform is essential for CFIs to be able to provide valuable services to their member/clients and engage in fair competition with other providers. Short of creating a cooperative bank (e.g., Albania, Brazil, Rwanda, and others), regulatory reforms are essential for CFIs to move in this direction.
• Correspondent agent banking and other innovations: CFI participation in agent banking has often been hindered by regulatory constraints. When these constraints are lifted, CFIs’ uptake of the innovation seem to be slow, pointing to further challenges (e.g., the case of correspondent banking in Colombia, as discussed by Marelvi Bernal).
• Connecting with sustainable food chains and “Green” Finance innovations: With CFIs’ rural presence and diversity of membership/clientele, they are well-positioned to adopt these innovations in the financial system.
• Rural enterprises and inclusion of women and minorities: Making women and minorities integral participants in rural enterprises facilitates and complements their inclusion in formal finance.
• Managing risk: As highlighted by Gerardo Almaguer of DID, small rural CFIs can manage risk through approaches such as integration and diversifying their exposure.
Image 4 — Panel 4: Involving Rural Women and Youth in Strengthening and Expanding CFIs
6. Women and Youth
Across panels, speakers emphasized the inclusion of women and youth in CFIs. “Inclusion, inclusion, …, and particularly inclusion of women, that is a top priority” (Jean Pesme).
• Remoteness generates barriers for rural women and youth that include transportation costs, time barriers, and financial literacy disadvantages.
• Panelists in the WOCCU session highlighted the importance of capacity building and leadership development that goes beyond financial literacy to expanding the participation of women and youth in CFIs. Leadership programs at Brazil’s Sicredi were described by actual leaders (Ivete Schoffen, Vinícius Mattia), part of the World Council’s global networks.
• Real inclusion, with women as member-owners and in management and governance roles in CFIs was a clear point made by Diattou Coulibaly of Senegal.
• A memorable quote came from Ivete discussing diversity versus inclusion: “diversity is inviting me to a party – inclusion is asking me to dance.” As Pim Mol articulated in the closing, we (the CFI people) are aiming for a “busy dancing floor “going forward.
• Attention to youth ensures the future of CFI membership. Marianne Schoemaker underscored this point in the opening session, as part of “keeping pace with market changes.”
Image 5 — Closing Session
The Way Forward is hereby reflected in selected quotes, and highlights from the Working Session:
“We cannot maximize the value to our members and impact to community without achieving a sustainable growth that means solid capital base, strong efficiency and profitability, by using smart technology.” Zana Konini, Chairwoman, FED Invest, Albania. A full sentence with all the keywords.
Creating favorable conditions for women and youth participation: [it is] “more work but it’s worth it.” Manfred Dasenbrock, Central Sicredi. Point enthusiastically endorsed by Pim Mol.
“Somos todos actores de cambio” “We are all agents of change” Maximiliano Sainz, DID. An expression of both optimism and commitment.
“Solve the R&S challenges; is it doable” Carlos E. Cuevas, World Bank Group. Point inspired by the exchange between two regulators: Edith Tusuubira of Uganda, and Margarita Hernández of Ecuador.
The Working Session of the CoE confirmed its relevance and objectives, and supported continuing and expanding collaboration among partners and stakeholders. Information exchange through working sessions on specific subjects such as digitization and environmentally sustainable finance was encouraged as part of the work plan, as well as strengthening the links with country work and collaboration with other relevant networks.
Blog » Key Takeaways from the Symposium: "Cooperative Financial Institutions in Rural Development: Promise and Challenges"
Key Takeaways from the Symposium: "Cooperative Financial Institutions in Rural Development: Promise and Challenges"
Key Takeaways from the Symposium
Cooperative Financial Institutions in Rural Development: Promise and Challenges
By Carlos E. Cuevas and Anne M. Sivley
The World Bank’s Center of Excellence (CoE) for Cooperative Financial Institutions (CFIs) along with five organizing partners – Rabo Partnerships, DGRV, DID, ICURN, and WOCCU – convened a unique gathering of CFI practitioners, regulators, supervisors, development policy experts, and industry leaders to examine the role of CFIs in rural development. Panelists and moderators from 25 global, national, and regional entities shared their knowledge and experience through seven sessions held over two weeks. Over 375 attendees from 60 countries participated in the virtual sessions. The following summarizes the outcomes of these sessions along six cross-cutting themes, and a few concluding “way-forward” messages.
Image 1 — Opening Session
1. The nature of CFIs
The unique nature of CFIs allows them to be central players in expanding rural access to finance. Key elements of that unique nature are:
• Trust and confidence: The client proximity and community involvement of CFIs gives them an advantage in rural financial inclusion. However, building and maintaining trust and confidence requires solid governance and sound financial management.
• Resilience: Participants highlighted the resilience of CFIs in the face of crises, such as the COVID-19 pandemic. Kenya’s Peter Njuguna (SASRA) commented, “SACCOs retained sustained double-digit growth…showing the resilience of CFIs even in the face of pandemic.”
• Client-centric and adaptable: CFIs adapt products and adjust terms to better serve diverse member and client profiles, a point made by Mathieu Soglonou of CIF, West Africa, in the opening session and emphasized in the Women and Youth session organized by WOCCU.
2. Digitization and Information Systems
Panelists highlighted that developing or acquiring digital tools is a priority for CFIs. Digital tools support many important areas of the functioning of CFIs, notably:
• Governance: Digital tools enable virtual meetings of governing bodies, a crucial capacity for CFIs as the pandemic prevents safe in-person gatherings. Survey findings in the ICURN/DGRV panel showed a sharp increase of virtual meetings in CFIs in 2020 relative to previous years.
• Operations: Digitization enables increased outreach to member/clients, the extension of services beyond payments, and reduced transaction costs for agricultural financing
• Supervision: Accurate off-site supervision tools are crucial for supervisors to adequately cover many small, geographically dispersed CFIs.
Panel discussions also highlighted issues associated with digitization for CFIs:
• Inadequate infrastructure and interoperability: Successful digitization depends on critical pre-conditions that are often (wrongly) assumed to exist everywhere, as described by Mastercard’s Daniel Huba.
• Relationship with FinTechs: For CFIs, FinTechs can be market disruptors or allies. Some CFIs have partnered with tech providers, while others are creating their own platforms (e.g., ACCU).
• Preserving the cooperative spirit: as the availability of digital tools engenders individualistic tendencies, CFIs are working to maintain core cooperative values of solidarity, and community.
• Protecting clients’ information and assets: While this challenge is not unique to CFIs, client protection is particularly paramount when dealing with rural households, as their financial literacy tends to be lower than average.
Image 2 — Panel 2: Keys to Promoting Successful and Contributive CFIs in Rural Areas
3. Access to Capital
Discussions reached beyond the central financing facilities that characterize many CFI systems. As these systems grow and modernize, the typical sources of loanable funds (member shares, deposits) become insufficient to satisfy increased demand for credit by member/clients running rural enterprises of growing scale. Key questions discussed in several panels are:
• Making outside capital consistent with cooperative governance. To what extent can external investments in CFIs alter the composition of governance bodies? If so, what arrangements are desirable?
• What instruments are appropriate for CFIs? Examples brought up included subordinated debt (DID panel, IDB in Peru), where investor’s covenants emphasized sound financial management and did not involve governance changes.
• Which investors align with the cooperative model?
4. Regulation and Supervision
Aspects of regulation and supervision (R&S) surfaced in all sessions in the symposium. Common themes included:
• Proportional regulation and its implementation: While the principle is widely accepted, DGRV’s Matthias Arzbach noted that, “implementation is difficult in practice.”
• Issues with auxiliary mechanisms: While cost considerations suggest some advantages, effectiveness of existing mechanisms in developing countries is still under debate.
• Compliance: Ecuador’s Margarita Hernández emphasized the importance of, and challenges with, compliance in the CFI sector.
Panelists also touched on challenges for CFIs associated with regulation and supervision, including:
• Supervising large numbers of CFIs, particularly in highly atomized CFI systems (e.g., Ethiopia, Uganda). Integration is a potential avenue to solve the “large-numbers” challenge, along with some form of auxiliary mechanism.
• Balancing protection of member deposits versus regulatory burden. Implementing regulations (via supervision) involves both enforcement costs (for the supervisor) and compliance costs (for the supervisee). In small rural CFIs there is often a scarcity of qualified people (e.g., accountants) to ensure compliant record keeping and reporting.
• Financing the supervisory agency. Discussion on R&S included contrasting approaches to funding regulatory agencies, which in G-20 countries are primarily funded by the supervised entities, while regulators in other countries are funded primarily by the government and internal resources of the regulator (i.e., indirectly also the country’s budget).
Image 3 — Panel 3: Regulation and Supervision for Small Rural CFIs
5. Incorporating CFIs into the financial system
Several sessions highlighted the varying ways in which CFIs are incorporated into a country’s financial system and the associated benefits and challenges, including:
• Access to payment systems: Direct access to the payments platform is essential for CFIs to be able to provide valuable services to their member/clients and engage in fair competition with other providers. Short of creating a cooperative bank (e.g., Albania, Brazil, Rwanda, and others), regulatory reforms are essential for CFIs to move in this direction.
• Correspondent agent banking and other innovations: CFI participation in agent banking has often been hindered by regulatory constraints. When these constraints are lifted, CFIs’ uptake of the innovation seem to be slow, pointing to further challenges (e.g., the case of correspondent banking in Colombia, as discussed by Marelvi Bernal).
• Connecting with sustainable food chains and “Green” Finance innovations: With CFIs’ rural presence and diversity of membership/clientele, they are well-positioned to adopt these innovations in the financial system.
• Rural enterprises and inclusion of women and minorities: Making women and minorities integral participants in rural enterprises facilitates and complements their inclusion in formal finance.
• Managing risk: As highlighted by Gerardo Almaguer of DID, small rural CFIs can manage risk through approaches such as integration and diversifying their exposure.
Image 4 — Panel 4: Involving Rural Women and Youth in Strengthening and Expanding CFIs
6. Women and Youth
Across panels, speakers emphasized the inclusion of women and youth in CFIs. “Inclusion, inclusion, …, and particularly inclusion of women, that is a top priority” (Jean Pesme).
• Remoteness generates barriers for rural women and youth that include transportation costs, time barriers, and financial literacy disadvantages.
• Panelists in the WOCCU session highlighted the importance of capacity building and leadership development that goes beyond financial literacy to expanding the participation of women and youth in CFIs. Leadership programs at Brazil’s Sicredi were described by actual leaders (Ivete Schoffen, Vinícius Mattia), part of the World Council’s global networks.
• Real inclusion, with women as member-owners and in management and governance roles in CFIs was a clear point made by Diattou Coulibaly of Senegal.
• A memorable quote came from Ivete discussing diversity versus inclusion: “diversity is inviting me to a party – inclusion is asking me to dance.” As Pim Mol articulated in the closing, we (the CFI people) are aiming for a “busy dancing floor “going forward.
• Attention to youth ensures the future of CFI membership. Marianne Schoemaker underscored this point in the opening session, as part of “keeping pace with market changes.”
Image 5 — Closing Session
The Way Forward is hereby reflected in selected quotes, and highlights from the Working Session:
“We cannot maximize the value to our members and impact to community without achieving a sustainable growth that means solid capital base, strong efficiency and profitability, by using smart technology.” Zana Konini, Chairwoman, FED Invest, Albania. A full sentence with all the keywords.
Creating favorable conditions for women and youth participation: [it is] “more work but it’s worth it.” Manfred Dasenbrock, Central Sicredi. Point enthusiastically endorsed by Pim Mol.
“Somos todos actores de cambio” “We are all agents of change” Maximiliano Sainz, DID. An expression of both optimism and commitment.
“Solve the R&S challenges; is it doable” Carlos E. Cuevas, World Bank Group. Point inspired by the exchange between two regulators: Edith Tusuubira of Uganda, and Margarita Hernández of Ecuador.
The Working Session of the CoE confirmed its relevance and objectives, and supported continuing and expanding collaboration among partners and stakeholders. Information exchange through working sessions on specific subjects such as digitization and environmentally sustainable finance was encouraged as part of the work plan, as well as strengthening the links with country work and collaboration with other relevant networks.