World Bank's Center of Excellence on Cooperative Financial Institutions (CoE-CFI)


  • COVID-19 impact on the Cooperative Credit structure in Telangana (India); Resilience & opportunities

    MURALIDHAR NETHI Posted Aug 14 2020, 3:35 AM

    Impact of Covid in Telangana & Covid response

    India is still a largely agricultural country with 65% of the population being dependent on agriculture. Agriculture production is characterized by fragmented production by smallholder farmers. As these smallholder farmers face difficulties in accessing credits through commercial banks, a lot of these farmers depend on the cooperatives credit structure for obtaining production credit. With about 100,000 cooperatives in India, the sector covers each and every village.

    This is also the case in the state of Telangana, where the cooperative network consists of 389 cooperative bank branches, and 799 primary agricultural cooperative societies. As a result, cooperatives are very close to clients, and can help members mitigate part of the risks during crisis situations.   

    Agriculture lean season

    In Telangana, agriculture sector in general was only mildly affected by the COVID-19 outbreak; mostly due to the timing of the outbreak, as well as recent investments in irrigation. In recent years the area under irrigation in Telangana went up by 66% and agricultural production (specially paddy) had gone up by 99%. When Covid-19 hit the country in March 2020, most farmers had completed harvest of their record-breaking production. For incidental cases where harvest was incomplete and farmers faced difficulties in marketing & logistics, government provided financial support, and cooperatives organised procurement. As a result, for most farmers the effects of COVID-19 were limited during the initial period.

    Rural Agricultural Cooperatives in India are predominantly agriculture lending institutions and more than 85% of the loans are given as agricultural credit only.  As the Covid-19 has not much affected the agricultural sector, the credit cooperatives have not faced crisis so far.

    Still due to the lockdown period, some agricultural sectors such as vegetable fresh produce, dairy and poultry were affected, and would require support. This is being facilitated by the Government of India, which –next to a debt moratorium of 6 months- provided a liquidity infusion for agriculture of INR 20,000 Crore, used by banks (including cooperative banks) for additional credit extension to agriculture. 

    Relevance of cooperatives will remain, but the functioning will change

    The cooperative network in Telangana has shown great resilience during the time of the crisis, also in terms of financial service delivery. Deposits entrusted to the cooperatives by their members have increased, and only about 50% of their agricultural members exercised their right to a debt moratorium. 

    Although the agricultural sector was only mildly affected by COVID-19, other sector such as industry, services and hospitality have been affected much more, and will need financial support as well. But also, private- and public sector employees have been affected as they only received 50% of their salary and therefore faced a liquidity shortage. The cooperative network in Telangana has launched 6 new products for emergency support to these sectors. 

    Now more than ever, the cooperative sector acknowledges that SME and agricultural credit delivery will increasingly be geared towards the clients’ needs in terms of amount of finance, conditions of finance and delivery mechanisms.  During the COVID-19 situation, the cooperative network has proven its relevance for rural Telangana (and India), but it is also highlighted that the functioning of the cooperatives will change, and that even more customer value can be created going forward.

    Dr. Muralidhar Nethi – MD of Telangana State Cooperative Apex Bank, which is the apex institution of the cooperative credit network in Telangana (India), which includes APEX Bank with 42 branches, 9 District Cooperative Central Banks with a total of 389 branches and additionally 799 primary cooperatives. 

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  • Financial Cooperatives Issues in Regulation, Supervision, and Institutional Strengthening by Carlos E. Cuevas and Juan Buchenau

    Musakanyakombe Susan Mwape Posted Feb 20 2019, 5:50 PM
    • Supervision and Regulation

    Financial Cooperatives (FCs) are important providers of financial services to poor and middle-income people, and significant drivers of financial inclusion. Aside from their strong presence and relevance in developed economies, especially Europe and North America, the significance of financial cooperatives in terms of financial inclusion in the developing world cannot be underestimated. Their pervasive presence in rural areas, and their potential to expand financial inclusion with multiple services to under-served segments make enabling the sustainable functioning of FCs a sensible policy objective. This issues paper reviews current knowledge about, and recent examples of FC development practice that generate lessons deemed valuable and useable in diverse contexts. The review provides background for an informed discussion around the following propositions: 

    • Legal and regulatory frameworks for FCs adapted to the organizational nature and institutional structure of local FC entities, especially their governance and capital structure, are essential for FC stability and growth.

    • Adequate legal and regulatory frameworks including appropriate safety nets need to closely follow the development of the local FC market segment. Failure to provide an enabling framework runs the risk of stunting FC development, and undermining trust among the potential clientele/ membership. In addition to ensuring financial soundness, effective regulation and supervision are essential to help FCs achieve scale by fostering mergers, or enabling the integration of individual retail entities into federated (apex) structures.

    • Integrated approaches that combine legal and regulatory reforms with support to the institutional strengthening of the FC sector have shown important results in terms of financial inclusion, and fostered the modernization of financial cooperatives as effective financial institutions. Rapid introduction of electronic banking in FC networks seems to be badly needed, but requires a degree of preparedness, and a functional structure that most FC networks have yet to attain.

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