[email protected] The Role of Networks: The Experience of DGRV in Germany and in Developing Countries Paul Armbruster DGRV – Deutscher Genossenschafts-

[email protected] www.e-mfp.eu

The Role of Networks: The Experience of DGRV in Germany and in Developing Countries

Paul Armbruster DGRV – Deutscher Genossenschafts- und Raiffeisen Verband e.V.Head of International Relations Department


Table of content

Introduction Financial cooperatives Cooperative Banks Models of cooperative networks Cooperative systems Challenges Key success factors of German cooperatives Conclusions The Cooperative Sector in Germany The Cooperative Financial Network


Introduction I

- The financial sector plays a vital role in economic development

- Worldwide, Financial Cooperatives are an important part of the financial sector as full-fledged banks

as ‘non-banks’-institutions / credit unions


Organizational approaches of financial systems

-Centralized systems- Decision-making process centralized - In many countries: urban bias, channeling of savings from

rural to urban areas, no backflow of credits, development and growth only in urban areas

- but: remittances from urban to rural areas

-Decentralized systems - Decision-making process decentralized - Local knowledge about local economy- Local/regional savings/investment-circles

Introduction II


- A cooperative is a group of persons following the principles of: Self-help, Self-governance, Self-responsibility Focus on members – Member Value vs. Shareholder Value

- Cooperative Banks:Legal form: cooperative Financial activities are based on general banking law fully licensed banks (level playing field)

- Credit and Savings cooperatives and Credit Unions:Legal form: cooperative/credit unionSpecial legislation and special supervisionAlternatives: under banking law or rules derived from banking law

Financial Cooperatives


Cooperative Banks in Europe – Financial Partners for Local Economy-Sustainable relationship-Proximity with members/clients-Decentralization as an asset-Best financial services-More stable than commercial banks-They induce economic and social effects

Cooperative Banks


1. Centralized and highly concentrated at national level

2. Centralized and concentrated at regional level

3. Federated and decentralized but integrated by law

4. Decentralized but integrated on a voluntary basis

Models of Cooperative Networks


Evolution of Cooperative Systems

a.From scratch: starting with individual local cooperatives

b.Top-down: starting with one (central) unit opening new branches and new cooperatives

c.Simultaneous a. and b. networking on different levels

Cooperative Systems I


Weaknesses-Traditional financial cooperatives are being marginalized or do not emerge-Other financial institutions open access to financial services-Many coops/credit unions lack scale and adequate capitalization-Legislation is too restrictive in many countries

Cooperative Systems II


Weaknesses (cont.)-Many coops are not part of networks stand alone-Lack of professional staff and leadership-Lack of internal/external control and adequate supervision by finance sector authority-Lack of adapted services

- only short-term deposits- problem of maturity transformation- Liquidity "trap" - No investment opportunities within the system- No long term credit- No access to long term refinance

Cooperative Systems III


Main Challenges for Cooperatives-Adaption to international rules-Transform into full-fledged institutions or integration into a network within full-fledged Apex institutions-Adequate capitalization (Basle Rules) through shares and other capital instruments

Challenges I


Separation of Operational Structures from Governance Structures-Operations member and market oriented, and efficient-Governance structure within the coops and the system

Challenges II


A Multi-tier Cooperative Structure-Maintain the efficiency of the individual cooperative-Maintain the efficiency of the system-Economies of scale within the system-Being competitive-Offer all services needed -Support of the local coops in their role as local financial institutions

Challenges III


Apex Institutions-Liquidity management and intermediation among the local coops-Investment of liquidity and refinance for individual coops-Organisation of payment and remittance systems-Support of marketing activities-Organisation of internal control systems-Participation in public credit programs-Participation in international programs

Challenges VI


Further challenges-Regulation and supervision-Auditing-Deposit insurance-Institutional protection systems-Legislation-Training

Challenges V


Key Success Factors of Cooperatives

Legal mandate for promotion of members’ economy through joint business “cooperative as an enterprise”

Adequate legal basis

Structured as a decentralised, multilevel network system

Compulsory audit (by cooperative federations)

Regulation and supervision of coop. financial institutions (level-playing field)

Institutional protection scheme of cooperative banks (incl. savings guarantee system)

Well-structured Training / Qualification System


Conclusions

External support of individual cooperatives-can limit the establishment of cooperative networks-can lead to institutional egoism-can lead to lack of solidarity among the cooperativesPossible way out: support to strengthen cooperative systems / multi level approach (macro/meso/mirco level)


The Cooperative Sector in Germany

2,512 Raiffeisen coops incl. 811 agricult. production coops

2,512 Raiffeisen coops incl. 811 agricult. production coops

1,121 Cooperative Banks with 13,350 outlets

1,121 Cooperative Banks with 13,350 outlets

1,921 buying and marketing groups and other service coops and 214 consumer

coops

1,921 buying and marketing groups and other service coops and 214 consumer

coops

National level

Regional level

Local level

17 Raiffeisencentral coops17 Raiffeisencentral coops

2 central industry commodity coops2 central industry commodity coops

4specialised

regional institutions

4specialised

regional institutions

6 specialised audit federations

6 specialised audit federations6 regional audit federations

6 regional audit federations

151 mixed cooperatives(bank / agric. commerce, service)

151 mixed cooperatives(bank / agric. commerce, service)

per 31st Dec. 2011

24specialised institution

e.g. DZ Bank

24specialised institution

e.g. DZ Bank

1 regional Coop. Central Bank

1 regional Coop. Central Bank


Regional cooperative central bank

National cooperative central bank

The Cooperative Financial Network

1,121 l o c a l c o o p e r a t i v e b a n k s, 13,350 o u t l e t s( Volksbanks and Raiffeisenbanks, Sparda-Banken, Post-Spar- und Darlehensvereine )

Audit federation of the

Sparda-Banken

5 regional auditing federations(Bavaria, Hesse/Rhineland-Palatinate/Saarland/Saxony/Thuringia,

North Germany, Rhineland/Westphalia, Weser-Ems, Baden Württemberg)

Audit federation of the Post-Spar-Darlehensvereine

National Association of Volksbanks and Raiffeisenbanks

917 204


Thank you !

Dr. Paul Armbruster

[email protected]

[email protected]

www.dgrv.de

www.dgrv.org

[email protected] The Role of Networks: The Experience of DGRV in Germany and in Developing Countries Paul Armbruster DGRV – Deutscher Genossenschafts-

Documents

cooperative sector

countries cooperative

individual cooperative

financial sector

training challenges

savings cooperatives

system challenges

fullfledged banks