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

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Presentation on theme: "The Role of Networks: The Experience of DGRV in Germany and in Developing Countries Paul Armbruster DGRV – Deutscher Genossenschafts-"— Presentation transcript:

1 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

2 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

3 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

4 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

5 -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 union  Special legislation and special supervision  Alternatives: under banking law or rules derived from banking law Financial Cooperatives

6 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

7 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

8 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

9 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

10 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

11 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

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

13 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

14 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

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

16 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

17 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 cooperatives Possible way out: support to strengthen cooperative systems / multi level approach (macro/meso/mirco level)

18 The Cooperative Sector in Germany 2,512 Raiffeisen coops incl. 811 agricult. production coops 1,121 Cooperative Banks with 13,350 outlets 1,921 buying and marketing groups and other service coops and 214 consumer coops National level Regional level Local level 17 Raiffeisen central coops 17 Raiffeisen central coops 2 central industry commodity coops 4 specialised regional institutions 4 specialised regional institutions 6 specialised audit federations 6 regional audit federations 151 mixed cooperatives (bank / agric. commerce, service) per 31 st Dec specialised institution e.g. DZ Bank 24 specialised institution e.g. DZ Bank 1 regional Coop. Central Bank 1 regional Coop. Central Bank

19 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

20 Thank you ! Dr. Paul Armbruster

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