Cooperative Financial Institutions Issues in Governance, Regulation, and Supervision

Co-operative financial institutions (CFIs) include diverse member-owned financial intermediaries referred to as credit unions, savings and credit cooperatives, co-operative banks, and other terms that differ across regions of the world. Their institutional structure and governance, legal and regulatory status, and scale and services portfolio also vary widely across regions and especially between industrialised countries and developing economies. A most basic common denominator is that they collect deposits and do business often solely with members. This paper addresses topics on which an agreement in necessary to arrive at consensus guidelines or principles of regulation and supervision of cooperative financial institutions (CFIs) in developing countries. Three main topics covered are: (i) the fundamental structure of the sector in terms of its internal (micro) and inter-CFI (macro) organisation, with a focus on the agency conflicts inherent in the mutual structure, the extent to which they contribute to failure risk, and whether and how these conflicts are controlled by existing governance mechanisms; (ii) the existing legal frameworks in an international context, their origins, and the implications for the functioning of CFIs; and (iii) the regulatory frameworks under which CFIs operate and the different propositions by stakeholders about what should be an appropriate regulatory framework and an effective supervision mechanism.