Snapshot of cooperatives worldwide
Financial Cooperatives (FCs), also known as Coops or Co-Ops started in the 1850s in Europe. Since then, (see chart below) they have come a long way.
Source: 2021 World Council Annual Report
Today Coops worldwide hold aggregate assets of over US$2.19 trillion with a 12.18% penetration rate and serve an estimated 857 million people.
Financial Cooperatives (FCs), also known as Coops or Co-Ops started in the 1850s in Europe. Since then, (see chart above) they have come a long way. Today Coops worldwide hold aggregate assets of over US$2.19 trillion with a 12.18% penetration rate and serve an estimated 857 million people.
Their resilience is due to a unique non-profit (or not-for-profit) model and structure. They offer above-average services, competitive insurance, lending, lower investment rates to serve their members in seeing to financial wellness rather than exist only to maximize profits. As a result, credit unions are the most popular form of financial cooperative.
Importantly, they are community-oriented with financial inclusion in mind. For example, unlike a traditional bank, the account members function as the owners of a Coop who operate it and also its primary customers. Revenue is returned to members through higher dividends, fewer fees, and lower interest rates. In addition, many offer products and services comparable to banks.
Coops are not limited to finance but operate products and services such as healthcare, housing, grocery, and insurance, where members use and buy an ownership stake. They help strengthen the economy and empower people with ownership, sources of financial education for its members.
What does the future hold for Coops?
Coops have grown from strength to strength and become a quiet force to reckon with. This is reflected in the increasing number of Coops being founded and the establishment of new cooperative unions – more so in developing markets, with millions elevated from poverty and areas where traditional banking channels leave a vacuum.
However, Coops are tied down by challenges like banks’ standard, brick-and-mortar model because opening branches are expensive or restrictive due to the costs, distance, and feasibility.
This is changing rapidly, however. Coops are looking up with the rapid growth of digitization.
Of the unbanked in Latin America, approximately 67% have mobile phones, internet access, and social media users. And 106 million young people (aged 15 to 24) – 20% of them are digital natives, who are fast to adapt. Similarly, Africa has more than 700 million mobile users and growing. Most don’t have bank accounts or access to a Coop but do have a mobile phone or internet access.
A Coop’s size is based on the number of members. As more join, the financial coop has more resources to grow, offer more financial products, better service, reduced fees, lower interest rates on loans, and higher yields on savings. This can be a tipping point as mobiles can be used for Coops too mobilize new members.
For example with solutions such as Bankingly a Coop can go to the next level in a few weeks. By offering digital, mobile banking, social channels, apps, improved back-office functions, Coops can reach further and broader with minimal costs and effort. They can scale up rapidly to serve more members, offer new products and services that can grow the Coop’s asset base and reach.
Compared to other financial institutions, coops have performed well, notwithstanding the problems. This is due to the straightforward operations, simple structure, reasonable pay, commitment to members rather than short-term profit maximization.
People without access to financial services have less opportunity to generate income, accumulate assets or secure their future. Coops are overcoming market imperfections that perpetuate poverty by providing resources, support and deepening access to financial services.
Coops have a great future ahead. Bankingly believes Coops will undergo more rapid changes the coming decade (than in their entire previous 170 years of existence) as they continue their altruistic business model and embrace digital transformation.