Cooperative Sector Insights: Rabo Partnerships Lessons-learned

All around the world, Cooperative Financial Institutions (CFIs) show to have this distinctive strength and added value to society. With their large, retail outreach to underserved areas and population, CFIs have significant potential to deepen financial inclusion in rural and marginal urban areas. However, in many countries CFIs fail to reach their full potential due to limited economies of scale, insufficient management capacity, and inadequate regulation & supervision, amongst others.

To address these issues, Rabo Partnerships (RP) and the World Bank (WB) started a program with the support of the Dutch Ministry of Foreign Affairs and Rabo Foundation. This program followed a parallel approach to change the sectors for the long run where RP focused on the organisational set up of the sector, working closely together with these CFIs, their federations, and networks. Meanwhile, WB addressed policy work supporting reforms to the regulatory & supervisory environment and financial safety nets. Additionally, a Center of Excellence (CoE) was set up to exchange sector knowledge and initiate discussions on relevant topics.

Different initial states of CFI networks called for different program approaches. In Colombia, the program initiated a regional consolidation of six CFIs so they could jointly make investments and collect knowledge to better serve the agricultural sector. In West Africa, a widely integrated network already existed with CFIs in five countries. Yet, they were experiencing challenges in taking the next step in digitization, which is why we offered tailored advice to their cooperatives located in Senegal and Benin. In Ethiopia, we encountered a highly scattered sector and designed a strategy for a Shared Services Center, focusing on operational integration and standardization of products and services.

Although challenges and approaches to strengthen the CFI sector vary greatly, the common denominator in our program has been cooperation all along. There are 3 lessons learned on how cooperation is crucial to strengthen the CFI sector:

Cooperation between private and public sector is key to make a lasting & transformational impact: This program followed a parallel approach in which RP and WB provided support to the private and public sector, respectively. Working in parallel does not have to mean moving in lock step. The regulator and supervisor can start the work of developing reforms that demand advances in reporting and management, incentivizing the sector to act on institutional strengthening and cooperation, ultimately leading to greater integration in the sector. For example, increased enforcement of supervisory requirements in Colombia combined with the new role of the sector in the government strategy to support growth and equality prompted the sector to seek guidance and support on how to manage and respond to these requirements and engage in institutional strengthening work with RP.

Cooperation among cooperatives is needed to generate economies of scale and stay competitive: CFI’s local presence and connection with the communities in which they operate is one of their unique features. However, this often leads to scattered CFIs and of relatively small size compared to e.g. commercial banks. Cooperation among cooperatives can be a solution. This can range from operational cooperation through shared services, to full consolidation including the governance. It should be noted that cooperation alone is not enough: weaknesses in corporate governance are often noted in integrated cooperative structures and have counter-productive effects.

Next to their (potential) role in financial inclusion, CFIs are increasingly being discovered as a distribution network for sustainability and digital solutions. Consequently, many international organizations acknowledge the added value of CFIs and initiated projects to strengthen the sector. These projects range from standardized tools to tailored trainings and technical assistance. Oftentimes CFIs are a recipient of various types of support from multiple organizations. The impact of all these efforts and capacities could be maximized if stakeholders join forces in a more structural manner.

After three years, we recently concluded the program. Being part of a cooperative bank ourselves, we are pleased that we could leverage on the knowledge and network of Rabobank to strengthen CFI sectors elsewhere. Rabobank colleagues with ample experience in topics like cooperative governance, IT, risk management, and agricultural finance were able to support colleagues at CFIs to enhance practices in their field and in their respective countries. Moreover, as one of the involved colleagues stated: “it makes the added value of working for a cooperative very tangible”. Not only did we make impact on CFIs and their potential in contributing to financial inclusion, we also managed to build relationships with stakeholders in various parts of the world, while inspiring our Rabobank colleagues at home.