June 18-20 2009, Sobey School of Business, Saint Mary's University
by Peter van Dijk, Micro-Finance Consultant
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Objectives
1. « Tour du monde », some experiences with financial
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cooperatives in different countries;
What is Micro-finance and what is its role in
financial sector development, poverty alleviation;
What is the Role of Government?
Different interpretations of cooperative principles;
Risks of public support, by government, foreign
donors;
Possible steps to design a local process for the
sustainable development of financial coops.
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I. Situation, public policy challenges of/for
financial coops in some parts of the world
 East Africa (Kenya, Rwanda, Tanzania, Uganda)
- long history of Sacco’s and Coop and Sacco authorities
- weak authorities, few reliable data, documented weak performance.
 French-speaking West African UEMOA region
- creation of Sacco’s as consequence of one foreign donor project with BCEAO
- large organisations, high penetration rate
- influx of foreign support of Sacco’s leading to stressed relationship between
regulator (BCEAO), supervisor (FinMin-y dep-t), MFIs, donors
- worrying trends on large foreign debt, social investments, bad loan portfolio
quality, stagnant savings and slow growth (particular members).
 Southern Africa (South Africa, Madagascar)
- creation and support of many different local and foreign bodies
- no shared mindset, principles, no central public leadership
- weak, small, limited potential for sustainability and growth.
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Situation, public policy challenges of/for financial coops
in some parts of the world (continued)
 Cambodia, Laos
- Bad aftertaste of past political experiments influenced by totalitarian
regimes, local and foreign
- Different foreign donor agencies creating Sacco’s without centralised
effective supervision (some cases regulation written by foreign experts);
 Pakistan
- Long history of government Sacco program , with bad collaboration between
central and provincial authorities, as well as Credit focus
- Misappropriation, politicisation, fraud, theft, closure of Sacco’s, Coop Banks;
 Indonesia
- Many government, civic society and foreign projects in MF, many MFI’s
created as cooperative societies
- Weak collaboration between central bank and finance ministry on MF/FSD
and a Cooperatives Ministry with few reliable data.
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Table of Conclusions
Regions
Origin, Performance
Public policy issues, challenges
East Africa
Protectorate Great Britain
Widespread support
program for Coops, Sacco’s
Recognition and understanding of
Cooperative Society as legal form;
Lack of ex-/-internal coordination
West Africa
Donor project, DID Canada Advantage of one expert donor
Coop dominant MFI status working with one auth-y;
unregulated influx foreign donors
Southern Africa
Many different support
initiatives
Small in nr, scale of oper-s
Lack of local government
leadership; politicisation; credit
focus; lack of common mindset
Cambodia, Laos
Bad aftertaste ‘communist’
initiatives
Foreign donor projects
Antipathetic culture; lack of local
understanding; no integration of
foreign aid into MF/FSD strategy
Pakistan
Large Government program Politicisation; lack of internal
Nearly all closed by 2008
coordination; abuse, criminality
Indonesia
Government and foreign
projects
Most are small
Lack of government leadership,
forging common mindset and
coordinating all efforts
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II.Please Government, what is Microfinance?
1. A tool for building inclusive, stable, self-sustainable financial sector?
2. A part of the social safety net, providing politicised loans to different
target clients?
Although the overall goal of both is the emancipation of poor citizens,
these activities need to be clearly separated!! Because:- Strategy demands a common mindset based on full understanding of
the realities of finance and the complexity of all influences on it;
- Achieving strategic objectives demands a coherent policy framework
and a regulatory framework ensuring full compliance;
- Socio-political objectives and subsidies have a damaging effect on
financial sector development, making a transparent performance
based market impossible and causing unfair competition.
Only in a clear, coherent environment can Cooperative societies find
their proper role in achieving the above-mentioned first definition.
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III. Developing a strategy, policy, a regulatory
framework, and ensuring their implementation and
full application are very expensive activities,
especially when safety of money needs to be ensured
Need for specific triggers for when to regulate institutions that
provide financial services: Do they bear risks for the stability of the financial system?
 Do they put at risk deposits and savings of the general public?
 Do they affect a market process (data, transparency, fair comp.)?
Financial coops are often small and concern the money of members
who agree on rules and who control the organisations. As they are
often small, operate in remote areas and under specific rules, it
requires specific expertise, efficient coordination and adequate
resources to regulate them and ensure full compliance.
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IV. Identical rules of Financial Services Cooperatives
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Member ownership (shares, capital value, control)
Savings oriented (deposits, longer term savings)
Common Bond, Solidarity
Non-profit Objective (sustainability, use of profits)
Obligatory reserves (statutory reserves)
Voluntarism (free will, own initiative)
Rigorous Governance structure, rules
Small markets, non-competition
Different levels of Cooperative societies
Gradual transformation into banks
Specific Regulation, Supervision.
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Some remarks on important Sacco Rules
Member ownership
As other investors, state or private, are committed to put money in
Financial Institutions for poor & rural citizens, the latter need to
organise themselves. That means they have to contribute a sum of
money that is affordable as well as important for them to be actively
involved in these organisations. Active membership means real
ownership, real control, with shares that compare to the total value of
the organisation.
Savings oriented
The second important factor that determines a Sacco’s sustainable
health, growth is that they are deposit- & savings oriented. That means
that loan capital does not come from any other source than from
member deposits (apart from capital) and their longer term specific
savings products. Capital & savings ensure that members are active
owners and controllers.
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Remarks on Sacco rules (continued)
Non-profit Objective
MF and cooperative supporters often do not fully understand the legal
status of a cooperative society that provides financial services. They want
it to be sustainable but they also do not want it to make profits. That
misunderstanding is often due to two issues: 1) the non-profit objective of
cooperative soc-s means that they can (and should as commercial
companies) make profits but that these profits are in principle not
distributed between owners, shareholders, but re-invested in the coop; 2)
net income over total costs are often called “surplus” by cooperants and
not “profit” as lawyers and economists do.
Obligatory reserves (legal & statutory reserves)
Minimum capital requirements and provisions are basic conditions for
banks. In cooperative regulations these items are included under regulatory
reserves. Statutory reserves are additional reserves of which training (and
growth) is most important, considering that members have had little
education and certainly not on controlling financial institutions.
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Remarks on Sacco rules (continued)
Voluntarism
Sacco’s are created out of free will, own initiative of individuals. Their
creation, growth cannot be dictated by political strategies or donor projects.
This principle also means that member activities, especially in control
functions are non-remunerated and need to be well managed. If not, the cost
advantage and common bond that Sacco’s success rely upon, will be lost.
Small markets, non-competition
Again to ensure common bond and effective control, Sacco’s, especially in
start phases and underdeveloped environment, should be small. Growth will
necessitate the creation of more &different levels of cooperative societies.
To allow their growth they should not compete between each other.
Gradual transformation into banks
The basic signal of good Sacco performance is their growth. That means
that its organisation and regulation aim at gradual integration into the
banking sector.
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IV. Benefits & Pitfalls of foreign donor aid
 A lack of local government understanding and a multitude of
foreign donors creating Sacco’s and providing technical &
financial assistance, often resulted in weak and failing Sacco’s;
 However, as many governments have little own know-how of
Sacco’s, have limited resources and an uneducated public,
foreign assistance can help;
 The world’s leading MF/FSD Donors have under CGAP and the
declarations of Monterrey, Paris and Doha promised to
strengthen donor coordination and make their aid more
effective;
 Local governments should integrate foreign aid into their
national programs and promote accountability, focusing on their
strategies, definitions and local processes.
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V. How to design an appropriate local development
process for financial coops?
1. National Financial Sector Development Strategy
developed, coordinated & supervised at the highest
executive level (National FSD/MF Council);
2. National Microfinance Strategy that is in included under
the FSD Strategy;
3. A FSD/MF Policy framework that ensures that all
“flanking policies” are in coherence;
4. Financial Cooperatives chapters in FSD/MF policy fwk
5. An FSD and MF Regulatory framework that ensures
implementation of strategies and compliance with laws;
6. Public promotion & education campaign on Sacco’s;
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V. How to design an local development process
for financial coops? (continued)
7. Creation of a competent national Coop Authority with
adequate resources to effectively regulate and supervise
all Sacco’s (registered, and with capacity to identify
unregistered org-s that should register);
8. A specific Database on the performance of registered
Sacco’s, created with assistance of the central bank with a
comparable system and format;
9. All national and foreign support to Sacco’s needs to be
known to the Coop Auth-y and all such organisations
need to be member of the FSD/MF Council, respecting
local rules and procedures.
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Any questions, doubts ?
Thank you for your attention
Peter van Dijk
petrusvandijk@yahoo.com
Home base: Jakarta, Indonesia
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