Comparative Study of Member Owned Institutions in Remote Rural Areas

The Study  Compares member owned institutions in rural remote areas  Countries covered India, Indonesia  To be covered – Ecuador, Mexico, Mali, Cameroon  Draft findings from initial cases  Framework - Outreach aspects breadth, length, depth, scope and worth Key drivers of outreach for MOIs in remote rural – networks and linkages, governance and regulation for MOIs  Method in depth case research, cross case comparisons  Mutual organizations, cooperatives and financial service association in Africa and cooperatives in Latin America, self help groups (linked and networked models) in India and village informal savings and loan associations called LPD (Lembaga Perkreditan Desas) in Indonesia.

Why Member Owned Institutions (MOIs)  Remote rural – ○ underserved ○ low cash liquidity ○ seasonality of incomes ○ high covariance risk ○ highly segmented markets  MOIs reach remote rural  Have distinctive features which help to reach remote rural ○ low cost ○ social capital ○ informal, flexible

MOI Systems  SHG linked with formal cooperatives/Primary Agriculture Credit Societies, West Bengal, India  SHG networked into cooperatives/Mutually aided cooperative societies, Andhra Pradesh, India  Village associations – Lembaga Perkreditan Desa, LPDs, Indonesia

VO MOI systems Jeevan MACs LPD BPDBPD PACs DCCB SCBSCB ASPASP SHGs Base Tier 2 nd Tier Apex Bank

Outreach SHG-PACsSHG-MACsLPDs Breadth85 SHGs 1600 members 91 SHGs 1020 members 1 LPD 1020 members DepthKey informant, PWR Key Informant, PWR Av savings balances Key Informant, PWR LengthPACs - SHG product line- 97% OSS, 1% - OER MACs OSS – 158% OER – 1% OSS -200% High ROA – 18% OER – App 4.14% Scope (key issues) Leverage of internal funds to external funds High interest rate, timeliness Savings, high interest rate, timeliness Worth (Key issues) Ownership PACsOwnership MACsNature of ownership

 Member owned institutions and systems refer to a heterogeneous set of institutions  Regulatory frameworks, supervision, governance where they exist for member owned institutions geared towards formal cooperatives  In as much as ownership, membership defined differently in more decentralised models so also should governance and regulation Eg. four characteristics of cooperatives –one person one vote, unbundling votes and membership not allowed, supply and use of funds by users, dividends for both savers and borrowers do not exist in SHGs and other more informal MOIs  What do we learn from the study about the nature of networks and linkages, governance and regulation that work best for enhanced outreach Drivers of Outreach for MOIs

 Informality of base tier – ownership may be informal as also governance but we see much greater sense of ownership and effective internal control in this tier eg. SHG ○ Factors – size, savings control, see immediate returns  Second tier institutions more rigid more defined governance however member ownership and internal controls diluted – eg. PACs, LPDs  For this reason base tier helps build accountability in linked networked systems, helps exercise internal control. eg. PACs, MACs. Where it does not exist there is a danger for fraud, for management member conflicts eg. LPDs Governance

Cross cutting themes –Networking and Linkages  Liquidity key driver  Liquidity needs of even small MOIs diverse – base tier provides flexibility for remote and deep outreach, deeper outreach through social collateral, second tier provides larger loans absorbs first risks and costs  Balance between internal and external funds and addressing conflict in management of these funds (PACs, MACs) important for smoothing liquidity  To resolve this – clearly define member ownership across tiers (Where this does not happen linkages may be disrupted eg. PACs) orient apex institutions to take a more flexible approach eg. LPDs

○ Better if: Enables liquidity exchange, but hands off in the case of base tiers - SHGs, MACs Where there is at least some indirect supervision – PACs, MACs Clear path to graduation/transformation/networking from small to big - MACs ○ Does not work where supervision is direct, is multi agency but simplistic in its approach to varied needs. Rating and guidance is similarly oriented towards larger institutions – eg. LPDs Regulation and Supervision

Conclusions  MOIs reach remote rural effectively  MOIs diverse set of institutions from semi formal to formal – need to reorient governance, regulation to address this continuum  Base tier semiformal but key for ensuring flexibility of services and internal governance - ensures greater depth, breadth, worth in remote rural  Second tier brings liquidity, product diversification key for length, scope  Defining ownership membership across MOIs in linked networked models important for addressing liquidity needs  Regulation where it does exist may not be well adapted to needs of smaller MOIs. Better not to regulate smaller MOIs but provide for a clear graduation to regulated structures