1. The Role of Networks: The Experience of DGRV in Germany and in Developing Countries
Paul Armbruster
DGRV – Deutscher Genossenschafts- und Raiffeisen Verband e.V. Head of International Relations Department

2. Financial cooperatives Cooperative Banks
Table of content
Introduction
Financial cooperatives
Cooperative Banks
Models of cooperative networks
Cooperative systems
Challenges
Key success factors of German cooperatives
Conclusions
The Cooperative Sector in Germany
The Cooperative Financial Network

3. The financial sector plays a vital role in economic development
Introduction I
The financial sector plays a vital role in economic development
Worldwide, Financial Cooperatives are an important part of the financial sector
 as full-fledged banks
 as ‘non-banks’-institutions / credit unions

4. Organizational approaches of financial systems Centralized systems
Introduction II
Organizational approaches of financial systems
Centralized systems
Decision-making process centralized
In many countries: urban bias, channeling of savings from rural to urban areas, no backflow of credits, development and growth only in urban areas
but: remittances from urban to rural areas
Decentralized systems
Decision-making process decentralized
Local knowledge about local economy
Local/regional savings/investment-circles

5. Financial Cooperatives
A cooperative is a group of persons following the principles of:
 Self-help, Self-governance, Self-responsibility
Focus on members – Member Value vs. Shareholder Value
Cooperative Banks:
Legal form: cooperative
Financial activities are based on general banking law  fully licensed banks (level playing field)
Credit and Savings cooperatives and Credit Unions:
Legal form: cooperative/credit union
Special legislation and special supervision
Alternatives: under banking law or rules derived from banking law

6. Cooperative Banks in Europe – Financial Partners for Local Economy
Sustainable relationship
Proximity with members/clients
Decentralization as an asset
Best financial services
More stable than commercial banks
They induce economic and social effects

7. Models of Cooperative Networks
Centralized and highly concentrated at national level
Centralized and concentrated at regional level
Federated and decentralized but integrated by law
Decentralized but integrated on a voluntary basis

8. Evolution of Cooperative Systems
Cooperative Systems I
Evolution of Cooperative Systems
From scratch: starting with individual local cooperatives
Top-down: starting with one (central) unit opening new branches and new cooperatives
Simultaneous a. and b.  networking on different levels

9. Cooperative Systems II
Weaknesses
Traditional financial cooperatives are being marginalized or do not emerge
Other financial institutions open access to financial services
Many coops/credit unions lack scale and adequate capitalization
Legislation is too restrictive in many countries

10. Cooperative Systems III
Weaknesses (cont.)
Many coops are not part of networks  stand alone
Lack of professional staff and leadership
Lack of internal/external control and adequate supervision by finance sector authority
Lack of adapted services
only short-term deposits
problem of maturity transformation
Liquidity "trap"  
No investment opportunities within the system
No long term credit
No access to long term refinance

11. Main Challenges for Cooperatives Adaption to international rules
Challenges I
Main Challenges for Cooperatives
Adaption to international rules
Transform into full-fledged institutions or integration into a network within full-fledged Apex institutions
Adequate capitalization (Basle Rules) through shares and other capital instruments

12. Separation of Operational Structures from Governance Structures
Challenges II
Separation of Operational Structures from Governance Structures
Operations member and market oriented, and efficient
Governance structure within the coops and the system

13. A Multi-tier Cooperative Structure
Challenges III
A Multi-tier Cooperative Structure
Maintain the efficiency of the individual cooperative
Maintain the efficiency of the system
Economies of scale within the system
Being competitive
Offer all services needed
Support of the local coops in their role as local financial institutions

14. Liquidity management and intermediation among the local coops
Challenges VI
Apex Institutions
Liquidity management and intermediation among the local coops
Investment of liquidity and refinance for individual coops
Organisation of payment and remittance systems
Support of marketing activities
Organisation of internal control systems
Participation in public credit programs
Participation in international programs

15. Regulation and supervision Auditing Deposit insurance
Challenges V
Further challenges
Regulation and supervision
Auditing
Deposit insurance
Institutional protection systems
Legislation
Training

16. Key Success Factors of Cooperatives
Legal mandate for promotion of members’ economy through joint business “cooperative as an enterprise”
Adequate legal basis
Structured as a decentralised, multilevel network system
Compulsory audit (by cooperative federations)
Regulation and supervision of coop. financial institutions (level-playing field)
Institutional protection scheme of cooperative banks (incl. savings guarantee system)
Well-structured Training / Qualification System

17. External support of individual cooperatives
Conclusions
External support of individual cooperatives
can limit the establishment of cooperative networks
can lead to institutional egoism
can lead to lack of solidarity among the cooperatives
Possible way out: support to strengthen cooperative systems / multi level approach (macro/meso/mirco level)

18. The Cooperative Sector in Germany
National level 24
specialised institution e.g. DZ Bank
Regional level
6 regional audit federations
6 specialised audit federations 4
specialised regional institutions
17 Raiffeisen
central coops
1 regional Coop.
Central Bank
2 central industry commodity coops
Local level
6 specialised auditing federations: Edeka, FPV, PSD Banken, REWE, Sparda-Banken, Verkehr
2,512 Raiffeisen coops incl. 811 agricult. production coops
1,121 Cooperative Banks with 13,350 outlets
1,921 buying and marketing groups and other service coops and 214 consumer coops
151 mixed cooperatives (bank / agric. commerce, service)
per 31st Dec. 2011

19. The Cooperative Financial Network
National cooperative
central bank
Regional cooperative
central bank
917
204
1,121 l o c a l c o o p e r a t i v e b a n k s, 13,350 o u t l e t s
( Volksbanks and Raiffeisenbanks, Sparda-Banken, Post-Spar- und Darlehensvereine )
5 regional auditing federations
(Bavaria, Hesse/Rhineland-Palatinate/Saarland/Saxony/Thuringia,
North Germany, Rhineland/Westphalia, Weser-Ems, Baden Württemberg)
Audit federation of the
Sparda-Banken
Audit federation of the Post-Spar-Darlehensvereine
National Association of Volksbanks and Raiffeisenbanks

20. Thank you ! Dr. Paul Armbruster armbruster@dgrv.de