Cooperative Bank
In summary, a cooperative bank is a financial institution that focuses on banking functions for commercial and retail sectors. This type of bank is created and operated on a cooperative basis, capable of receiving customer deposits and making loans in most countries. Cooperative banking encompasses retail banking services, which are handled through mutual savings and loan associations, credit unions, cooperatives, and building societies but also services for commercial banking, which would be offered through mutual organizations to cooperative businesses usually through cooperative federations.
The thing that makes a cooperative bank different from a conventional bank is that it belongs to the members who are both customers and owners of the bank. Typically, a bank such as this is formed by people who are members of the same professional or local community or people who have interest in owning and sharing something of interest. Again, these banks provide many of the same products and services as a traditional bank offers but some of the things that make a cooperative bank unique are the organization itself, the goals of the members, governance of the bank, and member’s values.
As with any bank, a cooperative bank is controlled and monitored in most countries by banking authorities. With this, the bank would need to follow established banking regulations so they can operate at the same level as banks with stockholders do. Now, the way in which supervision is carried out can vary from one country to another, sometimes being established and controlled by state entities directly, or perhaps a central body or a federation that has been delegated specifically for this purpose. In addition, the rules for a cooperative bank could differ based on national legislations.
However, when looking at each cooperative bank in existence, they all share commonalities. For instance, these banks are customer owned by bank members. Therefore, the goal of a bank of this kind would not be to increase profit to the maximum but to make sure members are being presented with the best banking products and services available. Another area shared is the control by democratic members. For this, members that own a cooperative bank are given equal voting rights and democratically, a board of directors is elected.
Another common area for the cooperative bank is with allocation of profits. Typically, a large portion of annual benefits, profits, and/or surplus goes to reserves although some of this might also be distributed among the members with limitations in place. Regarding the allocation of profit to members, this is handled through a dividend linked to the number of shares that each member had subscribed to or via products and/or services that each member of the cooperative bank uses.
The benefit of the cooperative bank is that it helps to boost the economy and morale of local communities. In fact, banks of this type of usually heavily involved with the development of the community, whether in the form of hands-on development or through contributions. Since most members live in the same community where the cooperative bank is located, it is to the best interest of everyone to make banking products and services available where other banks do not possess the same strong presence such as low to middle-income areas, rural farmers, etc.
The bottom line is that the cooperative bank has a strong goal of boosting the economy of the community by creating and providing a more efficient and effective banking system. With this, the bank actually has a direct affect on economic growth, which has proven highly successful not just for developed countries but also developing countries. Although some people feel the cooperative bank could be risky because of governance, most believe without this type of banking system, many countries would be without financial products and services needed to sustain and grow the economy.