Don't Drown the Seedlings: Lessons for Savings and Credit Union Development from the Experience in East and Central Asia

This paper aims to provide practical insights into the nature of savings and credit unions (SCUs) and their supporting infrastructure, and draw conclusions that will be helpful to policy-makers and development partners.Some central themes of the paper are:

• The issues and challenges in SCU development draw from experience with microfinance and financial sector reforms;
• Cooperative ownership of SCUs frequently exists only in name;
• External financing of SCU formation undermines their cooperative nature and long-term development;
• The costs associated with SCUs can be mitigated through centralized provision of core services, training and standardized systems;
• A risk-focused system incorporating the graduated approach helps to reconcile conflicting objectives.

The paper:

• Provides an overview of the similarities and differences between SCUs and other providers of financial services, focusing on:
  • Cooperative ownership;
  • The tiered institutional structure found in the cooperative sector;
  • Regulation and supervision.
• Summarizes experiences with SCUs in the following selected countries:
  • Azerbaijan;
  • The PRC;
  • The Kyrgyz Republic;
  • Mongolia.
• Draws lessons from the experiences in the selected countries, and the literature on SCUs, microfinance and financial development.

The paper makes the following concluding observations:

• Truly cooperative SCUs are difficult to create and challenging to nurture;
• Outside assistance is successful when it focuses on the education of individuals about cooperatives;
• Sequencing is vital in SCU development;
• Building supervisory capacity is as important as building capacity in SCUs.