Providing Financial Services in Rural Areas: A Fresh Look at Financial Cooperatives

This report is based on findings from workshops and case studies commissioned by the World Banks Agriculture and Rural Development Department that assessed prospects for supporting outreach by financial cooperatives to the rural poor.

The report demonstrates that financial cooperatives can be sustainable providers of financial services in rural areas. Findings include:

• Success of financial cooperatives is based on an institutional and business model that is democratic, bottom-up, autonomous, self-financing, and savings-based;
• Vertical integration has brought strength and efficiency to financial cooperative sectors;
• Many financial cooperative sectors have driven and financed their own growth;
• Financial cooperatives have a history of government and donor interventions, most of which were unsuccessful;
• Integration into networks has benefits for financial cooperatives that range from improved governance to the ability to provide a variety of services.

The report finds enormous growth potential for financial cooperatives, and recommends that they build their growth strategies on solid governance structures and a sound financial situation. Development assistance must consider supporting financial cooperatives as a means to enhance access to rural finance. Finally, governments must provide an enabling environment for the sustainability of financial cooperatives.