Resilience in a Downturn: The Power of Financial Cooperatives

This paper focuses on how financial cooperatives fare in times of crisis. It discusses the invention and evolution of financial cooperatives and also their advantages and disadvantages. The paper analyzes the performance of financial cooperatives during and after the 2007-2008 financial crisis and explains that they were able to weather the storm due to their unique combination of member ownership, control and benefit. It makes the following recommendations:

• Financial cooperatives need a sympathetic environment in addition to a well-crafted regulatory system if they are to reach their potential;
• Financial cooperatives need dedicated promoters to set up new societies, and experts to strengthen them. This is best done "movement to movement," by cooperative apex bodies in countries where they are already well established;
• Where NGOs are active in promoting microfinance, financial cooperatives should be careful to nurture sustainable savings-and-credit based cooperatives rather than simply dispensing loans. They should also pay attention to the need for apex bodies that strengthen financial cooperatives as a system;
• Microfinance investment funds may find cooperatives an attractive conduit for lending, but there is a danger that they may swamp them with credit that undermines their autonomy.