Co-Operative Banks and Co-Operative Credit Societies – Roles and Challenges

Rahul lives in a distant village with only cows and a field where his parents’ labour to earn Rs.300 a day. Their cows produce milk every day and after consumption, there are five litres of excess milk, daily. Rahul wants to sell this milk for extra money but doesn’t know how. So he meets his friends (who also have cows and excess milk to spare) and comes up with an idea that benefits all; he would collect all the excess milk and travel to the nearby town to sell it. Everyone agrees. As time passes, Rahul and the others come up with more ideas in a cohesive, cooperative manner that brings benefits to everyone involved!

Co-operative banks, more or less, work on this analogy. Any group of people can come together to make up the voluntary association, work together and support each other after registering with the Registrar of Co-operative Societies.

You may have come across Saraswat Bank or Cosmos Bank at some point? These are cooperative banks subject to the rules laid down by the Registrar of Co-operative Societies. So, comparatively, they have a more limited scope as compared to the commercial banks do although they have a solid role to play albeit on a smaller scale – not countrywide like commercial banks but more local. Co-operative banks offer credit to small traders and agriculturists and sometimes offer a higher rate of interest for deposits. So what are their challenges? How can technology help cooperative banks and cooperative credit societies to cope?  Here is an interesting take.

But first; The categories you should know

Governed by the banking regulations and laws, the Co-Operative banking has categories.

A Primary Co-operative Credit Society is formed by borrowers, often in the same vicinity. The funds are a culmination of deposits, share capital and loans from cooperative banks. Loans are often primarily for agriculturists. A Central Co-Operative Bank is where multiple primary Co-Operative societies in a district are members and offer finance to member societies. A State Co-Operative Bank more or less monitors the co-operative banking system in the state. However it does not deal with individuals primarily, it only deals with the central cooperative banks and societies.

Co-operative Credit Societies

With an open membership, people with common interests can come together to form an association and leave whenever they like too. Committees monitor day-to-day activities and members vote to elect these members. These members are not liable for any risk of risk liabilities though. As discussed above, both central and state governments offer help to such societies such as loans on lower interest rates, subsidies and other benefits of this nature.

The importance of Co-operative banks and societies cannot be over-stressed. They offer access to basic banking services to people who are often out of the ambit of traditional, big banks. Because they are local, and often structured around communities or regional templates, they become more approachable and less intimidating. They offer their customers services at a reasonable level of economy and with a greater degree of personalization. This is often the only viable banking option for these customers.

Challenges faced by Co-Operative Bank Credit Societies

Remember that Co-Operative banks and credit societies are an association of volunteer people. In such a democratic set-up and one that comes from a particular section of the society, for instance, the agriculturalists, there is always the challenge of capital. These are often folks who hesitate to invest available funds to grow their capital.

Management issues are often in the spotlight. This is a challenge because depending on the area abilities and talent may be compromised by staying contained within the existing members. Getting outside talent may also be an issue. Members from limited areas may not have the needed qualification, skills, or the capital required to invest in professional resources to manage the bank.

The ability of the bank or society to adopt technology gets impaired – this prevents them from making the most of what cost-saving, and effectiveness-improving options are already out there. This also impacts the products and services the society offers – sometimes limiting these to the old and outdated whereas the customers may want something more.

It’s fair to say that the limited scope of Co-operative Banks and Co-operative Societies is a double-edged sword. If the value of being small, self-contained, and local are foremost – the disadvantages are also apparent. If only there was a way for these fundamentally important financial institutions adopt new technologies and platforms that would allow them to function as well as the big banks!