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Comparative Study of Member-Owned Institutions in Remote Rural Areas

This study compares member-owned institutions in remote rural areas in India and Indonesia, with future cases from Ecuador, Mexico, Mali, and Cameroon. It explores outreach aspects, key drivers, and methods for MOIs. The study includes various MOI systems like cooperatives, SHGs, and LPDs in different regions. Findings emphasize the significance of unique features of MOIs in reaching underserved rural populations. The study delves into governance, regulation, and the dynamics of networks and linkages that enhance outreach. Insights reveal the importance of base-tier informality, liquidity management, and tailored regulation for smaller MOIs.

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Comparative Study of Member-Owned Institutions in Remote Rural Areas

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  1. Comparative Study of Member Owned Institutions in Remote Rural Areas Rewa Misra & Nanci LeeCoady International InstituteSt. Francis Xavier UniversityCanada

  2. The Study • Compares member owned institutions in rural remote areas • Countries covered India, Indonesia • To be covered – Ecuador, Mexico, Mali, Cameroon • Draft findings from initial cases • Framework - Outreach aspects breadth, length, depth, scope and worth Key drivers of outreach for MOIs in remote rural – networks and linkages, governance and regulation for MOIs • Method in depth case research, cross case comparisons • Mutual organizations, cooperatives and financial service association in Africa and cooperatives in Latin America, self help groups (linked and networked models) in India and village informal savings and loan associations called LPD (Lembaga Perkreditan Desas) in Indonesia.

  3. Why Member Owned Institutions (MOIs) • Remote rural – • underserved • low cash liquidity • seasonality of incomes • high covariance risk • highly segmented markets • MOIs reach remote rural • Have distinctive features which help to reach remote rural • low cost • social capital • informal, flexible

  4. MOI Systems • SHG linked with formal cooperatives/Primary Agriculture Credit Societies, West Bengal, India • SHG networked into cooperatives/Mutually aided cooperative societies, Andhra Pradesh, India • Village associations – Lembaga Perkreditan Desa, LPDs, Indonesia

  5. MOI systems BPD ASP SCB Bank Apex DCCB Jeevan MACs LPD PACs 2nd Tier VO Base Tier SHGs

  6. Outreach

  7. Drivers of Outreach for MOIs • Member owned institutions and systems refer to a heterogeneous set of institutions • Regulatory frameworks, supervision, governance where they exist for member owned institutions geared towards formal cooperatives • In as much as ownership, membership defined differently in more decentralised models so also should governance and regulation • Eg. four characteristics of cooperatives –one person one vote, unbundling votes and membership not allowed, supply and use of funds by users, dividends for both savers and borrowers do not exist in SHGs and other more informal MOIs • What do we learn from the study about the nature of networks and linkages, governance and regulation that work best for enhanced outreach

  8. Governance • Informality of base tier – ownership may be informal as also governance but we see much greater sense of ownership and effective internal control in this tier eg. SHG • Factors – size, savings control, see immediate returns • Second tier institutions more rigid more defined governance however member ownership and internal controls diluted – eg. PACs, LPDs • For this reason base tier helps build accountability in linked networked systems, helps exercise internal control. eg. PACs, MACs. Where it does not exist there is a danger for fraud, for management member conflicts eg. LPDs

  9. Cross cutting themes –Networking and Linkages • Liquidity key driver • Liquidity needs of even small MOIs diverse – base tier provides flexibility for remote and deep outreach, deeper outreach through social collateral, second tier provides larger loans absorbs first risks and costs • Balance between internal and external funds and addressing conflict in management of these funds (PACs, MACs) important for smoothing liquidity • To resolve this – • clearly define member ownership across tiers (Where this does not happen linkages may be disrupted eg. PACs) • orient apex institutions to take a more flexible approach eg. LPDs

  10. Regulation and Supervision • Better if: • Enables liquidity exchange, but hands off in the case of base tiers - SHGs, MACs • Where there is at least some indirect supervision – PACs, MACs • Clear path to graduation/transformation/networking from small to big - MACs • Does not work where • supervision is direct, is multi agency but simplistic in its approach to varied needs . Rating and guidance is similarly oriented towards larger institutions – eg. LPDs

  11. Conclusions • MOIs reach remote rural effectively • MOIs diverse set of institutions from semi formal to formal – need to reorient governance, regulation to address this continuum • Base tier semiformal but key for ensuring flexibility of services and internal governance - ensures greater depth, breadth, worth in remote rural • Second tier brings liquidity, product diversification key for length, scope • Defining ownership membership across MOIs in linked networked models important for addressing liquidity needs • Regulation where it does exist may not be well adapted to needs of smaller MOIs. Better not to regulate smaller MOIs but provide for a clear graduation to regulated structures

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