Corporate Governance and Access to Finance - ESBG

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3.3. Mutuals and cooperativesThis organizational structure presents three characteristics very relevantfor Corporate Governance:1. The voting rights may be not proportional to the size of the stake (forexample, one person, one vote).2. There is no separation between customer and owner, as ownershiprights can accrue by becoming a “customer”.3. Each owner has a claim to residual net worth, which is usually “nonexclusive”: typically new members can join on equal terms to those ofprevious ones. Ownership claims are not explicit and marketable, as ina limited company.If owners are also the customers, the implication is that the person withwhom business is done is the person for whom business is done (Penrose,2004). This has two important implications for Corporate Governance:(i) its definition is less clear, because of the ambiguity of the firms’objectives in the case of mutuals, due to the absence of an equivalent ofmaximizing shareholders’ value; and (ii) the main types of CorporateGovernance conflicts arise among the owners, since their interest tendto be different.The non exclusive claim implies that a mutualist cannot prevent thatthe mutual does business with new customers, who join the mutual withthe same rights than the former mutualists. Its capital is built fromaccumulated profits, leaving aside subordinated debt and similar financialinstruments. This has several implications:1. Market discipline is inexistent or very weak.2. There is no distribution of profits to owners, except the possibilityto dedicate part of these profits to improve the products in favor ofthe owners, as it is typical in insurance mutuals.3. Mutuals enjoy a theoretical advantage in the cost of capital, in thesense that it does not need to be explicitly remunerated.More details on Corporate Governance of mutual banks can be foundin Llewellyn (2007), in particular for British building societies.Although these entities are not members of WSBI, they are a goodexample of mutual banks.52
Cooperatives are similar to mutuals as far as the absence of separationbetween customer and owners is concerned, but in a lesser measure,because cooperatives may have a limited business with customers thatare not owners. Also, they may have externally-held capital, although, ingeneral, in a non-marketable form.BOX 3. PHILIPPINES POSTAL SAVINGS BANK (PPSB)Corporate GovernanceThe only shareholder of the PPSB is the Philippine PostalCorporation (PPC). The PPSB is a separate legal entity, with fullautonomy under the direction of its own board of directors, its ownbalance sheet, and profit and loss accounts, in accordance withWorld Bank recommendations (see World Bank, 2006). This is inline with good Corporate Governance practice, since a postalorganization and a bank are completely different businesses thatrequire different management skills. However, the completeseparation is not benefiting PPSB from a capitalisation point ofview. Only 50 percent of the PPSB authorized capital (1- billionpesos) has been subscribed by the PPC and only 30 percent waspaid up. Retained earnings over recent years have increased thisfigure to 40 percent, but the accumulation of profits is a very slowprocess to increase capital. At the present pace it will take 25 yearsto reach the level of the authorized capital.In the Philippines public banks do not provide in general any“additionality” to the private sector; government banks are rathercompetitors of private banks. Besides the PPSB there are manyother government-owned banks: Development Bank of thePhilippines (DBP), Land Bank of the Philippines (LBP), Veterans Bank(now private) and Al Amanah (an Islamic Bank). This diversity is notstrictly based on different missions, but rather on history. They wereborn to address a certain market failure, but in general this is nolonger the case. The possibility of merging some of them has beendiscussed several times, but no decision has been made. The caseof the Philippines seems to depart from good practices in thisregard, which in general recommend for public banks to have aclear mission related to an identified market failure, especially ifthere are several of them operating in the country.53
Page 6 and 7: BoxesBox 1. German Sparkassen 27Box
Page 9 and 10: EXECUTIVE SUMMARYBackground and obj
Page 11 and 12: nnAccess to Finance in enshrined in
Page 13 and 14: Chart A.Corporate Governance, Acces
Page 15 and 16: nThe study also shows that Corporat
Page 17 and 18: 1. INTRODUCTION1.1. Focus and objec
Page 19 and 20: WSBI members are by definition acco
Page 21 and 22: For the particular case of developi
Page 23 and 24: 2. THE LINK BETWEENCORPORATE GOVERN
Page 25: Table 2. Main features of the Missi
Page 28 and 29: Access to financeSparkassen promote
Page 30 and 31: All these examples illustrate how p
Page 32 and 33: In the case of Peru, the profits th
Page 34 and 35: Among the WSBI institutions that re
Page 36 and 37: BOX 2. KENYA POST OFFICE SAVINGS BA
Page 38 and 39: The fact that the banking system is
Page 41 and 42: 3. CORPORATE GOVERNANCE -CONCEPTUAL
Page 43 and 44: Figure 2. Sound Governance of Finan
Page 45 and 46: As can be seen in the figure above,
Page 47 and 48: nnnAt the same time, the distance a
Page 49 and 50: The first two elements (the ownersh
Page 51: nHowever, this does not mean denyin
Page 55 and 56: 3.4. FoundationsFoundations do not
Page 57 and 58: 3.5. Good Corporate Governance prac
Page 59 and 60: F. DISCLOSURE AND TRANSPARENCYPrinc
Page 61 and 62: 4. ACCESS TO FINANCE -CONCEPTUAL FR
Page 63 and 64: 4.1. Financial deepening and improv
Page 65 and 66: The board does not have any executi
Page 67 and 68: In other words, sustainable financi
Page 69 and 70: The following table shows how the W
Page 71 and 72: The fourth dimension refers to the
Page 73: Table 8. Access to Finance in the f
Page 76 and 77: Only 27 members established in 21 c
Page 78 and 79: nnDCI (Depth of credit information
Page 80 and 81: 5.2. Corporate Governance and Acces
Page 82 and 83: 5.2.1. Corporate Governance and Ave
Page 84 and 85: Chart 8.Specific Corporate Governan
Page 86 and 87: 5.2.2. Corporate Governance and Ave
Page 88 and 89: Chart 13. Corporate Governance comp
Page 90 and 91: Chart 16. Corporate Governance Inde
Page 92 and 93: Chart 19. Specific Corporate Govern
Page 95 and 96: ANNEX 1: REVIEW OFTHE LITERATUREThe
Page 97 and 98: Even among the relatively narrow un
Page 99 and 100: Figure A.1. Structure of agents' re
Page 101 and 102: The table captures the essence of s
Page 103 and 104:
A case study built by Clarke et al
Page 105 and 106:
A very recent contribution to the d
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For example, in Latin America, WSBI
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The paper examines whether a poor e
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For the survival of microfinance in
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ANNEX 2: CASE STUDIES 32CASE STUDY
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It is one of the major characterist
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Although Sparkassen are legally and
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Figure A.2. Corporate Loans Market
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Financial education is also an impo
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Corporate GovernanceKPOSB is wholly
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Among the initiatives that the gove
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Related to the concession of credit
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OPERATIONS1. Deposit Base: It was p
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Corporate GovernanceThe Central Ban
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To address the problem of capital,
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Financial inclusion ranges very hig
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CASE STUDY 4:SPANISH SAVINGS BANKS
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The uniform financial regulation of
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Figure A.3. Governing Bodies - Span
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The web-based tool www.rededucacion
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On the liability side, CMAC offer m
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A specificity of CMAC is that the m
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Table A.3.MissionMissionCMAC AREQUI
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As of September of 2009, the twelve
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Furthermore, the consensus culture
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ANNEX 3: QUESTIONNAIREQUESTIONI. Ge
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ANNEX 4:THE HONOHAN INDEX 43COMPOSI
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COMPOSITE MEASURE OF ACCESS TO FINA
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ANNEX 5:QUANTITATIVE RESULTSCountry
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Overall Corporate Governance IndexO
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REFERENCES- Andrianova, S., Demetri
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- FSD Kenya (2009), Financial Secto
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- World Bank (2006) The Role of Pos
Page 172:
WSBI - ESBG - The Global Voice of S
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