Overview of Corporate Governance Issues for Co-operatives - IFC

However Cuevas and Fischer identify some problems with the model proposed byWOCCU which contains a bias towards the Anglo-Saxon credit union experience ratherthan those of financial co-operatives which operate within a different set of co-operativetraditions (Cuevas and Fischer 2006) ‡ .This view is endorsed in a recent paper from theInter America Development Bank. Recognising that European and North Americancountries have functioning delegated credit union systems, they point out that for thedeveloping world this strategy has not proved successful, with a high number of failures.Self regulation, while attractive on budgetary grounds, carries within it an inherentconflict of interest as federations find it hard to discipline their own powerful members,for example (Janssen et al 2004).The nature of appropriate supervisory and regulatory frameworks for financialco-operatives in developing countries is the primary focus of the paper by Cuevas andFischer. They review the literature and debates but note the absence of sufficientdocumented evidence to reach any definitive conclusions on what should be the natureof the regulatory and supervisory framework. However there is a pressing need todevelop core principles to underpin the framework for CFIs in developing countriesanalogous to those already in place for investor-owned banks.The overall lack of research does make definitive conclusions difficult but it is possibleto identify some governance challenges specific to co-operatives in the developingworld. Major changes are occurring to the overall governance framework through thereform and liberalisation of co-operative legislation in an growing number of countries.The arrival of an enabling rather than controlling legal framework undoubtedly providesan unprecedented opportunity for co-operatives. However it also presents a majorchallenge and many co-operatives remain unprepared and ill-equipped to meet thechanges.The studies also confirm that good governance is central to the success andsustainability of co-operatives in the developing as much as the developed world.Improving board performance and accountability remains a central issue together withimproving engagement from the wider membership. However there are some issuesand challenges in terms of corporate governance that are specific to co-operatives indeveloping countries. These include extremely low levels of participation by women asmembers and in the governance structures in their co-operative. Secondly, there is aneed to develop appropriate training and support for directors in the context of relativelylow levels of literacy and related skills. In addition, conflict between members and theirboards also appear to be present. This has been fostered by long established practicesof placing of government nominees on co-operative boards and related patterns ofcorruption.‡ In referring to WOCCU's model law, Cuevas and Fischer state: "In some aspects it reflects the United States, orperhaps more generally the Anglo Saxon, credit union experience rather than that of financial co-operatives under amore diversified cultural context. This makes the model unsuitable for other systems that respond to a differentcultural tradition or present organizational features that are in conflict with this law. Although WOCCU is careful toinsist that this model is just a guideline it is nonetheless very detailed in presenting a particular type of organizationand regulatory regime".Page 31