Strengthening Cooperative Financial Institutions for improved financial inclusion

The above was stated by a participant of a stakeholder workshop organized by Rabo Partnerships (RP) for the Ethiopian Cooperative Financial Institution* (CFI) sector. While the statement concerned the local sector dynamics, it also describes the ambition of the program that this workshop was part of. The joint program between RP and the World Bank (WB), funded by the Dutch Ministry of Foreign Affairs and Rabo Foundation, employs a parallel approach: following a systemic approach, WB strengthens the regulatory and supervisory environment and RP simultaneously provides operational support. Next to that, the program aims to build an online community for CFIs through its Center of Excellence, where knowledge is disseminated through webinars, podcasts, and publications.

All of this is done based on the belief that strengthening CFIs is the way forward for increasing financial inclusion, especially in rural areas. Being member-owned institutions, CFIs have a unique position because they are close to their members and therefore possess profound local knowledge. CFIs have an extensive geographic coverage in both rural and urban areas, and a high ability to deliver financial services to otherwise unbanked populations.

However, to stay relevant and keep adding value for their members, CFIs need to change along with the market in which they are operating. In general, they need to diversify and digitize their services and reduce their costs while enhancing efficiency and risk management. While CFIs in various parts of the world face similar challenges, sector dynamics differ from country to country. This is why the program works based on a targeted strategy in each country where it is active.

Based on an initial sector diagnostic, in which we conducted an assessment of six country-wide and regional networks, we started program activities in Colombia, several countries in West Africa, and Ethiopia. We always work with local counterparts on both operational and regulatory activities to ensure local context and coordination.

In Colombia, the underlying issue for CFIs’ challenges is their small size compared to other types of financial institutions in the country. This is why RP works together with the national federation of CFIs (FECOLFIN) to stimulate integration of institutions on both governance and operational aspects, and additionally sharing existing knowledge on agricultural finance.

Integration is not an issue in West Africa, where a regional federation (Confédération des Institutions Financières de Afrique de l’Ouest, CIF) already exists, comprising six national CFI networks in five countries. To support CIF in reaping the benefits of their enhanced network, the program focuses on how the federation could unleash its potential, providing competitive financial products and services for over four million members. We support CIF with technical support on a wide variety of topics, including IT, digital products, and strategy development, among others.

In Ethiopia, the program team started engaging with a group of CFIs (or in Ethiopia: Savings and Credit Cooperative Organizations, SACCOs) to increase their cooperation and digitization, with the objective of reaching economies of scale and with that, increased quality of services and enhanced stability of the network. We believe that this way, they will be able to keep up with the rising competition of microfinance institutions and commercial banks and won’t lose their preferred position in rural areas. At the same time, WB is working with national regulators in Ethiopia to assess the current regulatory and supervisory frameworks, and to provide recommendations for improvements that will enhance the professionalism and competitivity of the sector.

Over two years of engaging with the CFI sector in various parts of the world have taught us that strong local counterparts, existing initiatives to strengthen the sector, and the right timing are crucial for the success of the program. We will keep working on our core programs and we’ve made and maintained connections in other countries with strong CFI sectors too, so that the program can expand when the time is right. Throughout all this, our vision is to secure the unique historical position of CFIs while preparing them for the future, leading to increased financial inclusion.