What is Cooperative Banking? Definition of Cooperative Banking, Cooperative Banking Meaning and Concept

The cooperative banking is the segment of the financial system that brings together cooperatives of savings and credit, central cooperative banks and similar entities.

Cooperative banking receives deposits, extends loans, provides advice, and offers other financial intermediation services. However, their business model is different from that of banks.

These companies seek a greater approach and understanding of the client than that of commercial banking.

Characteristics of cooperative banking

Among the characteristics of cooperative banking are:

  • Rooting: There is an important link between the entity and the territory of origin. For this reason, many cooperatives bear the locality or region where they were founded in their name.
  • Market knowledge: They have very studied the sectors to which they are directed. In this way, they seek to design products that are tailored to the customer's needs. For example, in the case of farmers, it should be taken into account that in periods where there is no harvest, they receive less income and will not have as much capacity to face their debts.
  • Involvement: The financier has an interest in advising the user, for example, in the search for business partners. Likewise, you can sponsor cultural and social activities that are important in the community life of the target audience.

Cooperative banking entities

The types of entities that are part of cooperative banking are mainly two:

  • Savings and credit cooperatives : These are organizations that provide financial intermediation services. Unlike banks, their owners are not shareholders, but partners. This means that the decision-making power in management does not depend on the level of participation. Instead, each member of the cooperative has the right to one vote, regardless of how much they have contributed.
  • Central cooperative banks: They are entities made up of several cooperatives that usually become their shareholders. That is, they are commonly limited companies. Its function is to centralize activities in order to save costs. We refer to the concentration, for example, of transactions in international financial markets. So, instead of each cooperative carrying out these operations separately, this will be done jointly from a central cooperative bank.