The savings-credit cooperatives in Peru and Ecuador and the development of rural financial services
This article explores the role of savings and credit cooperatives in extending financial services to rural areas in Latin America. In Ecuador, the savings and credit cooperatives are second only to the banks in the financial sector. They have over 550 selling points – and handle 10% of the national financial transactions. There are more than 430 cooperatives (37 of which are regulated by the Administration of Banks and Insurances) that serve about 1.800.000 clients, 60% of which are microenterprises (and 45% rural micro-enterprises). However, the majority of the cooperatives are predominantly urban. Cooperatives which only offer their services to members are not regulated but “open” cooperatives which offer services to members and non-members are supervised by the Administration of Banks and Insurances.
In Peru, savings and credit cooperatives were badly hit by the economic crisis of the 80s. In 1998, only 176 of the 600 cooperatives registered in 1991 were still operational and most of them dealt exclusively with outstanding debts. The sector has been improving recently but only a few savings and credit cooperatives focus on rural areas. However, many activities of cooperatives located in the provinces, or in the towns, also concern rural populations. Since 1993, the Administration of Banks and Insurance (SBS) has delegated its role of supervising savings and credit cooperatives to FENACREP – the national federation of savings and credit cooperatives – because the cooperatives are only permitted to provide services to their members. The cooperatives must be registered with SBS, which supervises and controls FENACREP, but nevertheless they are excluded from the protection that other formal financial institutions receive as a result of SBS control.
The article observes that the cooperative model has important advantages for the supply of financial services in rural areas, e.g. their strong local base, low costs and ability to offer a wide range of services. Among their challenges, however, are the quality of governance and the ambivalence created by members being both owners and beneficiaries of the services provided. The relatively small size of cooperatives limits their profitability and the fact that most are excluded from adequate prudential regulation leaves peoples’ savings at risk. A lack of skills could lead to the disappearance of a large number of cooperatives, leading to growing concentration in the sector and to the emergence of large cooperatives, as is currently the case in Peru. This trend goes counter to a system that is based on small cooperatives with a strong local basis, as is the case in Ecuador. The survival of this type of «cooperative of proximity » relies on the building up of adequate management skills.