[B 13 – 2007]















  1. Introduction_________________________________________________3
  2. Role of Co-operative Banks____________________________________3
  3. Summary of the weakness in the Bill____________________________6
  4. Proposed Amendments_______________________________________8
  5.  Conclusion________________________________________________12

Annexure A :  Co-operative Principles

Annexure B:  South African and International case studies



1.        We generally welcome the Co-operative Banks Bill of 2007. The Bill represents a significant improvement from the earlier version produced in 2004.

2.       This submission represents a collective response of progressive trade union movement, as represented by COSATU and its affiliates, particularly NEHAWU. The interest of the progressive trade union is not only because we have been part of the campaigns for creation of an alternative banking system to conventional capitalist banks.  COSATU affiliates have been actively involved in the setting up and running of savings and credit co-operatives (SACCOs).

3.       In this submission we summarise the key points of our submission, and then make review of certain chapters and proposals for new provisions in the Bill. If our proposals are not adequately considered, they may permit the legislation to undermine the sustainable development of co-operative banks, with negative implications for the whole co-op movement.

4.       Our submission is drawn not only from our South African experience, but also from a range of international experience of successful co-op model, especially in Kenya and Mondragon, Spain. These case studies are attached in Annexure B,.

The role of co-operatives banks

5.       Co-operative banks - as collectively owned and democratically controlled financial institutions - are formed and operated to meet the savings, credit and investment needs of their members.  These defining features – collective or joint member ownership, democratic member control through one-member, one vote and driven by needs of members rather than maximization of profit  - distinguish co-operative banks from private banks and other types of financial institutions. The members may be natural persons or juristic persons such as trade unions and co-ops themselves..

6.        Basically, there are three important points why introduction of the co-op banking system represent a significant development in the transformation and diversification of the financial sector:

6.1.    Collective Ownership and Democratic Member Control:  The customers (who are the members) of the co-operative bank will collectively own the bank. This will effectively provide direct influence by bank depositors over the bank policy and decision making process, as the board of directors will be elected directly from the members.

6.2.   Allocation of surplus: The profits (or surplus) of the co-operative bank will be distributed to the co-op and members on a democratic basis – which is one reason they should be tax exempt. A co-operative bank would aim to address the banking needs of its members, not the maximization of profit for shareholders as capitalist banks do.

6.3.   The existing savings and credit co-operatives, most of whom have been formed by the workers and  trade unions like NEHAWU and SAMWU, will become co-operative banks which provide a range of banking services than they currently do. They will also be liberated from their linkages with private capitalist banks – the current legislation requires these co-operatives to open an account with one of the big banks.

7.       There are millions of South Africans who continue to be financially excluded. They have no access to basic banking services.  According to a recent Finmark study (2006), only 16-million South Africans have banking accounts, Mzanzi accounts included. This reality mirrors the dualism of our economy characterised by sections of the population (largely predominantly a white minority), which are inserted in the formal economy, and the rest of population (predominantly black) remain in the marginal parts of the economy..

8.       By becoming co-operative banks, existing savings and credit co-operatives could retain their co-operative principles (See Annexure A on Co-operative Principles) but operate across provincial boundaries, expanding their membership base and services, including access to the national payment system. A co-operative bank could become part of a network of co-operative banks, not linked with for-profit banks. Furthermore, co-operative banks would carry on the co-operative philosophy of providing services to all South Africans, irrespective of their level of income.

9.       It is precisely because of the co-operative principles that co-op banks offer a unique organisational form to address the developmental needs of our people. The Bill does to a certain extent protect the co-operative principles and sets out government support measures for co-operative banking development which could unleash significant growth of the co-op banks.

10.   Other than co-operative banks, there are other types of co-ops that are found in many sectors of the economy. They include, but not limited to, workers, housing, services, agricultural and consumer co-operatives. There are many barriers to their development and growth and access to capital one of those primary barriers.

11.    The role of co-operative banks must be, therefore be related to co-op banks contribution to the development of the co-op movement as a whole. This has implications on the purpose of the Bill, which among other things, must be to position co-op banks as primary sources of capital for other types of co-operatives, not just their members.

12.   This is particularly important when we consider the definition of a co-operative bank in the Bill, which unfortunately restricts who can actually be a member of a co-op bank. What is normally referred to as a common bond, the Bill limits to natural persons, either by geography or association. This means the needs of juristic members such as the needs of other types of co-ops, trade unions, and burial societies (rather than their individual members) are not covered by these definition. We understand that the Bill has taken the Co-operatives Act of 2005 as departure point for defining a co-op bank at the primary level. However, membership of a primary co-op bank, should also address the needs of juristic persons as well.

13.   By emphasising the developmental aspects of co-operative banks and their importance to the development of the co-op movement as a whole, we do not claim that co-operative banks are a panacea to all challenges relating to access to capital, but that they build a strong foundation for a network self-financing co-op institutions. However, in addition to the public sector and other players in society, the co-operative banking movement could play a significant and unique role in addressing basic banking needs of millions of South Africans.

Summary of the main weakness in the Bill

14.   The Co-operative Banks has been generally welcomed by COSATU. More importantly, we welcome the fact that the Bill has been drafted against the background of the 2002 Financial Sector Summit Agreement and the Co-operatives Act of 2005.  COSATU through the financial sector campaign led by the SACP has played an active role, especially at NEDLAC in support of the introduction of the co-op banking system in South Africa.

15.    However, however there are certain aspects of the Bill that can contribute to under-development of co-operative banks. Therefore they would need substantial amendments. In our view the main weaknesses of the Bill are the following:

15.1.       The purpose of the Bill does not cover the co-op banks contribution to other types of co-ops. This also in line with the co-operative principle of co-operation among co-operatives, not only within the financial sector but beyond. This is fundamental if co-op banks are to form the self-financing base for all types of co-operatives and act as primary source of capital for the co-op movement. The failure to identify or recognise this distinct role is also reflected in the membership coverage of co-op bank. (See more 13.3  below).

15.2.       The co-operative principle of democratic member control, at least the primary level, is not clearly articulated in the Bil. Although the Bill, makes reference to Co-operatives Act, Chapter 5, which clearly states that “the board of directors must be elected” (see  Section 32(3) of the Act), the wording that says directors must be appointed, contradicts this provision. This provision fails to ensure the development of genuine co-operative banks which are member-led rather than director-led.

15.3.        There is no universal definition of co-op bank[1].The Bill’s definition of a co-op bank (at primary level) potentially excludes juristic membership of co-ops and trade unions, only their natural members are allowed. It only allow such membership at secondary level of co-op banks. Provision of such membership at primary level is quite necessary for co-op banking sector, given the distinct role these co-ops play on behalf of other types of co-ops.

15.4.       The Bill does not take into account prevailing factors relating to membership requirements, especially for the workers: It is an established practice, that internationally co-operative banks have been particularly successful due to access to the payroll deduction through legislation. The same experience has been shown by the trade union movement in South Africa and may part of the world. This has been favoured by many legislation including the United States and Kenya legislation, precisely because co-op banks cannot be compared with for-profit institutions.

15.5.       The Bill makes provision for the Co-operative Bank Agency. While we fully welcome this Agency, we have already detected potential conflict between the Agency (in terms of its board composition and role) with that of the secondary co-op organizations. As currently formulated the Agency may take-over the support functions of the co-op banking movement. And we say may, precisely because if though this is not the intention, its formulations a bit problematic.

15.6.       If the matter is to provide appropriate accreditation (and provide necessary support) to secondary co-op operatives who in turn will to provide support to primary co-op banks, we believe the Bill should make that very clear, rather than confusing these functions.

15.7.       The Bill does not make provisions for the conversion of private bank or any financial entity into a co-operative bank. This should be allowed to facilitate speedy conversions of a private bank into co-operative bank, especially in circumstances of private banks that are financially in trouble and which needs quick response. It is also not clear from the Bill whether the existing financial co-ops which meet the requirements – SACCOs in particular - could convert into co-operative banks.

15.8.       Finally, the Bill makes no provisions for tax treatment of co-op banks given their different and distinct nature from conventional private banks – especially income tax.

Proposed Amendments

16.    To address the weakness pointed above, we propose amendments accordingly, paying attention to the key provisions in the Bill. The proposed amendments are underlined.

17.   Chapter I:  Definition, Purpose and Application of the Act (sections1-5)

17.1.       In this Chapter, we propose changes in the definition of a co-operative bank by adding a new (c) with current (c) becoming (d): ‘‘co-operative bank’’ means a co-operative registered as a co-operative bank in terms of this Act whose members—

(a) are of similar occupation or profession or who are employed by a common employer or who are employed within the same business district; or

(b) have common membership in an association or organisation, including a religious, social, co-operative, labour or educational group; or

(c)  are associations or organisations, including religious, social, co-operative, labour or educational group; or

           (d)  reside within the same defined community or geographical area;

17.2.        Following from 15.1 above, we add a new definition on ‘‘member’’ which means an individual, a partnership, a co-operative, an association, a trust, any unincorporated organization, or a government entity thereof.

17.3.       The definition of executive officer, as a director, is confusing. Managers cannot be directors and staff members at the same time. Clearly the executive officers should defined as referring to Board chairperson, a vice chairperson, a treasurer and a secretary (different from “company secretary”) , all of whom are elected directors of the co-operative bank


17.4.       Under the section on the Purpose of the Act we add section 2(d) that reads:

To contribute to the financing of other co-operative enterprises registered or deemed to be registered under the Act of 2005.

18.    Chapter II:             Registration, Constitution, Functions, Management  and Auditor of Co-operative Bank (Section 6-19)

18.1.       In this Chapter, we want to first emphasise the need for consistency with the co-operative principle of democratic-member control.  Section 13 (2) (a) calls for appoint of a supervisory committee of members. The co-operative banking system, supervisory committee are elected not appointed, at the Annual General Meeting of members. We also propose that this section, which deals with supervisory committee and audit committees, must be located in Part 3 of the Chapter which deals with the management of the co-operative. In this section we again find confusing reference of “directors”, executive officers: and: managing director” (see section 16(2)(a) as persons to be appointed. Only the manager director can be appointed. To rework this section of Part 3 to incorporate the democratic member principle, including making provisions for the  supervisory or audit committee and other committees, we  propose the following substantial amendment on section 16 (2), which reads as follows:

(a)      At their organization meeting to be held within 7 days following each annual meeting, the directors shall elect from among themselves a chairperson, a vice chairperson, a treasurer and a secretary, who shall be the executive officers.


(b)      The terms of executive officers shall be one year or until their successors are chosen. Duties of the executive officers shall be set out in the constitution.

(c)      The executive officers may be designated by the board of directors as an Executive Committee and be delegated authority to act collectively on behalf of the board of directors between board meetings, subject to any conditions or limitations prescribed by the board.

(d)      The board of directors shall establish a process for the election of an Audit Committee or Supervisory Committee consisting of representatives from the membership.

(e)      The board of directors may appoint other officers or committees as necessary to effectively conduct the activities of the co-operative bank.

18.2.       This Chapter should also make a new provision for inclusion of payroll deduction under new section following Section 15. The justification for this has been strongly emphasized by COSATU and the co-operative banking movement. We have accordingly crafted a formulation, which is basically adapted from the Labour Relation Act of 1996, granting trade union access to members subscription through a payroll system in both the public and private sectors. The new Section would then read as follows:

Deduction of member’s savings or contributions to the co-operative bank

(1)           Any employee who is a member of a co-operative bank may authorise the employer in writing to deduct member’s savings or contributions payable to that co-operative bank from the employee's wages.

(2)           An employer who receives an authorisation in terms of subsection (1) must begin making the authorised deduction as soon as possible and must remit the amount deducted to the representative co-operative bank by not later than the 15th day of the month first following the date each deduction was made.

(3)           An employee may revoke an authorisation given in terms of subsection (1) by giving the employer and the representative co-operative bank one month's written notice or, if the employee works in the public service, three months' written notice.

(4)           An employer who receives a notice in terms of subsection (3) must continue to make the authorized deduction until the notice period has expired and then must stop making the deduction.

(5)        With each monthly remittance, the employer must give the representative co-operative bank-

(a)           a list of the names of every member from whose wages the employer has made the deductions that are included in the remittance;

(b)           details of the amounts deducted and remitted and the period to which the deductions relate; and

(c)           a copy of every notice of revocation in terms of subsection (3).

19.     Chapter III Prudential Requirements And Large Exposures (Section 20-23)

19.1.     Section 23 (1) (a) forbids the co-op to lend “any members” loans that exceed 10 percent of the total assets. We feel this may be a typo error, as this does not make any economy sense. We will accept the provision if the formulation refers to “any person” and “any one member” rather than persons and members as currently formulated.

20.        Chapter V : Amalgamation, Division, Conversion, Transfer, Judicial

Management And Winding-Up Of Co-Operative Banks (Section 27-30)

20.1.     As pointed earlier, The Bill should allow conversion of an entity from registration under another law to registration under the Co-operatives Bank Act. The new Section under this Chapter allowing for conversion to a co-operative bank is as follows:

An entity registered under another law of this jurisdiction, such as the Banks Act or Companies Act or Co-operatives Act, may be converted to a co-operative bank registered under this Act. To effect such a conversion, an entity must comply with all requirements of the Co-operatives Act of 2005 and of this Act.


Chapter VI Co-operative Banks Development Agency (Section 54-74)

21.    Section 58 deals (inter alia) with the appointment of board members of the Agency and the criteria which the Minister of Finance needs to take into account in appointing them. We propose that these criteria should include majority representation from the co-operative banking sector.. This would be critical in ensuring that the direct voice of the co-operative banking sector is heard in decisions that directly affect them. We therefore proposed that we 58 (3) (d) we should read as follows:

More than 51 of the board members are from the co-operative banking sector.


22.   COSATU and NEHAWU views the development of a vibrant and sustainable cooperative sector as important for the transformation and democratisation of the economy, and directly in terms of employment creation and poverty alleviation. Further, the financial sector in South Africa is not playing the role that it should in terms of providing financial services to all South Africans and contributing to such development. Therefore, we believe that a cooperative banking sector has a very important role to play in providing access to finance for underserviced sectors (both households and enterprises), in contributing to the sustainability of other types of co-operatives, and in the overall transformation of the economy.

23.   Development of a sustainable banking co-operative sector requires a comprehensive and appropriate regulatory framework as well as support. We therefore welcome the Bill in principle as it seeks to provide such a framework.

24.   The proposals made in this submission seek to improve the Bill in areas where we feel it to be flawed or deficient. Several of these proposals relate to the internal democracy of co-operatives which is crucial for the democratic, member-driven structure and modus operandi of co-operatives that distinguishes them from ordinary profit motivated companies. Some of our other comments seek to strengthen the support available to co-operatives and facilitate their growth and development. We are also concerned with the relationships between banking co-operatives and the rest of the co-operative sector.

25.   In practice, the follow-through on the Bill, once enacted, will be fundamentally important. It is essential that adequate funding be allocated to the new bodies envisaged in the Bill, and also that existing state agencies co-operate in the promotion of the co-operative banking sector. We call on Parliament to continue to play a close monitoring role after the enactment of the legislation, particularly in the early stages of the establishment of the new regulatory regime and new bodies, to ensure the success of the measures; in particular that the regulatory measures emphasised in the Bill are complemented by active support and nurturing of co-operative banks.





Annexure  “A”





This Statement was adopted at the 1995 Congress and General Assembly of the International Co-operative Alliance (ICA), held in Manchester to celebrate the Alliance's Centenary. Recommended to the Congress by the ICA Board, the Statement was the product of a lengthy process of consultation involving thousands of co-operators around the world (There are about 700 000 co-operatives all over the world with 800million members). 


A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.



Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.



The co-operative principles are guidelines by which co-operatives put their values into practice.


1st Principle: Voluntary and Open Membership


Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.


2nd Principle: Democratic Member Control


Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.


3rd Principle: Member Economic Participation


Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.


4th Principle: Autonomy and Independence


Co-operatives are autonomous, self-help organisations controlled by their members. If they enter to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.


5th Principle: Education, Training and Information


Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits


 6th Principle: Co-operation among Co-operatives

 Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.


7th Principle: Concern for Community

Co-operatives work for the sustainable development of their communities through policies approved by their members.

Annexure “B”

1.       Overview of the South African Banking Sector

The South African banking sector is highly concentrated with four dominant local banks and a minor, albeit growing, foreign presence. These are ABSA[2], Standard bank, First Rand and Nedbank. These banks represent 87.4 per cent of the banking sector.[3]  The small number of participants is said to be due to a relatively small “first economy”, lack of interest by foreign entrants under the previous regime, years of economic isolation and the departure of small players in recent years.


These banks focus on the profitable quartile of the market, consisting mainly of high net worth individuals and large and medium-sized corporations. Although banks are apparently aware of the commercial imperative of extending their potential client base beyond this much sought after sector, they have not yet done this effectively.


In these banks ownership does  not rest with the depositors at the bank, but with few shareholders who directly control the bank and the main purpose of these banks are profit maximisation. Control of these banks are undemocratic, it is based on the number of shares one holds in the bank – which happen to be super-rich individuals and families. As a result decision making or voting is weighted on the value of shares.


Above all,  the main pre-occupation of the private commercial banks is maximization for their shareholders, rather than meeting the needs of their customers. Customers have no collective influence on the development of products and services, including the charges and fees set on them.

Even though the South African banking sector prides itself as a highly sophisticated and “world class” financial sector, its main shortcoming is the exclusion of poor people in accessing basic financial services. Data available from the annual FinScope survey suggest that 52% of South Africa’s adult population is excluded from formal financial services and do not have bank accounts.[4] These 16.4 million people are marginalised or formally excluded from credit. 99% of those without access are black, 49% live in rural areas and 55% are women. According to the Banking Association of South Africa, statistics showed that 20% of the population did not have access to basic financial services in 2000, even though 4 million of these people were employed.[5]   

The commercial banking sector’s failure to provide adequate services to the bulk of the South African public limits poorer communities’ access to savings, transmission and credit facilities. Inaccessibility of banks pushes people into the hands of the micro-lenders and the unregulated informal financial sector, where they are typically charged exorbitant interest rates and do not enjoy the protection to which they are entitled.

Adverse implications of a concentrated banking sector are that customers are charged higher prices for banking charges, and that a concentrated market leads to collusion. The excessive service charges consume disproportionate amounts of the salaries of low paid workers.  Cheaper services, such as electronic banking, are usually only available to well-off individuals who can afford to buy personal computers and have access to the internet.

Some elements of financial legislation and regulation also contribute to the exclusion of the poor. A typical example is anti-money laundering drive, which (although well-intentioned) requires banks to have evidence of payslips and proof of a physical address from clients. People living in informal settlements, where there are low levels of formal employment, are unlikely to have either. Another obstacle to increasing credit availability is the shortage of acceptable collateral among blacks because of the historical deprivation of property rights.

It is against this background that the South African Communist Party formed the Financial Sector Campaign Coalition (FSCC) in 2000 in order to transform the South African financial sector.  The Financial Sector Summit in August 2002 was a result of the FSSC campaign.  The Summit called for development of “sustainable institutions to serve the poor” and co-operative banks[6], and has made a range of demands to ensure cheap and accessible finance for those previously excluded from the banking system. The co-operative banking system will contribute significantly in addressing these needs.

2.       Co-operatives in South Africa

The International Co-operative Alliance defines a co-operative as “an autonomous association of persons voluntarily united to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-control enterprise.”[7]  Co-operatives can be categorised into worker-owned co-operatives and user-owned co-operatives.

South Africa has a rich and diverse history of co-operatives. This includes a large, relatively informal sector of stokvels, burial societies, and other forms of community savings organisations such as village banks.

The first co-operative in South Africa was a Consumers’ Co-operative, established in 1892 in terms of the Companies Act as there was no Co-operative Act at the time.  The first Co-operative Act was passed in 1908. It was followed by the Co-operative Societies Act of 1922  which was subjected to  a series of amendments until 1981. The Co-operatives Act of 2005 replaced this apartheid era legislation which was essentially biased toward white agricultural co-operatives and all types and forms of co-operatives are recognised.

Presently the emerging co-operative movement is organised in many sectors and have led to the development of the following types of co-operatives: (1) worker co-ops; (2) financial co-ops (savings and credit and insurance co-operatives); (2) agricultural; co-ops (3) housing co-ops’ (4) consumer co-ops.  Co-operation among these types of co-ops at economic and political level still remains a challenge, but others  have organised themselves as into secondary co-ops – especially housing and financial co-ops.

Savings and Credit Co-operatives, which  include workers at the workplace and trade unions are the more formal and registered co-operative version of stokvels, with a membership of  15,000 in the Savings and Credit Co-operative League (SACCOL), as at July 2006. The single biggest worker co-operative of the 32 Savings and Co-operatives is at Alrode Ltd, in Alberton organised by  members of NUMSA with 800 members and  an asset base of R5.2 million[8]. Other SACCO’s include the SAMWU Savings and Credit Co-operative (SACCO) with more than R5  million asset base, and the NEHAWU SACCO.

Co-operatives can play an important role in the provision of economic and social needs of the working class and the poor. “They are used to provide economic and social needs through democratic participation, rather on a ‘free market’ basis.”[9]

3.       International experience of co-operatives

International experience shows that a major factor contributing to the economic success of the co-operative movement has been the establishment of its own financial sector.  Controlling their own affordable and relevant financial services, cooperative enterprises ensure that capital within the
Co-operative sector is utilized only to foster the goals of component enterprises and their individual members; most is continuously reinvested. 

Moreover, a high proportion of new co-operative enterprises can only obtain capital from financial institutions in their own movement[10].  Co-operative banks are organisations of and for people, not capital.  Their central objectives are to improve the economic position of members, whether individuals or enterprises, denied access to other banking institutions owing to their inability to offer sufficiently sound collateral; to facilitate the continual recycling of co-operative capital into co-operative enterprise; and to attract and

manage capital obtained from outside the co-operative sector for use by
individual cooperatives.
The dimensions already reached by co-operative banks are considerable.  In Europe, in 1991, they had a membership of 33 million, a total clientele of 60 million, combined assets of ECU 1,100 billion, total deposits of ECU 800 billion, loans of ECU 700 billion and a staff of 400,000.  Their share of the savings market was about 17 per cent.  In 1994, the market share they held reached 34.3 per cent in Finland, 31.9 in France, 30.5 in Austria, 25.0 in the
Netherlands and 19.6 in Germany.  Many co-operative banks are the principal financial institutions of the rural sector and have major national standing.

The co-operative banks with secondary and tertiary co-operative functions, provide support and expansion of banking services, through formation of new co-operative  banks.

Below we provide two international case studies of the role co-operative banks.

3.1 Mondragon Corporacion Cooperativa

The Mondragon Corporacion Cooperativa (MCC), in Spain is probably the most famous success story of all co-operatives. The MCC was formed in a small Basque town in Spain, by a group of five young men who were encouraged by their socialist priest, Father Jose Maria Arizmediarrieta, to set up a co-operative to make paraffin cooking stoves in 1943. It is a clear case of starting small and growing big despite significant odds.  By 1959 they had already formed the Caja Laboral Popular (CLP), the Working People's Bank, which is not only the bank for the co-operatives but is run as a co-operative itself.

MCC has grown to be one of the twelve largest companies in Spain and is the biggest in Basque County. As at the end of 2002, it had 66,558 workers and total assets of $14 billion. “Statistics show the Mondragon co-operatives to be twice as profitable as the average corporation in Spain with employee productivity surpassing any other Spanish organisation. It is focused on social success, involvement of the people and industrial democracy.”[11]

A key element of Mondragon’s success is the development of “support institutions” But perhaps the most important of these support institutions, especially in the first two decades, was the group’s bank, the Caja Laboral. Starting in a small room with a handful of people and funds, the Caja Laboral now has $5.6 billion in deposits and serves MCC companies, the conventional business community and the general public through some 250 branches around the Basque Country. The Caja Laboral played a fundamentally important role in supporting the development of the co-operatives, particularly in the early going. It did so by design – it was created specifically to offer patient capital, to cater generally to the financial needs of both new co-operative enterprises and other co-operatives experiencing difficulties. The Caja Laboral fulfilled another key supporting role over the years through a unique internal organization called the "Entrepreneurial Division". This division’s job was to provide extensive management and technical consulting to new and expanding ventures, and to troubled firms in the network. The assistance of the Entrepreneurial Divisions was crucial to the long-term success of many enterprises in the group.


The Caja’s role has changed markedly in the last decade, however. As the co-operative companies got larger and more established, and as their financial needs and the market and regulatory environment evolved, the MCC and the Caja made the strategic decision for the Caja to focus more on traditional consumer and business banking. In 1991 the Entrepreneurial Division was dissolved. However, the centrally important functions of the former Caja and Entrepreneurial Division have by no means been abandoned. They have simply been transferred to other institutional locations within the MCC. An institution called the Central Interco-operative Fund, to which each co-operative company contributes 10% of profits every year, and other similar institutions, provide the patient venture capital, while the management and technical assistance is provided by MCC’s Central Departments or its sectoral division staff. In addition, a portion of the former staff of the Entrepreneurial Division created a new MCC co-operative, LKS Consulting (and later another, LKS Engineering), which sells consulting services to the co-operatives and other organisations.

3.2   The Co-operative Bank of Kenya

Co-operatives have played an important role in the development of the economies of East Africa (Kenya, Uganda and Tanzania) and have led to the uplifting of the standards of living of the people.  It is estimated that there are more than 6 million Co-operative members in the Region.[12] Co-operative societies are major players in the Kenyan economy, contributing about 40-45% of the country’s GDP[13]. The total membership of Kenya’s 6,500 co-operatives is more than four million. Rural members are primarily small-scale agricultural producers and urban members tend to be in low-income groups in either the semi-formal sector or formal employment

The Co-operative Bank of Kenya (CBK) was created in 1965. Its initial mandate was providing financial services to co-operative societies that were otherwise unable to access such services from traditional commercial banks.

Liberalisation in 1990s in Kenya forced the CBK to begin to diversify its markets and undertake to become a universal bank. Since then, co-operatives are no longer its sole targeted market, but it now also provides consumer services to individuals, corporate and commercial banking services to large businesses, and other fee-based services such as corporate advisory, trust, share registry and custodial services.

The CBK is the 5th largest bank in Kenya, with 28 branches. However, it is both the largest indigenously owned bank as well as the most publicly owned bank with both co-operative and individual shareholders. There is no government ownership. The other four leading banks in the country are either foreign owned or controlled, or government owned or controlled.

In light of competition with the formal commercial banks as result of liberalisation, the CBK decided to increase its provision of financial services to the low income and micro enterprise sectors of the economy.  Although CBK had been serving this market indirectly through the co-operative societies, the decision was made to provide services directly to individual borrowers, which would entail quite a different approach. In 1998 CBK prepared a new business plan for its existing Small and Micro Credit Unit that spelled out in detail the strategies that the bank intended to follow. While continuing to wholesale funds to financial intermediaries such as co-operatives, the Small and Micro Credit Unit also started its own direct lending on a pilot basis.

The bank launched a microfinance programme in two branches in 1999. While the CBK itself was prepared to meet most capital and recurrent expenditures and to provide the loan capital, it sought funding for the technical assistance that it needed to develop new products and methodologies, and to make the necessary institutional changes. DFID agreed to provide funding for this.



[1] In India (1966), “co-operative bank” means a co-operative society established for carrying on banking business and having as its principal object the financing of other co-operative societies registered or deemed to be registered under the Act of 1966; In Philippines (1990), “cooperative bank: means a co-op organized by the majority shares of which is owned and controlled by co-operatives primarily to provide financial and credit services to co-operatives.

[2] On the 27th of July 2005, UK bank Barclays acquired 54 % stake in Absa. 

[3] Mboweni, T. 2004. The South African Banking Sector- an overview of the past 10 years.

[4] FinScope. South Africa 2005. Survey Highlights including FSM Model. FinMark Trust.


[6] Declaration of the Financial Sector Summit.


[8] Philip, K. 2003. Co-operatives in South Africa: Their Role in Job Creation and Poverty Reduction.

[9] COSATU Submission on the Draft Co-operative Bill – submitted to the Department of Agriculture on 30 March 2001.

[10]  United Nations Report on Co-operatives (2005)


[12] Mudibo, E. 2005.  Corporate Governance in Co-operatives: The East African Experience

[13] Bell, R., Harper, A. & Mandivenga, D. 2002. Can Commercial Banks Do Microfinance? Lessons from the Commercial Bank of Zimbabwe and the Co-operative Bank of Kenya.  Small Enterprise Development Journal. 13(4)