Demand for cooperative bank should stimulate supply – minister

Only minor changes to the law are required to allow the market to establish a cooperative bank, but it was demand for the model that would ultimately stimulate supply, Finance Minister Tonio Fenech told a seminar last week.

A cooperative bank might find a niche among those entrepreneurs who preferred to borrow from peers

Addressing a discussion on the alternative banking model organised by the Ministry for Fair Competition, Small Business and Consumers, in association with the Central Institute of Italian Popular Banks and the Central Bank, Mr Fenech said the establishment of a cooperative bank would be a positive development and contribute to market diversity, particularly as these banks tend to have better knowledge of SMEs.

The issue, however, requires careful examination so that there is a level playing field. A quicker way for such a bank to appear on the landscape could be through encouraging international institutions to establish a presence here. The authorities’ role lay in creating the appropriate enabling environment.

European cooperative banking experts joined members of the local community to discuss the objectives and experiences of continental cooperative banks and whether market potential existed here. The discussion was particularly apt as 2012 is the UN’s International Year of Cooperatives.

Described by Consumers Minister Jason Azzopardi as the “Cinderella” of the global banking system, cooperative banks have won 30 per cent of the European market through their values of solidarity and subsidiarity. There has been renewed interest in them of late, particularly thanks to the social cohesion visions of Italian premier Mario Monti and ECB president Mario Draghi.

Bernard Huberdau, secretary general of the International Confederation of Popular Banks, explained there were several models for cooperative banks but all shared the same principles. Their mission was to promote the economic interest of their members, who are their customers. They designed quality products and services at attractive prices from a customer perspective and sought to promote financial inclusion.

Such banks maintained voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education, training and information, co-operation among cooperatives, and had concern for the community.

Among their most fundamental characteristics was their freedom from the ‘tyranny’ of quarterly reporting.

Gruppo Bancario Credito Valtellinese chairman Giovanni De Censi, who joined the bank in 1958, underlined how cooperative banks respected market rules like every other business. Their scope spanned beyond profits so as to foster tangible good in the communities in which they operated. They enjoyed an enviable track record, largely beating market performance independently of their size.

“However, cooperative banks need to be understood to survive. Otherwise they will not last two years,” Dr De Censi warned. “In turn, they are run by people who understand cooperative businesses and their activities. Our bank is not the sort to finance the activities of large organisations like Fiat.”

Central Bank Governor Josef Bonnici, who pointed out there were 60 co-operatives locally with more than 5,000 members involved in a range of activities, asked the most pertinent questions of the morning: “Is there or is there not scope for setting up a cooperative bank in Malta? Is the local market too small?”

“Competition – so necessary to ensure that customers get the best possible service at the least possible price – depends more heavily on the variety of business models rather than a large number of institutions,” Prof. Bonnici pointed out.

He asked whether a cooperative bank might find a niche among those old-fashioned potential entrepreneurs who preferred to borrow from peers rather than banks, falsely believing they were neither charging nor being charged interest.

MEP Edward Scicluna pledged the Labour Party’s belief in the principles of cooperatives, saying it would support initiatives to foster the cooperative spirit further. He emphasised that policy makers needed to be kept aware of cooperative banks in their planning but called for a balance in regulation for all forms of banking.

The event’s final speaker was Stefano Zamagni, a Professor of Economics at Bologna University and a long-time visitor to Malta.

Tracing cooperative banks’ contribution to socio-economic development, he explained how these banks were created to build bridges between savers and business people long before commercial banks appeared. By giving the poor access to finance, they contributed to dividing financial powers.

“The concept of fairness is different from justice,” Prof. Zamagni added. “By contributing to social capital creation, cooperative banks build a network of trust relations. They also foster social inclusion. Social inequality is increasing seven times faster than GDP growth.”

A question and answer session, which saw the intervention of several scholars, was moderated by Cooperatives Board chairman Wilfred Kenely.