How Should Rural Financial Cooperatives Be Best Organized? Evidence From Ethiopia

Abstract

What is the optimal size and composition of Rural Financial Cooperatives (RFCs)? With this broad question in mind, we characterize alternative formation of RFCs and their implications in improving rural households’ access to financial services, including savings, credit and insurance services. We find that some features of RFCs have varying implications for delivering various financial services (savings, credit and insurance). We find that the size of RFCs exhibits nonlinear relationship with the various financial services RFCs provide. We also show that compositional heterogeneity among members (including diversity in wealth) is associated with higher access to credit services, while this has little implication on households’ savings behavior. Similarly, social cohesion among members is strongly associated with higher access to financial services. These empirical descriptions suggest that the optimal size and composition of RFCs may vary across the domains of financial services they are designed to facilitate. These pieces of evidence provide some suggestive insights on how to ensure financial inclusion among smallholders, a pressing agenda and priority of policy makers in developing countries, including Ethiopia. The results also provide some insights into rural microfinance operations which are striving to satisfy members’ demand for financial services.

Effect of Deposit Mobilization on the Financial Sustainability of Rural Saving and Credit Cooperatives: Evidence from Ethiopia

“…The observed positive coefficient for the number of members indicated that as the number of members' increased the volume of deposits also increases, which leads to the cooperatives having more liquidity to fund their loan portfolios from which they obtain interest income for operational self-sufficiency. Our findings were not in line with the previous study that argued that large memberships make rural cooperatives financially strong by increasing their capital base [54]. Boehe and Barin Cruz [77] also noted that high membership numbers would suggest that the microfinance cooperative can generate economies of scale.…”

“…This sector has experienced fast growth in terms of the number of cooperatives, deposits mobilized, geographical areas covered, and members reached. They are the forerunners in delivering financial services for the poor that have usually been excluded by conventional financial institutions [53] and they basically rely on members' savings as a loanable fund [54]. RUSACCOs have a larger rural outreach than MFIs.…”

[Retracted] Construction of Rural Financial Organization Spatial Structure and Service Management Model Based on Deep Convolutional Neural Network

“…In order to optimize the loan environment for farmers, better support the development of farmers, agriculture, and rural economy, strengthen the management of small credit loans to farmers, simplify the procedures of the loan process, standardize the actual operation behavior, and achieve sustainable business development, the People's Bank of China promulgated the Interim Measures for the Management of Small Credit Loans to Farmers by Rural Credit Societies as early as 1999 and required rural credit societies to open small credit loans to farmers according to local conditions [ 1 ]. This means that, in the past, small credit loans were mainly provided by organizations or NGOs [ 2 ]. This means that lending methods that used to be implemented mainly by organizations or nongovernmental institutions can now be carried out within the framework of the financial system, and through financial innovation, the central bank hopes to improve financial services for low- and middle-income groups of farmers who have guarantee capacity and lack collateral [ 3 ].…”

“…is means that, in the past, small credit loans were mainly provided by organizations or NGOs [2]. is means that lending methods that used to be implemented mainly by organizations or nongovernmental institutions can now be carried out within the framework of the financial system, and through financial innovation, the central bank hopes to improve financial services for low-and middle-income groups of farmers who have guarantee capacity and lack collateral [3].…”