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  • Writer's picturePooja Yadav

Cooperative Banking: Definition, Features and Advantages?

Updated: Mar 12



Cooperative banking small financial institution founded by locals to serve community capital needs, owned and controlled by members, with a democratically elected board overseeing operations.


What is cooperative banking?

Cooperative banks operate on cooperation, owned and run by members. They unite to meet the financial needs of communities, pooling resources to offer services like loans and savings accounts.


How does a cooperative bank work?

here's a detailed explanation of how a cooperative bank works:


  1. Member Benefits: Profit sharing enhances member financial well-being and supports community development projects.

  2. Governance: Democratically controlled by members. Board of directors elected by members to oversee operations.

  3. Lending: The Bank provides loans to members for various purposes such as business, agriculture, or personal needs.

 

The distinct features of cooperative banks

The Cooperative banking model distinguishes itself from traditional banking models by prioritizing social welfare. Now, let's explore its distinctive features:

  • One person, One Vote: Cooperative Banks follow this principle, with a selected Board of Directors tasked with administration.


  • Profit Distribution: These banks operate as non-profit organizations, prioritizing fulfilling members' financial requirements. Any extra funds are either shared among members as dividends or reinvested to strengthen the bank's capital.


  • Community Development: Cooperative Banks play a crucial role in community development by promoting financial literacy, aiding local businesses, and investing in community projects. They nurture solidarity and mutual support among their members.


 

Advantages of cooperative banks

These financial institutions provide numerous benefits, including extending banking services to underserved regions. Let's delve deeper into several key advantages of cooperative banking:


  1. Diverse Credit Options: Cooperative banking serves rural communities by offering credit at lower interest rates compared to moneylenders, shielding them from the monopolistic practices of high-interest lenders.

  2. Promotes Saving and Investment: Cooperative banking encourages rural residents to save and invest rather than simply holding onto money. This fosters better long-term financial management within rural communities.

  3. Enhancement of Agricultural Practices: With the lower interest rates offered by Cooperative banks, rural communities can now utilize credit for improving farming methods, such as purchasing seeds and chemical fertilizers.

 

Drawbacks of cooperative banks

Although cooperative banks offer several advantages, they also possess certain drawbacks. Below, we outline the primary constraints of cooperative banking.


  1. Limited Reach: Only 45% of the rural population are members of cooperative banking, indicating inadequate coverage. This service is primarily concentrated in a handful of states such as Gujarat, Maharashtra, and Punjab.

  2. Overdue Loan Issues: Overdue loans in cooperative institutions are rising annually, with North-Eastern States facing the most acute short-term credit delinquencies. Nine states, including Maharashtra and Gujarat, suffer from long-term loan overdue, severely impacting land development banks.

  3. Regional Inequities: Credit distribution in these banks is uneven. An RBI report reveals that 80% of total credit is concentrated in eight states, with disbursement ranging from Rs. 4 in Assam to Rs. 718 in Kerala.

 

Empower your finances with cooperative banking. Join us today!


FAQs


What are rural cooperative banks?

Rural Cooperative Banks are financial entities operating at the grassroots level, established to meet the banking and credit requirements of rural regions.

What are urban cooperative banks?

How does cooperative banking differ from traditional banking?

What are the main advantages of cooperative banking?

What services do cooperative banks offer?


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Guest
Mar 19
Rated 5 out of 5 stars.

👏

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Guest
Mar 14
Rated 5 out of 5 stars.

very informative content

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