Strengthening Cooperative Financial Institutions for Inclusive Growth and Resilience

The World Bank and Rabo Partnerships’ initiative strengthened cooperative financial institutions (CFIs) in Colombia, Ethiopia, and West Africa by enhancing regulation, supervision, and institutional capacity. Tailored interventions showcased CFIs’ potential to drive financial inclusion and resilience in underserved and conflict-affected regions.

The World Bank and Rabo Partnerships embarked on a three-year initiative from 2020 to 2023 to strengthen cooperative financial institutions (CFIs) in Colombia, Ethiopia, and West Africa. These institutions, critical for financial inclusion in underserved regions, often face challenges such as weak governance, inadequate regulatory frameworks, and limited financial safety nets (FSN). The project employed a "parallel approach," addressing public sector reforms and private sector capacity building to enhance CFIs' operational efficiency and regulatory compliance. By working with local regulators and cooperative networks, the initiative sought to unlock the full potential of CFIs, which are often the only financial service providers in remote areas.

Colombia: Bridging Gaps in Rural Finance

Colombian CFIs are vital for rural development and the agricultural sector but are hindered by outdated technology and limited resources. With 176 CFIs serving 3.2 million members, their ability to compete with larger financial entities has been constrained by insufficient investments in IT infrastructure and mobile banking. The World Bank collaborated with Supersolidaria, the cooperative supervisor, and the Unidad de Regulación Financiera (URF) to propose regulatory reforms encouraging consolidation and integration in the sector. Meanwhile, Rabo Partnerships engaged directly with CFIs to strengthen agricultural finance and operational integration. Pilot programs focused on creating regional institutions by consolidating smaller CFIs, improving their capacity to serve rural communities effectively. These efforts demonstrated the benefits of scale and collaboration, laying the groundwork for a more robust CFI sector.

Ethiopia: Transforming a Fragmented Sector

Ethiopia’s 21,000 Savings and Credit Cooperatives (SACCOs) provide critical financial services to unbanked rural populations but operate within a fragmented and under-resourced regulatory environment. The Ethiopian Cooperative Commission (ECC) partnered with the World Bank to conduct a comprehensive diagnostic study, highlighting the need for a SACCO-specific legal framework and improved supervisory mechanisms. Recommendations included segregating regulatory and promotional functions and establishing a high-level task force to spearhead reforms. However, political unrest and the COVID-19 pandemic disrupted progress. Rabo Partnerships proposed shared services centers to achieve economies of scale and improve digitization. Workshops and pilot initiatives in Oromia showcased the potential of these reforms, but resource constraints and conflict-related challenges delayed broader implementation.

West Africa: Building Resilience in Regional Networks

In West Africa, the Confédération des Institutions Financières en Afrique de l’Ouest (CIF) oversees a network of six cooperative institutions across Benin, Burkina Faso, Mali, Senegal, and Togo. Serving over five million members through 800 service points, CIF combines promotional and supervisory functions. The World Bank conducted a diagnostic review of CIF’s FSN and supervisory structures, proposing reforms to simplify funding mechanisms and enhance risk management. Drawing insights from global practices, the project recommended the adoption of an Institutional Protection Scheme (IPS) and improvements in data governance. Rabo Partnerships focused on modernizing CIF’s IT systems and developing a commercial strategy to deepen outreach. Despite limitations in regional supervisory engagement, these efforts showcased the transformative potential of regional networks when adequately supported.

Lessons Learned and the Path Forward

The initiative highlighted CFIs' significant role in driving financial inclusion, particularly in fragile and conflict-affected contexts. Across all regions, CFIs’ member-oriented structure and cohesiveness emerged as critical factors for their resilience and competitiveness. Integration and consolidation were identified as essential strategies to achieve economies of scale and enhance operational efficiency. However, successful implementation requires alignment with regulatory reforms and the engagement of CFI leadership and members. In Colombia, regulatory pressure and government support created a conducive environment for consolidation initiatives, while Ethiopia’s fragmented sector required foundational reforms. West Africa benefited from CIF’s regional structure, which facilitated coordination despite resource constraints.

Tailoring interventions to each region’s unique context proved vital. Ethiopian SACCOs needed groundwork to address regulatory gaps, while West Africa’s regional networks required modernization of IT systems and risk management practices. Colombia’s relatively small number of CFIs allowed targeted interventions focused on integration and digital innovation. Despite varied challenges, CFIs consistently demonstrated resilience, maintaining operations in areas affected by conflict and instability, often outlasting commercial banks. This resilience underscores CFIs’ value as critical financial lifelines for marginalized populations.

The collaboration between the World Bank and Rabo Partnerships underscores the importance of investing in CFIs to strengthen financial inclusion and rural development. By addressing systemic weaknesses, enhancing capacity, and fostering collaboration, the initiative laid a foundation for resilient and sustainable CFIs. However, the success of such transformations depends on sustained commitment from all stakeholders, including regulators, CFI leadership, and international partners. With continued support and strategic investments, CFIs can become pivotal actors in achieving greater financial inclusion and economic development in underserved regions.

By fostering collaboration and tailoring solutions to local needs, this initiative demonstrated that CFIs can thrive despite significant challenges. The lessons from Colombia, Ethiopia, and West Africa provide a roadmap for scaling similar efforts globally, reinforcing the role of CFIs as engines of financial inclusion and resilience. This transformative potential positions them as key players in bridging financial gaps and empowering communities worldwide.