Cooperative Banking

Cooperative Banking a concept arising out of cooperative efforts for group welfare provides for the collective savings of small amounts of money by a group of people belonging to the same profession or class and utilization of that capital to try to enhance their income. Cooperative banking essentially tries to collect the savings of the cooperative societies and attempts to invest them among the members. In 1904, the British government promulgated the Cooperative Societies Act, thereby encouraging the formation of cooperative societies, especially agricultural cooperative credit societies all over India. An amended cooperative societies law was enacted in 1912 to make the Cooperative Movement stronger. It was further amended in 1940 by the Bengal Legislative Council to enact the Bengal Cooperative Societies Act to make the movement more effective.

In 1922 the Bengal provincial Co-operative Bank was founded to provide loans to farmers in Bengal. In 1947 the bank was temporarily closed following the Partition of India. The bank was placed under the East Pakistan provincial co-operatives ministry in Dhaka and renamed East Pakistan provincial co-operative bank Ltd on 31 March 1948. It was further renamed Bangladesh Jatiya Samabaya Bank Ltd after the Independence of Bangladesh. It was renamed to Bangladesh Samabaya Bank Ltd in 1977. At present, all cooperative societies are regulated by this law and the cooperative rules of 1987.

After Partition of Bengal in 1947 an effort was made to set up an apex cooperative bank in East Pakistan. Accordingly, the East Pakistan Provincial Cooperative Bank was established on 31 March 1948. This bank was reconstituted as Bangladesh Jatiya Samabaya Bank Ltd after the liberation of Bangladesh. In 1977, it was renamed as Bangladesh Samabaya Bank Ltd. The objectives of Bangladesh Samabaya Bank Ltd. were: a) to act as the apex financial institution in the cooperative sector; b) to help promote development and growth of cooperative societies; c) to regulate the activities of the central cooperative banks and the cooperative societies and coordinate their activities; d) to assist in marketing the products of the primary societies and to finance construction of warehouse and other infrastructure; e) to support and advise the listed societies; and f) to conduct banking activities with the cooperative societies according to the cooperative rules and regulations.

Cooperative societies in Bangladesh work in three stages with the Bangladesh Samabaya Bank Ltd. at the apex, central cooperative banks and the central cooperative societies in the middle, and primary societies at the field level. The apex bank provides capital to the mid-level banks, which in turn lend money to the primary societies. The societies distribute this fund as loan amongst their members. All cooperative banks in Bangladesh are members of the apex bank.

Bangladesh Samabaya (Cooperative) Bank has an authorised capital of Tk 100 million, which is divided into 100,000 shares valued at Tk 1,000 each. The government owns 4,500 fully paid-up ordinary shares while 54,687 shares are owned by the central cooperative banks and the societies, paid-up at the rate of Tk 500 per share. This means that the apex bank has a total paid-up capital of Tk 31.8 million. The ownership of the bank is divided both in government of Bangladesh 18.73% and member primary cooperative societies 81.27%.

According to the Cooperative Societies Ordinance 1984, the cooperative bank cannot lend money to anyone other than a member of the bank. In the 1997-98 financial year the apex bank had 482 members. The members included (a) central societies: central cooperative banks (71), central multipurpose cooperative societies (43), central sugarcane growers, cooperative societies (16), thana central cooperative societies (53); (b) primary societies: cooperative land mortgage banks (43), primary multipurpose cooperative societies (155), town cooperative bank societies (12), fishermen's cooperative societies (3) and other societies (86).

The objectives and the area of activities of the Bangladesh Samabaya Bank Ltd have now widened remarkably from retail products, consumer loans, SME to cottage, micro, small and medium enterprise (CMSME) sector, multi-category lease and trade financing. This Bank has also extended and diversified its activities and undertook new credit schemes namely, agricultural loans, project loans (general), project loans (women), consumer credit, personal loan, loans and advances against gold mortgages.

The Samabaya Bank Ltd has also been working as a member of Bangladesh Bank’s automated clearing house.

The bank’s balance sheet has improved and expanded during the past few years, say from Tk. 454.05 crore in 2017-18 to 465.69 crore in 2019-20. Its net asset has also enhanced substantially in these years.

The basic units of the cooperative credit system are the primary credit societies. The purpose of the primary societies is to provide credit to members engaged in activities such as agriculture, afforestation, fishing and cottage industries. These societies are partly financed by the middle-stage central cooperative banks. The cooperative land mortgage banks and cooperative banks of urban areas are also listed as primary societies. These banks too lend money to members engaged in agriculture and cottage industries, but are partly financed by the samabaya banks. The membership of such banks is open only to individuals.

Cooperative banking begins from the bottom. Farmers or members of other professions submit their applications for credit to their primary societies. These are scrutinised by the local assistant cooperative inspector and submitted to the central cooperative banks with the recommendations of the agriculture officers. The central cooperative banks in turn ask for funding from Bangladesh Samabaya Bank Ltd through the district cooperative officer. This bank applies for fund to Bangladesh Bank, which releases fund against the guarantee of the government. The fund goes to the central cooperative banks, which in turn give the money to the primary societies for distribution among the applicants according to their own rules and regulations.

There are several basic differences between the working of cooperative banks and general banks. Cooperative banks are not involved in commercial banking and mostly provide small loans to the agriculture sector. Commercial banks in the country operate through a network of branches under the control of their head offices. In contrast, Bangladesh Samabaya Bank Ltd and each of the central cooperative banks are independent entities run and regulated by their own board of directors. Cooperative banks are constituted on a cooperative basis. Each is run by cooperative members according to the cooperative laws. Their activities are audited by government-appointed external auditors. Commercial banks are allowed to lend money to individual borrowers and can accept deposits under wide-ranging principles of banking and credit. But borrowers of commercial banks do not play any role in running these banks. On the other hand, cooperative banks can only lend money to their members in accordance with cooperative rules and regulations in pursuance of the policies laid down by the government and can accept deposits of their members. As the borrowers of cooperative banks are their members they play a role in running the banks. The activities of cooperative banks are regulated by the Bangladesh Bank as the country's central bank under the provision of the Banking Companies Act of 1991.

There are 145,000 cooperative societies in Bangladesh. One of the most successful societies is the Bangladesh Banks Employees Cooperative Credit Society. This was set up in Dhaka in 1948. In 2009, it had 4,800 members and its total assets were worth 620 million. Most cooperative societies in the country have deviated from the basic principles and aims of cooperatives and are suffering from inefficiency and mismanagement. Overall, the cooperative movement has been badly hit by personal clashes, political interference in management, and misuse of resources. Promoting the cause of the cooperative movement for the country's economic well-being is, nevertheless, a duty of all irrespective of political affiliations and caste or creed.

The scope, activity and extent of services of the Smabaya Bank have been diversified over time. It has expanded its cooperation and collaboration with both local and international organizations, which had enhanced its status in the international arena. The bank has received membership in International Cooperative alliance (ICA) in 2015 and International Co-operative Banking Association (ICBA) in 2019. Moreover, the chairman of Bangladesh Samabaya Bank Ltd has been made director in the Board of Directors of International Co-operative Banking Association (ICBA). [S M Mahfuzur Rahman]