The Sri Lankan Consulate in Frankfurt recently facilitated a visit of Sri Lanka cooperative bankers to the Academy of German Co-operatives (ADG) in Montabour, Germany. The ADG is a training institution set up to train coop banks in Germany and also provides information and services to co-operative banking networks worldwide. A five member team headed by Damitha Narangoda, CEO of the Co-operative Insurance Company Limited, participated in this three day workshop held in Montabour.
This visit was a result of the Consul General of Sri Lanka in Frankfurt, Pradip Jayewardene's initiatives. "The workshop and the visit of this delegation were initiated by me as I have first hand knowledge of the rural banking network in Sri Lanka and have seen the
great need for access to financing by rural entrepreneurs and farmers. Germany is the birthplace of co-operate banking with banks like Volks and Raifeisen Banks, and has one of the largest and most developed cooperative banking system in the world. These provide a strong financial base for German industry and Agriculture," said Jayewardene, who had conducted the initial discussions with the ADG officials in Germany to develop a program suitable to both parties. "The main purpose of this meeting is to develop an MOU and proposal for transfer of technology and best practices," he also said.
Background of German co-operative banking
The German co-operative banking system was started in 1850 to assist bulk buying of raw materials by craftsmen and farmers. They however developed while keeping true to corporative principle of serving their members
'The coorporatives' purpose is the advancement of the economic situation of their members by means of a commonly practiced business'.
There were several important steps which made them grow:
1) The formation of a central bank for the cooperatives.
2) New rules and best practices applied to all.
3) Merger of many small coop banks to form one larger bank.
4) Offering many other products such as insurance, housing loans etc.
Today, they are one of the strongest banking networks in Germany which has a balance sheet of 750 billion euros, with 1,079 banks to their credit and a 160,000 strong workforce. They also boast of 17.8 million members and a 30 million customer base. Every fourth person in Germany is a corporative member and every third person is a customer of a co-op bank.
Background of Sri Lankan co-operative banking
The co-operative concept was first introduced in Sri Lanka in 1906 by the British, based on the Raifeisen model in Germany. The first co-op bank was established in Jaffna, in 1929 for agricultural and trade purposes. In 1957 all the cooperatives were made into Multipurpose Coop Societies (MPCS) and most of the coop banks became the People's Bank. The other portion of Cooperative Banks evolved into Co-operative Rural Banks (CRB) with 2200 branches a workforce of 7,000 and a customer base of eight million.
Though the CRBs are the principle micro finance network in the country, they have not progressed or developed like the German cooperative banks.
Problem areas in our CRBs
The German Co-operative Banks being such heavy weights in the German economy there is much to be gained by our participants, hence, three major areas in the CRBs that needs improvement were identified by both sides and the workshop was designed to address these issues:
1) Weak secondary and tertiary organisations, which do not efficiently service primary level institutions/members (auditing, accounting, quality of consultancy, competition between institutions on different levels).
2) Insufficient professionally structured training institution(s) and systems.
3) Implementation of an integrated IT system (hard- and software).
When asked about the format of the workshop, Narangoda said, "A German specialist in management education conducted an introductory session on the ADG modular system employed to train the German Co-op bankers based on 10 modules for management training. This covers marketing, risk management auditing etc. These are conducted in both practical situations and also academic in partnership with a German university."
"We also discussed ideas on developing a specialised training course for CRB's to be conducted in Sri Lanka as a train the trainers course," said Narangoda.
In the area of introducing an efficient IT system to the CRBs, Narangoda was of the opinion that, the German system has a core banking system which deals with regulatory and risk management and the German bank IT systems are not adaptable to Sri Lanka. However, it was proposed that a similar concept could be used by CRB's with the help of an already developed core banking system(s) that is running in Sri Lanka and then customising it to their requirement.
"This idea is viable and cost effective and can be forwarded to potential partners/service providers in Sri Lanka, who could offer it to us, rather than developing our own," said Narangoda.
Further, discussions were held on developing an MOU with the ADG as the facilitator. Their idea is, to develop a proposal which could be the basis for the necessary changes within the CRBs. Hence, it was decided to include, IT, Risk Management, Governance and Auditing as the major components. In addition they also discussed how financing can be organised for this project.
Three options were considered:
1) Funding by Donor agencies (ADB/GIZ/WB)
2) Funding by sister networks of CRB's (Unions etc.)
3) Syndicated financing (part by CRB and balance from others)
Narangoda and Jayewardene were both positive that the ADG will work with the Sri Lanka CRB's to see how they could also be developed and grown.
"The Sri Lanka delegation realises that they need this help and support. They are very appreciative that we have arranged this workshop. The next step will be to finalise the draft MOU, the ADG will work on it. After the signing of the MOU, donors and possible partners have to be found. I have agreed to help in talking to some donor agencies," said Jayewarde.
The Consul General didn't forget to mention that, President, Rajapakse also started his political career as chairman of the Beliatta MPCS (Multi purpose Co-orporative Society). "Now you know how close he is to the grassroots of Sri Lanka!" said Jayewardene.
By Dilmini Dissanayake in Germany, Financial Times, 8 December 2014