There is no doubt that most people have heard the parable, "give a man a fish; you have fed him for today. Teach a man to fish and you have fed him for a lifetime." Traditional financing models often miss this important psychological element of education, which is essential to the ongoing success of positive economic progress.
Cooperative financing models almost always incorporate an educational element into their business models. For example, the Grameen Foundation (grameenfoundation.org) cites one of their major goals as, "the ability to educate local communities about the opportunity to improve their lives."
Research has shown that without the proper understanding or the requisite education necessary to understand the ramifications of a financial decision, individuals often let financial institutions make choices for them.
When Less Isn't More
Having less access to money necessitates a better understanding of how to manage it, not less.
Cooperative financial involvement in private sector development also carries with it the psychological adherence to social pressures to positively perform. In many economically depressed regions of the world, local participants in the economy are known to each other and may have been associated with one another for many generations.
This social pressure to keep one's promises and contribute to the greater good of the community can prove to be quite a positive psychological factor in the performance of cooperative financing arrangements. Proof of this psychological "family bond" can be found in the strong and successful roots of cooperative movements that took place in Eastern Europe during the late 19th century.
Before more established and formal ideas like the Raiffeisen and Schulze-Delitzsch cooperatives (the models from which modern-day credit unions evolved), strong family and community bonds were present that formed more informal cooperative arrangements.
The positive psychological performance effect that existed in the late 19th century is still a major motivating factor of success in today's cooperative financial arrangements.
The research associated with cooperative financing or "participative equity" as a positive psychological tool, indicates the importance of individual participation as a stakeholder for the collective economic benefit of the whole.
In a paper written for the World Bank for the conference on New Frontiers of Social Policy in 2006, Kaushik Basu stated, "what is critical is that we instill in people a sense of belonging and having certain basic rights as citizens. What the poor and the marginalized in society lack is a sense of "participatory equity."
The basis of this and other research results, confirm the hypothesis that at every economic strata, personal involvement as a stakeholder or participant in an economic initiative, results in greater positive outcomes due to the psychology of "participatory equity" in the overall process.
The ultimate goals of organizations like the World Bank and IMF are to alleviate world poverty and foster permanent economic growth in developing regions around the globe. Within smaller communities, including "underserved" markets within the U.S., similar goals exist for credit unions. In the case of the World Bank, it is currently involved in more than 1,800 projects in virtually every sector and developing country. Some of these projects do include microcredit initiatives in such places as Bosnia and Herzegovina.
The IMF is also involved in poverty reduction strategies through lending operations in its poorest member countries. In certain cases, the World Bank and the IMF work together on projects when appropriate.
Although these organizations work with local governments and municipalities, and even local citizens in the case of microlending, neither is involved in capitalizing a grass-roots cooperative finance structure to any mentionable scale.
Business Strategies Already Exist
Business plans and strategies already exist for these types of finance structures in the form of credit unions, and even supported by organizations such as the World Council of Credit Unions.
Private sector development and poverty alleviation in developing nations is fraught with a host of potential problems and issues.
Nevertheless, although conditions do and will exist in certain countries that serve as barriers to economic development, the research strongly indicates that a "bottom-up," grass roots strategy may prove to be an effective alternative to the traditional top-down approach.
This fundamental lesson from the global markets is applicable to many of the communities in which credit unions work in the U.S.
As the Grameen Foundation has proven in Bangladesh and credit unions have proven in South America, for example, cooperative development on a microeconomic level is a viable foundation for large-scale macro-economic development initiatives.
Ownership By The People, For The People
The hypothesis associated with this assumption is that with a foundation of ownership by the people, for the people, cooperative development and financing would be less subject to governance problems or external political influence.
Credit unions, in particular, are organized and predicated on its owners having a common bond with each other, as well as having a commitment to social responsibility. A common bond needs to exist that is more than just being poor or part of an economically disadvantaged society.
This "common bond" becomes the impetus and fuel for the necessary components of social goals which are: ongoing education, continued cooperation, and social responsibility, as CUNA noted in a report in 1999.
In order to adequately cultivate the seed of private sector development and begin on the road to poverty alleviation, people must have reliable and secure access to more than just loans.
They need to be offered the full array of "traditional" financial products, as well as access to the assistance that will help them manage their financial lives, no matter their economic status. This is important, even if it is a family living on less than $1 per day, as many of Bangladesh's poor do regularly, or if they are earning the minimum wage in one of the many underserved markets in the United States.
Financing options for the poor do not need to contain different elements of products and services just because the dollar amounts are smaller.
This is especially true in a cooperative business model where all owners of the cooperative have equal access to the products and services of the organization.
The costs associated with the education and product/service offerings are an investment that will produce unquantifiable dividends far into the future.
Dr. Anthony L. Emerson is VP-Finance/Accounting Operations with Maine Savings FCU, Hampden, Maine.
