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Regulation, supervision and deposit insurance for financial cooperatives: an empirical investigation

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Abstract

This paper analyses the impact of different regulation and supervision approaches, as well as deposit insurance schemes, on the development of financial cooperatives in developing countries, using random and fixed effects estimators. Information on laws regulating financial cooperatives, the supervisory approaches adopted, and deposit insurance schemes in sixty-five developing countries were collected—mostly—from original legislations for the period 1995–2014. Key findings suggest that indicators of financial cooperative development are positively correlated with the existence of a specialized regulation; supervision under non-bank financial supervisory authorities; and the presence of deposit insurance schemes, while general cooperative society’s regulations and banking regulations are negatively correlated with financial cooperatives’ indicators. These results are robust after controlling for economic and institutional factors as well as potential endogeneity bias.

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Notes

  1. See Berger et al. (2005), Cuevas and Fischer (2006: 55), Hesse and Čihák (2007), Ayadi et al. (2010: 116), Tchuigoua (2011), Birchall (2013: 24), Hasan et al. (2014), and Butzbach and von Mettenheim (2014: 33–41) for a comprehensive overview on empirical literature on the comparative performance of financial cooperatives.

  2. A list of all laws and sources reviewed is available upon request.

  3. For detailed overview on the advantages and disadvantages of panel data see Baltagi (2005: 1–9).

  4. United Nations (2003, pp. 10) cited by Cuevas and Fischer (2006, pp. 1).

  5. In Kenya by the SACCO Societies Regulatory Authority since 2008 and South Africa by the Co-operative Banks Development Agency CBDA since 2007.

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Acknowledgements

I am very grateful to Professor Volker Nienhaus, Raffael Bair, Mohamed El-Shewy, the anonymous referee and the editor for their constructive comments, and the German Academic Exchange Service (DAAD) for the financial support.

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  1. Institute of Development Research and Development Policy, Ruhr-University, Bochum, Germany

    Amr Khafagy

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  1. Amr Khafagy
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Correspondence to Amr Khafagy.

Appendix

Appendix

See Tables 7, 8 and 9.

Table 7 Random-effects regression results for financial cooperatives indicators and regulations
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Table 8 Random-effects regression results for financial cooperatives indicators and supervision
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Table 9 Random-effects regression results for financial cooperatives indicators and deposit insurance
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Khafagy, A. Regulation, supervision and deposit insurance for financial cooperatives: an empirical investigation. Ann Finance 14, 143–193 (2018). https://doi.org/10.1007/s10436-017-0307-y

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