Building vibrant and sustainable co-operative enterprises that stimulate the social economy of the province



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THE GERMANY EXPERIENCE


Mr Wolfgang Schmeling
DGRV African programme is based in Pretoria and has projects in South Africa; it is collaborating with the secondary structure of farm multi-purpose co-operatives in Swaziland. DGRV has contacts with Zimbabwe and is running a project in Mozambique and has also started a project in Botswana.

Mr Schmeling pointed out that co-operatives are the largest business organisation in Germany in terms of membership. The German Co-operative and Reiffeisen Confederation (DGRV-Deutscher Genossenschafts-und Raiffeisenverband e.V.) is the national apex organisation and top level auditing federation of the German co-operative sector. About 5300 primary co-operatives are part of the federation in agriculture, banking, small scale industry commodities and services sectors. The federation’s membership is estimated at 18million in addition to this, about 1855 housing co-operatives exist in the construction sector with an approximated membership of 3million. Co-operatives employ about 780,000 full-time staff. This makes DGRV by far the largest employer in German.

Co-operatives are open to everyone if their business purpose permits. That means as each co-operative has to be, by law, a member of an auditing association the auditing association pays attention that the co-operative association maintains its quality in terms of services and performance of the co-operative. So if ten people, which is the minimum number to form a co-operative in Germany, want to register as a co-operative they have to submit their business plan to a special commission of the association.

And if this business plan is considered not to be viable in terms of profitability, market conformity and time it takes to generate benefits or surpluses, then the admission request is rejected. So in Germany it is not possible to just register as a co-operative, work out a business plan and start learning how to do business.

The co-operatives at local level, their enterprises and federations should serve the economic interests of their members as spelt out in the German Co-operative Act. In German co-operatives are independent enterprises, autonomous and are not subject to Government Influence. They have to be competitive in their markets and shall not be used or even misused to serve selfish interest of individuals, groups, politicians and governments. Co-operatives contribute significantly to the economy of German as a whole, especially to the strengthening of rural areas. Co-operatives have been operational for more than 150 years in German, starting as local self-help organisations of farmers and small craftsman growing into complex system of co-operatives local, regional and national.

Co-operatives have a long and successful tradition, dating back to the 19th century. The founders, Friedrich Wilhelm Raiffeisen and Hermann Schulze-Delitzsch, helped to establish the first co-operatives more than 150 years ago. This historical situation is a bit comparable to the South African situation in 1994. At this time the 1950’s was about the eve of the industrial revolution on the one hand side. On the other side it was the end of the feudal system. The industrial revolution meant that commodities had been produced at large quantities in very big units and at fairly low prices, at least at lower prices than any craftsman could produce.

So the craftsmen were facing very, very strong competition and they needed support and that is why in the urban areas they joined together in creating co-operative banks.

It is logic that poor craftsmen cannot collect so much money to help themselves with the extension of loans so at this time there were people around the two men Raiffeisen and Schulze-Delitzsch, who were fairly well situated, and they deposited their savings in the co-operative banks.

Whether their savings were remunerated with interest cannot be ascertained but that was more a social action in order to help the craftsmen to have a certain amount of money available for the extension of loans. They were also sitting in the Board of Directors of these co-operative banks because they were very much interested that their money would not get lost through failure in repayment of the loans but it was a big help for the craftsmen.

In the rural areas until this time under the feudal system farmers were working on a piece of land on their plot which belonged to a big farmer and they were independent in farming but they were obliged to deliver one tenth of their harvest to the landowner. With the end of the feudal system these farmers became owners of the land where they were working on but they had only one productive factor – land in their ownership. They had no farming inputs, no seeds and what else you need as a farmer. So they were in a desperate situation that they did not see another way than organising themselves in self-help groups which then turned into co-operatives where they put their small earnings together and that helped them to purchase their agricultural inputs in bulk and to market together at better prices. By organising they had a better negotiation possibility.

To explain the structure of such a confederation, this confederation is based on four national federations. There is one federation for agriculture, one federation for commodities and services and one for consumer, one for the banking sector. And these national federations they form together the confederation. These federations were built up from bottom to top.

That means if you take one small co-operative bank, in the next village there is another small co-operative bank, in the third village there is another one. When there are enough and they feel that their own capacity to provide services to its members is not sufficient any more that for instance higher loan amounts are requested from the members and they do not have the liquidities to satisfy these loan requests then they realise that they have to join forces. And the primary societies then, and only then, they join into a secondary structure. We call that the system of subsidiarity. The secondary structure’s existence is only justified then when the primary members are not able any more to satisfy their individual members. And secondary structure provides only these services which the primary societies cannot provide.


The Co-operative Banking System


Within the German co-operative movement, the largest group in terms of members (16.4 million) and clients (approximately 30 million customers) are the 1,156 co-operative banks (Volksbanken and Raiffeisenbanken, Sparda-Banken, PSD-Banken). Together with the 2 Co-operative Central Banks they form a banking-network of 13,571 branches with a balance-sheet total of 1,210 billion euros which is a very huge amount. As universal banks, they offer both to members and non-members alike, the whole range of state of art banking services. So you can buy shares on the stock market.

The co-operative banking group is decentralised. All institutions at local level are autonomous. All co-operative banks and financial institutions at regional and national level (e.g. DZ BANK AG – Deutsche Zentral-Genossenschaftsbank, German Co-operative Central Bank) have to support the local level (principle of subsidiarity). The secondary structure supports the primary structure, the third tier organisation supports the second tier and so on and so forth. So at the end the third tier organisation does not provide services directly to the primary societies but only to the second tier organisations.

The German co-operative banking system is organised in three tiers. Its strong basis is the network of the 1,156 co-operative banks with their branches (volume of business approximately 690 billion Euros in 2009,

approximately 9 billion Euro paid in member capital) which include not only the Volksbanken and Raiffeisenbanken but also several co-operative banks which focus on certain professions such as public servants, clerical workers, and members of medical professions. The group also includes some 165 Raiffeisen co-operatives with commodity transactions (multipurpose co-operatives) which are involved in banking and commodity transactions under one roof. These are based only in rural areas except for one financial service co-operative which located in the urban areas.

Today, the average balance-sheet total of a co-operative bank is approx. 597 million Euros. This figure has increased significantly over the time, due to mergers in the sector and the general increase in business (1970: 7,100 co-op banks - 40 million Euro average balance-sheet total, 1990: 3,340 co-op banks – 298 million Euro average balance-sheet total). Market shares today range from 14.3 % (loans to corporate clients) to 27.1 % (loans to small and medium enterprise clients) to 28.9 % (deposits).

The second tier of the co-operative banking system consists of one regional central bank (WGZ BANK – Westdeutsche Genossenschafts-Zentralbank, West German Co-operative Central Bank) and the regional offices of DZ BANK AG. The regional level balances amongst other surplus liquidity of local co-operative banks and serves as a source of liquidity (refinancing) and handles international trade operations. Originally, a larger number of regional banks existed, once established by the local banks. In order to serve the interests of their members and clients in the best possible way, as well as due to the need to adjust to overall changes in the German banking sector, regional banks as well as primary co-operative banks increasingly merged. This is still an ongoing process.

Primary co-operative banks and WGZ BANK are also the main shareholders of DZ BANK AG, representing the third and top-tier of the co-operative banking system, which also includes a number of institutions which offer special financial or other specialised services. Most of these "integrated enterprises" are jointly owned subsidiaries of the WGZ BANK and DZ BANK AG.

The balance-sheet total of the so-called co-operative “Finanzverbund”, including co-operative mortgage banks, Bausparkasse Schwäbisch Hall (the biggest co-operative building society in Europe), R+V Versicherung (insurance company) and Union Investment (Asset Management) surpassed 1,200 billion € by the end of 2009. All enterprises of the co-operative banking system are members of regional co-operative auditing federations respectively special auditing federations and of the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. (BVR) as their national federation.


Co-operatives in the Agricultural Sector


Within the agricultural sector of the organisation, a total of 2,669 co-operatives and 6 central enterprises serve the economic interests of their approximately 1.8 million members. Some 1,200 co-operatives supply their members with agricultural input as commodity and service co-operatives, they advise on questions of production, and collect, process, and market the members’ products.

The commodity side of operations of the 165 Raiffeisen banks with commodity transactions (multipurpose co-operatives) is taken as part of the group of agricultural co-operatives. An additional 608 co-operatives operate in various types of business (water-management, electricity, fishery, cooling, machinery etc.). Specialised central co-operative companies operate at regional and national level in all fields of business. As a consequence of German re-unification, there are today 852 agricultural productive co-operatives affiliated to the organisation and working successfully in the market.Market shares of the co-operatives in agriculture range from about 30 % as regards meat and wine, 50% in grain, vegetables etc. to up to 65 % in the dairy business. Total turnover in 2009 reached 37.5 billion Euros.


Small-scale Industry Commodity and Service Co-operatives and Consumer Co-operatives


The third and fourth pillar of co-operatives in Germany are some 1,440 small-scale industry commodity and service co-operatives and their 7 central enterprises as well as 195 consumer co-operatives. Serving about 700,000 members (individuals and companies), their total turnover was approximately 104 billion Euros in 2009.

In this sector, a wide variety of co-operatives serve their members. Co-operative supermarket chains, purchasing co-operatives (e.g. bakers, roofers) and co-operatives of medical doctors represent only a part of a growing segment of co-operative activities.


Co-operative Federations


All co-operatives in Germany are obliged by Law to be audited every year. The auditing mandate was delegated to DGRV and the regional co-operative auditing federations. Thus they are subject to statutory compulsory audits by these federations. Other major tasks of the federations are the provision of advice to co-operatives, particularly in business management, legal and fiscal questions, and the organisation of activities in human resource development. Additionally, they offer a wide spread of different further reaching services (e.g. specific consultancy in electronic data processing and management information systems). Training for co-operative managers and staff (especially bank managers) as well as co-operative auditors is carried out at highest professional level with modern training tools and methods at the Academy of German Co-operatives at Montabaur Castle (ADG). ADG offers a wide range of demand and client oriented training programs organised as in-house training, e-learning, and Bachelor/Master programs in co-operation with universities.

At national level, four sector-orientated federations take care of the interests of their member co-operatives (advice, coordination, information and lobbying activities):Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V. – BVR (National Association of German Co-operative Banks), which is responsible for the interests of all People's Banks and Raiffeisen Banks;



  • Deutscher Raiffeisenverband e.V. – DRV (German Raiffeisen Federation), which advises the Raiffeisen commodity and service co-operatives as well as agricultural productive co-operatives in questions connected with their activities;



  • Zentralverband Gewerblicher Verbundgruppen e.V. – ZGV (German Federation of Buying and Marketing Groups), dealing with small-scale industry commodity and service co-operatives;

  • Zentralverband deutscher Konsumgenossenschaften e.V. – ZdK (Central Federation of Consumer Co-operatives).

DGRV as National Apex Confederation


DGRV is according to the German Co-operative Act (GenG) the confederation and national auditing federation of the German co-operative sector, comprising all co-operatives in agriculture, savings and credit and small-scale industry commodities and services, regional and national co-operative institutions, federations and associations as well as specialised co-operative enterprises.

DGRV is the national auditing confederation for the co-operative sector. DGRV carries out audits of co-operative banks and enterprises at national and regional level. In Germany there are not only supervisors but also a banking supervision authority. And this supervision authority has delegated the auditing of co-operative banks to DGRV but they may do double check auditing if they wish.

In Germany there is no Co-operative Banks Act. Co-operative banks fall under the Banking Act. They have to fulfil all the requirements and are treated as any other commercial bank.

As national apex, DGRV is responsible for all matters pertaining to the organisation as a whole, i.e. in economic, legal and fiscal policies that are common to all kinds of co-operatives. It advises and assists the German co-operative organisation in the fields of auditing, co-operative law and by-laws, human resource development and business organisation. DGRV keeps contact with other organisations and institutions at national and international level. In addition to this, DGRV is involved in co-operative development activities worldwide. DGRV has the mandate of the entire organisation to perform international development and consultancy projects in order:



  • to strengthen partner co-operative organisations (co-operative systems and institution-building)

  • to promote co-operative know-how transfer

  • To strengthen savings and credit co-operatives, co-operative banks and co-operative financial networks including their microfinance activities and co-operatives in the other sectors (agriculture, services etc.)

  • to establish and promote co-operative auditing systems

  • To advise national governments, banking supervisory authorities and other public bodies on co-operative law, auditing and supervision of co-operatives.

DGRV has profound experience in building and supporting co-operative systems in many transition countries in Eastern Europe and has been active in Latin America, Africa and Asia for a long time. In its international activities, DGRV is especially supported by DRV, BVR, ZGV and by ZdK as national federations, by the regional auditing federations, by the German co-operative apex bank DZ BANK AG, by the regional WGZ BANK, by the specialised institutions (i.e. R+V Insurance Company, Bausparkasse Schwäbisch Hall, Union Investment etc.), and by many primary co-operatives and regional centres. Thus DGRV can benefit any time of the know-how of a huge organisation in its development activities.

As national apex organisation, DGRV maintains relations with various international co-operative organisations such as IRU – International Raiffeisen Union, ICA – International Co-operative Alliance, European Association of Co-operative Banks, COLAC – Confederación Latinoamericana de Co-operativas de Ahorro y Crédito, ILO – International Labour Organisation, WOCCU – World Council of Credit Unions.

DGRV has been in South African for twelve years and DGRV had already been involved upon request of the Department of Agriculture at that time to train agricultural co-operatives. In the meantime DGRV has been involved in the formulation of the Co-operative Act in 2005.

DGRV has also been involved in the formulation of the Co-operative Banks Act, regulations as well as the Amendment Bill of the Co-operative Act of 2005. We are involved in helping to develop other instruments and tools like auditing regulations and so on.

DTI is a partner, Treasury in capacity building and supervisor department of CBDA is a close partner to DGRV. We are also working with the CIS (Co-operative Incentive Scheme) and SEDA with respect to the establishment or assistance to the emergence of bakers’ co-operatives. In that respect we are also active in Eastern Cape. Then we have a partnership with an NGO in Eastern Cape and Agriculture Research Centre in providing our support to the organisation of fruit tree farmers who want to organise in marketing co-operatives. Then we are co-operating with SAMAF. We train the provincial coordinators of SAMAF and sometimes also primary society’s financial service co-operatives.

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