Italy’s coop banks: “struggling” but tirelessly innovating

Within Italy's vibrant cooperative sector, cooperative banks are striving to support individuals and businesses ignored by the conventional banking system. Though times are tough they're still innovating.

The cooperative movement in Italy is often referred to as the largest in the world, alongside France and Spain, and dates back to the 1800s. Though England is widely recognised as the home of the world’s first cooperative, the Rochdale Society of Equitable Pioneers founded in 1844, some of the modern titans of the sector have flourished in Italy, including Legacoop, which owns 14,500 of Italy’s cooperative businesses. 

Italy’s cooperative banks grew up around the time of the first cooperatives and share the founding principles of the Rochdale Pioneers, which cooperatives worldwide have adopted. The banks are owned by members (usually their customers) rather than shareholders. As a result they prioritise maximising customer value over profits, and they typically focus on high street banking. Italy’s coop banks have combined assets of 480 billion euros ($656 billion), representing about a fifth of Italy's banking sector.

Uniting, planning and overseeing the progress of the cooperative banking sector is Federcasse, the Italian Federation of Co-operative Banks. Isabelle de Grave spoke to Alessandro Messina, head of relations, enterprises and special projects for Federcasse, to find out how they're innovating in Italy's recession.

Pioneers Post: Can you give a brief, “what you should know” introduction to Federcasse and the banks it is there to support?

Alessandro Messina: Federcasse is the Italian association of local cooperative banks. We have 380 banks under our radar and 1,200,000 members in the country, almost in every town. As part of the early cooperative movement, our principles are very similar to the first pioneers of the movement. The first cooperative bank was founded in Lodi in 1864. At this time, all over Europe cooperatives were spreading. 

The Rochdale Principles

  • Open Membership
  • Democratic Control
  • Dividend on Purchase
  • Limited Interest on Capital
  • Political and Religious Neutrality
  • Cash Trading
  • Promotion of Education

The principles were set down in 1844 and updated by the International Co-operative Alliance in 1966

PP: Where do cooperative banks fit into Italian society today?

AM: Today, we are a big component of the banking system in Italy, we have almost 10% of savings and loans, but specifically on households and small business our market share is very high, we have almost 20% on loans on agriculture and on small trade. In some ways, cooperative local banks are an ancient form of microfinance but based on mutualism and connection between members.

Our social value is in the creation of financial inclusion for people who otherwise wouldn’t have access to financial services from ordinary banks operating in traditional financial markets. This happens in two ways, by staying on the ground in small towns and rural areas, and basing the assessment of credit worthiness not on standard values and criteria but on the relationship between bank and customer. This is very difficult to explain to European technocrats. It’s not easy being a local cooperative bank. The average number of branches for one of our banks is ten branches. So we’re talking about very small banks, they do not have big offices and many people working, and they’re non-profit banks, they don’t have resources to dedicate to bureaucracy.

Our banks in rural areas weren’t set up to think about serving people who needed to send money to Honduras.

PP: How are you innovating to face the challenges of a fast changing world?

AM: The world is changing and society is changing, you always have to adapt your mission. Even after 150 years of years of experience, it’s still a challenge. In the last decade one of our big questions has been how to serve migrants. Our banks in rural areas weren’t set up to think about serving people who needed to send money to Honduras or Africa. When you’re looking at the quality of service in a cooperative bank, you have to improve every year, with a response to this type of social need. 

At the moment, we’re working for standardised ways to measure our social impact. Almost one third of our banks already do social accounting every year. We’re in the test phase of a common approach, and we’ve agreed 139 indicators; for example, the share of euros to young people or to women. Part of our social and environmental impact of course comes from the inside so we’re asking, 'how many employees go to work by car', and 'do you recycle paper'? 

We’re in the test phase of a common approach, and we’ve agreed 139 indicators... Within our conventional accounting process there is a specific form for social measurement.

Our social accounting has just been integrated with our financial accounting system. Within our conventional accounting process there is a specific form for social measurement. This is important, because it allows us to get our results through the ordinary process of the bank. We don’t want it to be something extra. But something built into the cooperative bank’s core, part of the ordinary life of the bank. 

PP: How commonplace is this sort of approach across the social enterprise and social cooperative sector in Italy?

AM: This sort of approach hasn’t really diffused in Italy. My impression is that the economic crisis probably held back a great part of the social economy, we were experimenting, but after the crisis, everyone stopped creating tools to look at social and environmental impact because everyone was concentrating on their financial accounts to survive.

There was a law on social enterprise, the Impresa Social, passed in 2005, which is the only Italian law, which disciplines social accountants. In the terms of that law every social enterprise must produce a social accountant who is subject to certain guidelines. The problem is that for several reasons there are very few social enterprises as defined in this piece of legislation. There are only 700. The law is now eight years old and hasn’t worked well. The government is thinking about changing the law to create more social enterprises, and more hybridation between the market economy and the social economy. It’s a great debate that we’re having in Italy now.

PP: Why are you working to develop your social impact measurement in the middle of a recession?

AM: We started our social impact measurement project because we constantly need to renew our partnership with our members and they need to know what the social value we create is. Otherwise they forget we’re a cooperative bank and begin to treat us like any other bank. And this isn’t good for anyone. We need to increase our members to be competitive in the market and create more social value.

PP: What are your thoughts on the recent UK coop debacle. Are you concerned about the model, which seems to have let huge losses and high paid commercially driven executives run the show? 

AM: Whenever cooperative banks have problems, you can bet it will be governance problems not financial or economic. And they arise when the manager is no longer complying with the mission of the cooperative, but to a personal or commercial mission. In a cooperative the power distribution between the stakeholders, shareholders and executives needs to be kept in check. When the participation processes are not transparent and correct the director has too much power, and this is a problem. In Italy during the crisis we had almost 20 local cooperative banks that had difficulties in finance and management, our analysis is that this happens whenever there is a governance problem, when leadership lasts too long and when boards become too formalised and no longer places of discussion.

We are struggling because now in Italy everyone is struggling.

Every two or three years we have conversations in Italy around reform. The problem is whenever cooperatives have problems everyone says, the problem is in the model. But the problem is in the people, the model is solid and working and there is little evidence that the capitalist model is more efficient or effective. When coops run into trouble they have smaller problems than those that occur in commercial banks.

PP: How well are cooperative banks in Italy doing?

AM: Things in Italy are not going well. We have a recession and strong unemployment. Because the banks are directly connected to the real economy, and do not operate in the financial markets, their margins are very low. Also problems are increasing around the quality of credit because small businesses and households have difficulties paying back loans.

We are struggling because now in Italy everyone is struggling. We are a big system and a big network: 380 cooperatives work together and promote their actions and communication together. And it’s a very important step now.

This article was produced in partnership with the SROI Network. 

Photo credit: Eric Hossinger, flickr.