Do Institutional Transplants Succeed? Regulating Raiffeisen Cooperatives in South India, 1930–1960

Maanik Nath

doi:10.1017/s0007680520000884

Abstract

The government in British-ruled India established cooperative banks to compete with private moneylenders in the rural credit market. State officials expected greater competition to increase the supply of low-cost credit, thereby expanding investment potential for the rural poor. Cooperatives did increase credit supply but captured a small share of the credit market and reported net losses throughout the late colonial and early postcolonial period. The article asks why this experiment did not succeed and offers two explanations. First, low savings restricted the role of social capital and mutual supervision as methods of financial regulation in the cooperative sector. Second, a political-economic ideology that privileged equity over efficiency made for weak administrative regulation.

Highlights

The government in British-ruled India established cooperative banks to compete with private moneylenders in the rural credit market
According to an Indian economist in the 1930s, “the study of the small village banks in Germany toward the close of the last century attracted the attention of those who were eager to solve the problem of rural poverty.”[11]. Policymakers in colonial and postcolonial India continued to invest their confidence in the cooperative movement as a solution to the credit problem
Tested success of Raiffeisen banks in Europe inspired the government to create a structure of self-help banking in India from the early twentieth century

Summary

Maanik Nath

The government in British-ruled India established cooperative banks to compete with private moneylenders in the rural credit market. According to an Indian economist in the 1930s, “the study of the small village banks in Germany toward the close of the last century attracted the attention of those who were eager to solve the problem of rural poverty.”[11] Policymakers in colonial and postcolonial India continued to invest their confidence in the cooperative movement as a solution to the credit problem. They believed that “great things were expected of the cooperative movement in India, on the analogy of its phenomenal success in Europe.”[12].

Externally Regulated

Primary bank

Low Savings and Weak Regulation

Banks Legible accounts Erroneous accounts Failed audit

Findings

Conclusion