Are Financial Cooperatives Crowded out by Commercial Banks in the Process of Financial Sector Development?

This paper investigates whether financial cooperatives are crowded out by commercial banks in the process of financial sector development. We use a self-constructed database based on World Council of Credit Unions data for the years 1990-2011 of cooperatives in 55 developing countries. Our empirical results are threefold. First, financial cooperatives tend to reach more members in countries where the commercial banking sector is weak. This validates their role as a banking market failure solution. Second, in the process of commercial bank expansion, financial cooperatives run the risk of being crowded out. Third, the relationship is actually complex, since financial cooperatives seem to benefit from some kind of bank presence, especially as far as savings mobilization is concerned.