ABSTRACT
There are several possible factors that can explain the evolution and performance of financial cooperatives in underdeveloped economies, including the economic structure, the degree of development of the financial sector, the legal framework that governs financial cooperatives’ activities as well as the cultural uniqueness of each country. Yet, since political institutions significantly influence all these factors—keeping in mind that the political structure itself is influenced by these factors as well—it is important to understand how they can dictate the development of financial cooperatives, and the motives behind the behaviour of these institutions. This chapter proposes a political economy theory for financial cooperatives based on the origins and history of cooperatives in developing countries, alongside pressure groups theory and political economy theory of the financial sector. It argues that autocratic regimes deliberately oppose the development of a well-functioning financial cooperative sector to maintain their political influence and prevent the formation of strong pressure groups that can threaten the current political status quo and reduce the governing elites’ economic benefits from underdeveloped and exclusive financial sector.
