ABSTRACT
This chapter reviews the origin and rationale for financial cooperatives regulation. It starts by giving a brief review over the history of financial cooperatives’ laws and current approaches adopted to regulate the sector in developing countries. Then it stresses on the rationale behind having a specialised regulation for financial cooperatives, which differs from other financial institutions’ regulations, given their unique institutional characteristics and the main common challenges that the sector faces. The chapter focuses on how regulations should maintain the autonomy of financial cooperatives and protect the sector from destructive government interference, and how regulations can address agency problems inherited in their governance structure. It also argues that regulations must support institutional integration between financial cooperatives and facilitate the creation of second-tier cooperatives or federations and discusses the importance of capital requirements and the challenges that these requirements impose on financial cooperatives. Finally, it discusses whether deposit insurance schemes are suitable to protect members’ deposits or not.
