Maturity Mismatch and Governance of Microfinance Cooperatives: Lessons from History

How can financial cooperatives deal with maturity mismatch?
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This paper discusses corporate governance designs that help tackle maturity mismatch in finance cooperatives (FCs). Building on 19th century German experience, it draws lessons for current FCs in West Africa.

FCs are characterized by short-term savings, which act as a governance mechanism. They, however, face demand for long-term financing, and are pushed to make long-term loans with short-term resources. This results in a maturity mismatch. 19th century German FCs were able to mitigate maturity mismatch with liquidity facilities provided by regional centrals and an efficient corporate governance system based on cooperative auditing associations.

The paper states that West African FCs could find interesting tools in the German experience to adequately respond to their members’ long-term financing needs. Recommendations include:

  • Implementation of cooperative centrals or banks that allow isolated FCs to benefit from additional services;
  • Access to international aid to strengthen supervision capacities of national supervisory institutions;
  • Development of external independent supervision through cross-inspections as well as synergies between FCs and farmers’ organizations;
  • Trainings to make auditors aware of FC needs;
  • Amendment of the Parmec Law, which regulates West African microfinance and forbids maturity mismatch.