Rabo International Advisory Services (RIAS) BV

Landscape Cooperative Financial Institutions

Gerard van EmpelWashington DC, April 2007

Rabo International Advisory Services (RIAS) BV

Key Figures Rabobank Group

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Key figures Rabobank Group (1)

(in EUR billions) 31-12-2006 31-12-2005 31-12-2004

Total Assets 556 506 475Reserves 29,3 26,3 18,1Private Sector Lending 324 278 253

Funds Entrusted 215,9 186,5 192,1 Net Profit 2,3 2,1 1,5

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Key figures Rabobank Group (2)

(in EUR billions) 31-12-2006 31-12-2005 31-12-2004

Member banks 188 248 288Offices:- branches 1,214 1,249 1,299

- contact points 3,091 3,031 2,965

Cash dispensing machines 3,139 3,116 3,062Foreign offices 330 267 244Employees- Total Employees 56,209 50,998 56,324

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Consultation and decision structure

localbank

CentralDelegate Meeting

General Meeting

Regional meeting Regional meeting Regional meeting

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

localbank

Rabobank Nederland

Right to vote

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Observations Cooperative Banking

• Traditional coop banks in many countries become marginalized

• Global players are entering emerging markets an developing countries

• Many coop banks lack scale and adequate capitalization structure

• Need to think more “out of the box” including donors, governments etc

• Cooperative legislation too restrictive in many cases

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Strategic Issues

• World-wide pure agricultural retail banks are not sustainable• Rural banks also need good urban presence• Financial sector is consolidating rapidly. Real retail bank also

coop. bank needs retail market share of 10% plus• Capitalization model needs to be flexible and governance

model needs to reflect that

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Our preferred approach for Coop. Banks

• Strategy: Client driven, partly client owned, full retail bank with a rural orientation with cooperative characteristics

– Based on shares– Internal trading mechanism– Voting system proportional not necessary linear– One tier operational structure, possibly multi tier governance

structure

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Hubs and Spoke Distribution Network

Branch

Sub

Branche

Sub Branche

Branches

Sub Branche

Sub Branche

Branch

Head Office

Sub branches offering basic financial products

Head Office

Sub

Branche

Sub Branche

Sub Branche

Sub Branche

Sub Branche

Sub Branche

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Example Capital Structure

• Clients and employees are invited to be shareholders• Minimum number of shares, for instance 10, maximum

number of shares 1000 • Semi-linear voting system, for example 10 shares one vote,

1000 shares 10-20 votes• Development of internal share trading mechanism

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Example Corporate Governance Structure

Local LevelShare Holders

Branch assembly

Sub Branch

Central LevelGeneral assembly

Non Executive Board

Branch

…… …… …… …..Sub Branch Sub Branch Sub Branch

Branch assembly

3 3 3 3

5 5

Election

Information

Exchange

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Main challenges for the next 5 years

• Transform coop financial institutions into full fledges retail banks based on cooperative characteristics

• Adequate capitalization and flexibility using other capital instruments like member certificates etc.

• Separate operations from governance structure– Operations based on efficiency– Governance based on bottom-up democracy control

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What are we doing in developing countries

• Provide technology and expertise• Investment into retail banks with rural orientation,

currently:– NMB, Tanzania– ZNCB, Zambia– Banco Terra, Mozambique– URCB, China