Income structure, diversification strategy and owners’ benefit in cooperative financial institutions

Abstract

PurposeThe purposes of this paper are twofold. First, it analyses the income structure in cooperative financial institutions and examines how traditional and non-traditional incomes are related. Second, it evaluates whether increasing diversification towards non-traditional incomes facilitates or hampers the benefits of financial cooperative owners.Design/methodology/approachData are collected from over 3,100 US credit unions over the period of 1994–2016. A number of modern econometric techniques are employed throughout the analysis, including the use of panel fixed effect, generalised method of moments (GMM) and two-stage least square (2SLS) methodologies.FindingsUsing US credit unions as the empirical setting, the empirical results reveal that the expansion of traditional income leads to a corresponding increase in income from non-traditional activities. However, an increasing reliance on non-traditional income causes a significant drop in interest margins. The authors also find that the extent to which income diversification affects owner benefit varies across credit union types and period of time. While income diversification negatively affects owners' benefits in single common bond credit unions, it has no significant influence on multiple common bond and community credit union owners' benefits. Third, diversification can be beneficial during crisis time, but can be detrimental to owner benefit during normal time.Originality/valueThis paper provides some of the first empirical investigations on the diversification strategy of cooperative financial institutions. Therefore, the results offer significant policy implications for policymakers and market participants on whether financial cooperatives should diversify or specialise.

Drivers of income diversification in credit unions: Do size, resource, liquidity, and environment matter?

“…From the marginal effect model in column 4, a unit increase in liquidity and loans created translates into a 20.07% and 14.80% reduction, respectively, in the diversification index for credit unions sampled for this study. This finding aligns with Van Cuong et al (2020) that credit unions pursuit of nontraditional income can increase revenue. Net worth of credit union is positive and significant in driving nonfinancial income.…”

“…Esho, Kofman, and Sharpe (2005)'s study of Australian credit unions is evidence that increases in revenue from a share of transaction fees increase risk and reduce returns, whereas those that increase residential lending revenues reduces both risk and returns. Also, the evidence in Van Cuong, Luu, Nguyen, and Chu (2020) is that US credit unions increase their nonloan income when they expand their loan income activities but cautions that this drive leads to a reduction in interest margin. The authors note that, there exist an ownership and time effect of income diversification on owners benefits.…”

Spatial dependence in the technical efficiency of local banks

“…To a large extent, this would imply that Italian small cooperative banks can diversify their services with respect to the rival mutual banks of the same area. Likewise, the nonspatial effect of Income div follows a clear pattern, as less diversified banks can avoid the additional operating costs associated with nontraditional bank activities, which reduce cost efficiency (Bernini & Brighi, 2018; McKee & Kagan, 2016; Van Cuong et al, 2020).…”

Managing Knowledge sebagai Sumber Daya untuk Kinerja Berkelanjutan melalui Innovation Capability di Masa Pandemic

“…Goddard et al (2008) menjelaskan orientasi kinerja koperasi yang tidak hanya mengejar keuntungan dari nilai uang bahkan koperasi beroperasi di lingkungan yang lebih permisif dengan potensi keuntungan rendah. Cuong et al (2020) mencontohkan koperasi keuangan didirikan untuk memenuhi kebutuhan keuangan anggotanya melalui pemberian pinjaman, deposito, dan layanan keuangan lainnya. Orientasi koperasi adalah kesejahteraan anggota.…”

“…Kondisi tersebut menyebabkan koperasi kurang fokus pada lini bisnis tradisional dan lebih banyak melakukan diversifikasi ke kegiatan non-tradisional yang justru kurang sesuai dengan konsep koperasi itu sendiri. Cuong et al (2020) menegaskan bahwa serikat kredit mungkin memiliki ukuran atau kapasitas yang tidak memadai untuk melakukan diversifikasi dari bisnis tradisional. McKee dan Kagan (2016) mengemukakan koperasi tidak dapat mendiversifikasi bisnis inti karena pengalaman, sumber daya dan kapasitas.…”