If elite capture is such a serious threat, how was it dealt with during the microfinance revolution in Europe? F.W. Raiffeisen addressed this risk directly: he asked village elites to play leadership roles in the cooperatives – but to derive no material benefit from them.
In speeches he emphasized religious duties of charity and responsibility to community, and encouraged the villagers to elect leading individuals to the board, conditional on their character. Board positions received no compensation. Raiffeisen also emphasized unlimited liability of all members for cooperative debts — a burden that fell primarily on elite members, especially if the cooperative borrowed externally.
Clearly, if members of the village elite are liable, they have a strong incentive to protect their cooperative from threats. Furthermore, they can protect it, as they are well informed and powerful. Raiffeisen’s approach worked: by 1910 there were 1.2 million members organized in 12,797 cooperatives in the mostly rural ‘Imperial Federation’. With an average of 95 members each, the typical cooperative had a part-time (paid) treasurer, and a (volunteer) board of mostly-elite directors.
Raiffeisen was a liberal who believed strongly in the energy and autonomy of the private sector. Although Akhter Hameed Khan claimed to have modelled his movement on Raiffeisen’s, the Comilla credit unions were designed partly as instruments for maintaining public infrastructure, and to be dependent on delivery of government extension services and credit. This was a sharp departure both from Raiffeisen’s model, and the later Cooperative Principles. It is also the most plausible explanation for their failure.
villagefinance 
I think you have hit at least one nail on the head here Brett. Observing the ‘corporatisation’ of credit unions in places like Canada, Australia, NZ, and earlier this year, the UK — albeit each with their own distinct variations — I see the move to give the cooperative its own separate legal identity and the associated limiting of liability of members as diluting that personal sense of responsibility for the consequences of governance and management decisions that was woven so thoroughly into the early model.
Yes, it’s more convenient to execute contracts with the cooperative’s common seal, rather than the cumbersome form of ‘by each of the trustees for the time being on behalf of…’. And capital needs for expansion can be more easily found outside the membership by creating the non-voting financial instruments akin to those used everyday by investor-owner corporations.
But if the essence of the cooperative model of enterprise is a combination of putting the participating people — members — above participating capital, and doing so in a way designed to preserve and protect their interests, the mimicing of the capital-intensive model seems, to me, to be at odds with the whole point of a cooperative.
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Greg, one difficulty with the ‘corporatisation’ of credit unions you refer to is that it can appear to its practitioners to be ‘the’ model for how to build a healthy credit union — including in the developing world. And it is clearly NOT the right model for overcoming rural financial market failure. While the corporate model did not cause the epidemic of elite capture that has taken place in the developing world, it underplays joint liability and relies heavily on technocratic solutions that reduce transparency and democratic accountability. Especially when national governance is fragile, this certainly simplifies the job of people who want to capture cooperative assets.
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