The government in its wisdom or following the dictates of the World Bank and the IMF decided to wind-up the Federal Bank for Co-operatives (FBC). This institution was established in 1976 under the “the establishment of the Federal Bank for Co-operatives and Regulations of Co-operative Banking Ordinance, 1976 (XL of 1976)”, and promulgated on 9th October, 1976, on the authority of the resolutions passed by provincial assemblies under the Article 144 of the Constitution of Pakistan. Subsequently, in 1977 it was passed by the Parliament as an Act (IX of 1977).

The Banking Reforms of 1972 necessitated reorganization of co-operative banking structure in the country. The question engaged the attention of the federal government and the State Bank of Pakistan (SBP). As a result, a committee of experts was constituted, with Ghulam Ishaq Khan and late Mian Riazuddin Ahmed. The committee discussed a number of proposals in order to improve the working of co-operatives, which were placed before the Agricultural Credit Advisory Committee (ACAC). It recommended if co-operatives were to play an effective role in financing the agricultural sector they must be reorganized and supervised by a federal organization.

The recommendations of the ACAC were accepted and the SBP submitted a proposal for the establishment of a federal bank for co-operatives (FBC) and regulation of co-operative banking. The federal and provincial governments approved the proposal. With the creation of the federal bank, the co-operative banking structure was also reorganized. Under the new arrangements, the erstwhile central co-operative banks were dissolved. The two tier co-operative system was replaced by a three tier structure in which the co-operative societies constituted the lowest rung, while a provincial co-operative bank was established as an intermediary in each province, with the federal bank as the apex banking, regulatory and monitoring institution for the entire co-operative sector.

The FBC started its operations with its headquarters at Islamabad on the 14th of December 1976. The initial share capital of the bank was Rs200 million divided into 2,000 fully paid-up shares of the nominal value of Rs 100,000 each and were subscribed by the following;

5. In the recent past, the bank’s capital and reserves stood over Rs. 6 billion.

The FBC was the principal financing institution for the pProvincial co-operative banks and multi-unit co-operative societies. It regulated the working of co-operative banking in the country.

The bank was a banking company in terms of Banking Companies Ordinance. For the purpose of business it used to borrow funds from the SBP, though it could borrow funds from other financial institutions in or outside Pakistan on approval from the federal government. In addition, the bank could raise funds through sale of bonds and debentures on the basis of profit and loss sharing, mark-up price, lease, participation term certificate, modaraba certificates and such other instruments.

The bank financed the co-operative sector through the network of four provincial co-operative banks (one in each province) and affiliated Azad Kashmir Government Co-operative Bank and Northern Areas Provincial Co-operative Bank.

By the end of fiscal year 2002, the six co-operative banks had a branch network of 231, which catered the needs of about 66,000 co-operative societies, having membership of 3.5 million in the country. Around 53,000 co-operatives were affiliated with the system through the provincial co-operative banks. Out of these 23,000 were active borrowing societies. The charter of the bank authorized it to finance all types of business activities through the co-operatives, however, the bank concentrated on loans to the agricultural sector and that too for production purposes only.

This was in pursuance of the official policy of extending financial assistance to the small farmers, especially for the purchase of crop inputs. Thus, the essence of bank’s financing policy was provision of agricultural credit of different types, i.e., short term (production), medium term (development), and long term (project financing). Financing was provided to the PCBs for meeting the credit requirements of the members of their affiliated societies under the portfolios of Short term financing,medium term financing and long term financing.

The bank also used to cater the HRD requirements of the PCB personnel, members of the co-operative societies, co-operative department as well as its own employees. The bank had established a training facility, the national centre for co-operative training (NCCT) at its head office, Islamabad. By the end of the year 2001, when NCCT was closed, an aggregate of over 170 courses of various durations were arranged by the centre, through which, over 2,500 participants benefited.

Achievements: Since its inception, almost 27 years ago, the bank advanced Rs63.14 billion to the co-operative sector. Out of this, over Rs60 billion were given to the small farmers for purchase of crop inputs. The volume of credit disbursed, which started with a relatively modest figure of Rs45.74 million in 1976-77, registered an impressive growth and reached the level of Rs5.951 billion in 1999-00.

Liquidation: The government, as part of its overall restructuring policy, decided in June 2000 to liquidate the FBC and transfer its financing functions to ADBP. The SBP recommended to the government to initiate the process of liquidation of the FBC on the grounds that it has been extending credit lines to the FBC at a nominal rate of 0.5 per cent per annum, which were passed on through provincial co-operative banks and co-operative societies to the ultimate growers at a cost of 14 percent per annum.

Resultantly, neither the benefit of cost free funds reached the ultimate users nor did it in any way help in the promotion of the co-operative movement in the country. The original decision was however, revised to the effect that SBP would lend directly to provinces in order to cut down the intermediation costs. The recommending authority, however, completely neglected the regulatory, supervisory and monitoring role of the FBC on the one hand and absence of an apex institution for the sector at the national level on the other.

The bank was a specialized financial institution. However, its operations were linked with the working of its intermediaries and affiliates in the field. Its performance, therefore could not be evaluated or judged merely on the basis of the magnitude of loans disbursed by it as these were directly dependent on the working of its field functionaries i.e., Provincial Co-operative Banks (PCBs) and the Co-operative Department. The major difficulty faced by the Federal Bank was that its operations in the field were depended upon the organizations over which it had little or no direct control.

The federal bank, though, responsible for financing and undertaking development of the co-operative sector, in fact had to exercise its authority indirectly to persuade its associate institutions in the field for achievement of its objectives. The successful implementation of FBC policies, therefore, depended on these institutions. All the PCBs have serious financial and management problems, partly, because of insurgencies made in their operations by the co-operative bureaucracy and partly because of the political influences.

The activities of the co-operative department, presently, revolve more around loaning. They did not take any steps to improve the working of the co-operative societies nor they are performing their envisaged role, to motivate and inculcate the co-operative ideology among the farmers and the rural community for the development. Instead of improving/streamlining the working of these institutions the GOP in its wisdom decided to liquidate the only institution representing the co-operatives at the national level.

The federal bank’s major contribution towards the agricultural sector was provision of agricultural credit to the co-operatives through PCBs at a very nominal service charge, which ranged from 1.18 to 2.00 per cent. While the PCBs advanced loans to co-operative societies at mark up of 14 per cent per annum. This mark up, under the FBC loaning procedure was shared between PCBs and the societies in the ratio of 7:3, leaving enough margin for the provincial banks and the societies, not only to build up their capital and become financially viable but to generate enough funds to sustain their operations, simultaneously, taking up programmes for the development of co-operatives.

Contrary to the efforts made by federal bank, the provincial co-operative banks and the Co-operative Department were not able to take due benefit from this, as a matter of fact the provincial banks failed to assume the role and responsibilities of a bank and the Co-operative Department could not uphold the co-operative law, resulting in un-healthy growth of fictitious and non-viable co-operatives.

One disconcerting feature of Bank’s lending operations has been the fact that loaning to Sindh, Frontier and Balochistan provincial co-operative banks either remained quite low or suspended in view of their continuous default. The FPCB has been liquidated by the provincial government, resultantly, there is no organization left at the provincial level to cater the requirements of the co-operatives. With the liquidation of the FBC, the only objective, if that can be termed as one, achieved was the reduction of an intermediary institution, without considering the entire role and functions of the FBC for which it was established. Why the FBC could not perform its assigned functions? It is not difficult to find the answer to this puzzle, which, foremost lies in the management of the bank.

The bank had a very powerful board, with the Governor SBP as its Chairman and all the members of the central board of directors of the SBP,along with others were its members, a tally of 21. With such diversity and level of bureaucratic hierarchy on its Board, the results should have been encouraging. Ironically, majority of the SBP directors never participated in the FBC board meetings. The provincial representatives were always interested in securing benefits, in the shape of waiver in penalties, rescheduling and restructuring of loans, extension in repayment dates, etc. for the PCBs.

Apparently, there was no policy on part of the GOP for the development of the co-operatives and the cooperative movement, let alone to develop it as a sector or a sub-sector to cater the requirements of other major sectors — the industry or agriculture.

The view held about the co-operatives by many, especially amongst the official circles, that they are organizations established/registered by individuals for their own ulterior motives is not correct. Nor it is true that the co-operatives have chequered experience. Who is responsible for regulating the co-operatives? The provincial co-operative departments entrusted with the role of guide & monitor have failed on all counts. They themselves register fictitious or superfluous societies, fix MCL, process & sanction loans and effect recoveries what really needed was to strengthen the FBC and not its liquidation. Co-operatives could have been used to change our rural environment, as they possess the essential elements and characteristics to change our village scenario.

The multitude of NGOs, and the current waive of microfinance institutions can not in any way supplant co-operatives not they can organize the village or group activity the way co-operatives can. Only co-operatives can integrate all the farm & non-farm requirements, (credit - production - processing - marketing & education, sanitation, housing etc.). Why co-operatives are a huge success in other countries like, Japan South Korea, Germany, UK US, Canada, India etc. This would involve a thorough analysis outside the scope of my current assignment.

The liquidation of the FBC, on the one hand, will leave a complete void and absence of the subject of co-operatives at the national level. And its liquidation along with adding to the increasing unemployment would leave the co-operatives without any guardian at the centre. There will be no uniformity in the policies of the provinces.