## Cooperative and Islamic Banks: What can they Learn from Each Other?

_IMF Working Papers, August 26, 2013_

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## Bibliographic details
- Authors: Saeed Al-Muharrami, Daniel C Hardy
- Published: August 26, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484380833.001

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### Overview
- Islamic and cooperative banks (such as credit unions) both share some risk with savers.
- The paper contrasts the institutional arrangements and risk-sharing mechanisms of cooperative banks and Islamic banks.
- Key finding: Greater adoption of risk-sharing mechanisms embedded in Islamic financial products could strengthen cooperatives’ financial resilience.

### Comparative analysis of risk sharing and ownership
- Cooperative banks:
  - Risk sharing goes along with ownership control.
  - Stakeholders (members/owners) typically have governance rights linked to risk exposure.
- Islamic banks:
  - Share risk with borrowers and share downside risk with depositors.
  - Islamic banking is consistent with mutual ownership, which may ease governance and efficiency concerns implied by Shari’ah constraints.

### Implications for governance and efficiency
- Islamic banking compatibility with mutual ownership:
  - May address governance and efficiency concerns that arise from Shari’ah constraints.
- For cooperative banks:
  - Introducing greater risk sharing among stakeholders—by adapting mechanisms from Islamic financial products—could strengthen financial resilience.

### Key findings and recommendations
- Findings:
  - Islamic and cooperative banks have broadly similar risk-sharing orientations toward savers.
  - The pairing of risk sharing with ownership control differentiates cooperatives from Islamic banks.
  - Islamic banks allocate risk differently: with borrowers and depositing parties bearing downside risk.
- Policy/operational recommendations:
  - Consider embedding Islamic-style profit-and-loss sharing mechanisms into cooperative bank products to enhance resilience.
  - Explore mutual ownership structures in Islamic banking to mitigate governance and efficiency concerns linked to Shari’ah compliance.

*Source: Cooperative and Islamic Banks: What can they Learn from Each Other? By Saeed Al-Muharrami and Daniel C Hardy, August 26, 2013.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/cooperative-and-islamic-banks-what-can-they-learn-from-each-other-40888_