This note discusses the vast networks of cooperatives in delivering financial services in India. The overall financial performance of the cooperatives is weak when compared to commercial banks in India. The note identifies the reasons of the weak links in the cooperatives which are primarily related to governance, restrictive membership and voting rights, dominance of borrowers in the board, lower lending rates of PACS (well below the market rates), high transaction costs owing to business model issues, overstaffing and salaries unrelated to the magnitude of business. It suggests improving the governance and management of the cooperative network including its basic systems and procedures as a critical support for its success.

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