Strengthening Deposit Insurance for Cooperatives in Colombia
Project Development Objective (PDO)
This project will improve the stability and public confidence in financial cooperatives and strengthen the financial sector safety net in Colombia by improving the operations of the deposit insurance scheme for cooperatives.
Fondo de Garantías de Entidades Cooperativas, or FOGACOOP, as the administrator of deposit insurance whose mandate it is to maintain stability and public confidence in the cooperative sector, is concerned about the sustainability and fairness of its premium assessment and coinsurance model. FOGACOOP has requested a review of its target fund size, the level of coinsurance that it charges, and the type of premium (flat or differential) that is most suitable to improve the stability and public confidence in the cooperative sector. Given the financial cooperative clientele in Colombia, charging a coinsurance rate may not serve to impose market discipline and could be inequitable.
The project will support the following technical activities:
1. Review of the FOGACOOP legal and regulatory environment as it relates to deposit insurance;
statutory limits on premiums; and statutory limits on the target fund size, including assistance in
drafting legal and regulatory changes, as necessary
2. Recommendations on (a) the level of and removal of coinsurance for deposit insurance and
(b) the reserve target fund size
3. Review of the feasibility of introducing a differential premium system, including risk-based
The main expected outcomes of the project are (a) improving the stability and public confidence in the deposit insurance scheme for financial cooperatives and (b) strengthening the financial social safety net for poorer Colombians who get financial services from cooperatives.
Medium term: Improve the sustainability of the deposit insurance scheme by adjusting the size of the target fund, the level of coinsurance, and, possibly, the premiums. At the same time, the project seeks to improve the analytical capacity of FOGACOOP to periodically review its target fund level by its cash flow and the risks in the sector that could affect the fund.
Long term: Greater confidence and a higher degree of fairness in cooperatives will benefit the cooperative’s individual customers and households. This improvement will allow users to place higher trust in financial cooperatives. If coinsurance can be eliminated, then members of the cooperatives will gain greater protection.