the desjardins cooperative group: a financial movement for québec’s development

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from Claudia Sanchez Bajo and Bruno Roelants, Capital and the Debt Trap: Learning From the Global Crisis (London: Palgrave Macmillan, 2011)

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  • 1. Capital and the Debt TrapLearning from Cooperatives in theGlobal CrisisClaudia Sanchez BajoandBruno RoelantsForeword byIan MacPherson2011
  • 2. 1527The Desjardins CooperativeGroup: A Financial Movementfor Qubecs DevelopmentIntroductionWith this empirical case, we will see the linkages between, on the one hand,finance and consumption indebtedness, which we examined in Chapters 2and 3, and embeddedness in the real economy on the other.Desjardins is ranked the first financial institution in Canadas Qubecprovince, and the sixth in Canada. With assets worth US $155.5 billion, it isone of the main financial and economic players of the worlds ninth econ-omy. Its tier-one capital ratio for 2009 was 15.85 per cent, 83.7 per cent ofwhich was made up of its own reserves (namely non-remunerated capital),and rose to 16.13 per cent for the first quarter of 2010. Desjardins is also theonly financial institution in Canada to have set up its own safety fund, witha net value of US $620 million in 2009. Its resilience to the global crisis isstriking: in 2009, Global Finance Magazine published that Desjardins ranked26th of the top 50 most secure financial institutions in the world from ananalysis of the 500 largest financial institutions.1Desjardins shares of the Qubec financial market are: 44.2 per cent insavings, 45.3 per cent in agricultural loans, 39.6 per cent in mortgage loans,27.3 per cent in commercial and industrial loans and 23.4 per cent in per-sonal loans. Except for agriculture (where there has been a slight decrease),these market shares increased in 2009 compared to 2008.2Desjardins is also the largest private employer in Qubec with 39,000employees and amongst the top 20 most important employers in Canada,with a total of 42,000 employees across the country.In spite of all these economic, financial and entrepreneurial strengths,Desjardins does not seek to maximize the return on investment to share-holders, but to ensure the financial service satisfaction of its 5.8 millionownersmembers, including 5.4 million individuals (a 70 per cent pen-etration rate in Qubec, the total population of the province being 7.8million) and 400,000 enterprises (a 44 per cent penetration rate). Its geo-graphical coverage is also very dense, with a presence in 58 per cent of all
  • 3. The Desjardins Cooperative Group 153municipalities of Qubec. In 600 small towns and villages, including in 11Inuit villages of the provinces great north, it is the only banking institutionto be found. Its over US $1 billion surpluses are partly earmarked for reservesand partly distributed among its members, while over US $70 million aredevolved to the community in a number of initiatives such as educationalor development projects, including an international cooperative educationcentre and an international development institution helping credit coop-eratives in developing countries through technical support and investmentfunds for micro-credit.And yet, Desjardins is not a single banking institution, but a horizontallyled cooperative group constituting 481 autonomous local financial coop-eratives called caisses, the equivalent of the credit unions in AnglophoneCanada and in the USA, who jointly own and control it.In the following pages, we review the historical evolution of the groupover its 110 years of existence. In order to better understand how such ahuge cooperative complex made up of millions of membersowners canfunction, we lay particular emphasis on the institutional functioningand on the various institutional reforms which the group has engineeredthroughout its history, seeking each time to respond to concrete challengesthat could endanger its service offer to its member base, which constitutesits core mission.Desjardins first stepsFrom the time when the French settlers arrived in the early seventeenthcentury until the mid-nineteenth century, Qubecs economy was based onmercantilism, first under the French and then the British. Barely six decadesafter the British took over in 1760, British merchants displaced FrenchCanadian fur-trade merchants, and established financial institutions of theirown. The French Canadians were then largely excluded from the conven-tional financial circuits.At the root of Desjardins creation were the financial needs of small farm-ers, small producers, and wage-earners, who were often prey to the avidityof usurers.3Claude Bland, Desjardins president between 1989 and 2000,explains that then, most of the economy in Qubec was in the handsof anglophone Canadians, whereas the Qubec people and the FrenchCanadians [around 80 per cent of the provinces total population] had gen-erally no access to banking services.4At the beginning of the Desjardins groups history in 1900, its founder,Alphonse Desjardins, wrote that time would be the best ally of the movementhe had launched.5History seems to have confirmed his vision. The early pio-neers opted for a very slow pace of development, and even more so because,since the beginning, they have chosen to give each cooperative memberonly limited liability, thereby obliging the system to stick to a very rigorous
  • 4. 154 Capital and the Debt Trapfinancial management style. Up to the 1990s, the qualifying shares and thecommon reserves, built up through accumulated surpluses year after year,constituted the capital guaranteeing deposits in case of repayment default. Thecaisses developed a strong level of autonomy, both in terms of managementand finance, evolving on a totally self-financed basis. Many years were neededfor the caisses to accumulate the necessary capital to enable them to engineertheir own development.6The first caisse was founded in 1900 in the city of Lvis, near to Qubeccity, with around 130 founding members. Eleven months later, the mem-bers already numbered 721. The success of the Lvis caisse and, beyond, ofthe whole Desjardins project, owes much to the contribution of DorimneDesjardins, Alphonse Desjardins wife. Pierre Poulin, the main historian ofthe Desjardins movement, explains:sharing the cooperative ideal of her husband and with a gift for man-agement and accountancy Alphonse Desjardins called her his financeminister she got very rapidly involved in the daily business of the Lvispeoples caisse, founded on 6 December 1900. A careful manager who lis-tened to members whom she often welcomed into the family home, shedisplayed a high level of prudence at a time when the institution enjoyedno legal recognition whatsoever. Her concrete commitment and her con-stant championing of the development of the Desjardins caisses would turnDorimne Desjardins into an acknowledged and influential interlocutorwith the caisses leaders after the passing away of Alphonse Desjardins. On the very day of her death [in 1932], a Qubec city newspaper wrote thather death was a great loss for French Canada, because she certainly wasone of the most informed women about the economic question seen fromthe social point of view, adding that we should recognize that, withouther, the Desjardins peoples caisses would most probably not exist.7The dissemination of the model from the Lvis caisse, however, requiredappropriate provincial legislation, which was approved in 1906. The projectreceived logistical support from the clergy and church structures, because itwas perceived as being in line with the new social doctrine of the CatholicChurch. The caisses began to multiply. Claude Bland recounts: Many ofthe caisses were located in church basements. It was largely a hidden phe-nomenon: the people were afraid to say too loudly that they were membersof a caisse. Eventually, the caisses managed to leave the basements of thechurches, and the movement continued in the open.8The model grewslowly but surely: in 1920, at the death of Alphonse Desjardins, there werealready 140 caisses with 31,000 members.This was also a time of dissemination of the model across North America.The Desjardins model directly inspired what was going to become the creditunion movement in the USA (today composed of 7,708 credit unions, with
  • 5. The Desjardins Cooperative Group 15591 million members, and total assets worth US $899 billion).9Desjardins evenreceived an invitation by US president Howard Taft in 1912, and directly con-tributed to the first US draft laws on credit unions and to the establishmentof nine US credit unions, the first to be established in the USA.In 1921, the Desjardins caisse network faced an economic crisis for the firsttime, as European countries dramatically reduced their imports of Canadianfarm products, leading to a big drop in agricultural prices. AlphonseDesjardins had imagined that the caisses would be linked to a federation anda central caisse, but he did not live to see it, as the caisses, at that time, werejealous of their independence. However, the need for a coordinated systemwas being increasingly felt: the very survival of the system was at stake.In 1920, the caisses began to regroup at the regional level, through second-level cooperatives called regional unions with harmonized rules amongthemselves, and a supervisory and auditing role. In 1925, 65 per cent of theDesjardins caisses were already grouped under regional unions. A law mak-ing the annual inspection of the caisses by regional unions compulsory waspassed in 1925. This law, which had been requested by Desjardins elected