Profitability and Credit Risk of Savings and Credit Cooperatives. The Case of Peru

Abstract

This study reviews the literature that analyses profitability and credit risk of Saving and Credit Cooperatives. Credit risk is a fundamental factor because, different from other financial institutions, Saving and Credit Cooperatives seek risk by lending money to the least guaranteed part of the economic pyramid, and compensate that risk with interest rates higher than market rates. Although cooperatives are not-for-profit organisations, they cannot ignore the importance of sound financial statements, profit and loss, and balance sheet management.

The challenge of the cooperatives is twofold: (1) to offer their services to those who cannot obtain credit from the traditional financial institutions and (2) to find a balance between supporting the communities, yet without falling into the ‘easy money’ mismanagement, which over time led to bankruptcy or closure of many cooperatives worldwide, and about 150 in Peru over the last three years.