Financial cooperatives and poverty mitigation during Brazil’s lost decade

Abstract

Over recent decades the growth of cooperative financial institutions has coincided with a decline in traditional banking in many developing and emerging countries. This paper investigates the monetary poverty implications of financial cooperative presence in Brazilian states over the period 2012 to 2022. Utilising new household survey microdata, we compute measures of poverty’s prevalence and severity at the state level, and combine this with different measures of financial cooperative presence in a panel-data analysis. At one level, our estimations indicate that financial cooperatives have significantly mitigated poverty’s prevalence and severity over the last decade, thereby adding support for the ‘bright side’ view of local financial institutions. Whilst poverty is lower in states with a denser presence of financial cooperatives, the poverty-alleviating effect is found to be stronger and more significant using a more moderate measure of income poverty. Consistent with Brazilian financial cooperatives’ strong local presence and socioeconomic objective function, our estimations also reveal larger poverty-mitigating effects in areas characterised by greater exclusion from Brazilian social safety nets, more localised employment structures, and less well developed public educational infrastructure. However, our results also indicate that financial cooperatives have been less well equipped to mitigate rising poverty amongst the poorest of the poor. Relevant policy implications emerge from our analysis.