Great Projects in History: Cooperative Banking in Poland

The downfall of communism opened the way for ACDI/VOCA to restore cooperative banking in Poland, an endeavor that surely ranks as one of the most important undertakings in our 45-year history. And because the story involved an extraordinary global ebb and flow, it proved a striking illustration of what a small, interdependent world we inhabit.

Under a six-year ACDI/VOCA project, most of Poland’s 1,665 local cooperative banks were privatized, hundreds of bank officers were trained—many in the U.S. by Farm Credit banks—and computerized systems and new management and training protocols were implemented throughout the banking structure.

Most of the banks went on to achieve returns on assets and equity that exceeded or met U.S. standards and perform well in terms of deposits and profits. Even with strong financial incentives, the Polish government was only able to entice a handful of the privatized banks to return to the government fold.

What Goes Around Comes Around

In 1913 the U.S. Commission on Agricultural Cooperation and Rural Credit in Europe traveled throughout that continent studying the European Raiffeisen and Schultze-Delitsch systems of co-op credit associations. Its findings helped lay the foundation for the Federal Land Banks and the U.S. Farm Credit System. Therefore, the banking restoration in Poland that ACDI/VOCA undertook in the 90s made use of, to a large extent, a model that we had adopted from Poland and other European nations in the first place.

The indigenous cooperative banking system had served Poland since 1862, but it couldn’t survive communism. Meanwhile our cooperative-based rural credit system had become a stalwart of America’s robust farm economy. Thus the stage was set for ACDI/VOCA to help the Poles rediscover their co-op banking roots, develop a modern, private system of independent banks and enhance credit and other financial services to rural customers.

ACDI and VOCA

In 1989 ACDI and VOCA, separate organizations at the time but working together, sent an assessment and planning team to Poland. The next year Jon Greeneisen, senior vice president of CoBank, represented ACDI on a World Bank team seeking to restructure Polish agriculture. Soon thereafter VOCA began placing significant numbers of U.S. Farm Credit volunteers with local banks and farmer co-ops. This volunteer activity, plus continued ACDI and VOCA strategizing on reform, led to the joint Cooperative Bank Development Project in 1992.

With this project, ACDI/VOCA began a systematic effort to transform Poland’s cooperative banks and enable them to better respond to community needs. Funded by the U.S. Agency for International Development, the project helped catalyze economic development and facilitate the difficult transition to a market economy.

In the beginning, the picture was bleak. The government-owned and -controlled agricultural bank, which had dominated the local banks for 40 years, had collapsed with communist rule and left a severely debilitated and antiquated system. Capital was depleted and credit and marketing skills were lacking.

Customer Service

In an article in the January 2, 1996, Duluth News-Tribune, reporter Paul Adams illustrated the effects of operating in an economy characterized by scarcity and lack of incentives.

He told the story of Marsha Blackburn, consumer banking manager for Duluth’s Norwest Bank, who traveled twice to Poland as an ACDI/VOCA banker-to-banker volunteer. There she took on the job, in Adams’s words, of “putting the service back in Poland’s service industry.”

First she taught the basics, such as making eye contact, saying a friendly hello and calling customers by name. Later she taught them to profile customers in order to anticipate their banking needs.

This advanced form of marketing confused her students. One asked, “But wouldn’t that signal to the customer that you’re desperate for their business?” She answered, “Yes, exactly. You are desperate for their business.”

What Was at Stake

The project was a part of the revitalization of Poland’s economy, which grew rapidly in the mid-90s. Because agriculture lagged behind, employing 20-25 percent of the population (estimates vary) yet only contributing about 5 percent of GDP, it deserved special emphasis.

The ACDI/VOCA project:

• Formed three regional banks: ACDI/VOCA helped form these independent regional banks, owned and controlled by participating local banks, to effectively deliver financial and technical services to their shareholders. A fund of $12 million, capitalized from the sale of PL 480 commodities and $3 million contributed by the Polish government, was established to help capitalize the new banks. The fund matched, on a grant basis, the amount of stock the cooperative banks purchased in the newly established regional banks. Through this regional network, the independent cooperative banks received training in farm financial analysis, farm recordkeeping and various bank management functional areas.



• Implemented the banker-to-banker program: ACDI/VOCA designed and managed a U.S. training program for 84 cooperative bank presidents. Primarily conducted by U.S. Farm Credit Banks in St. Paul and Baltimore, the three-week training courses exposed the presidents to Western banking practices. Three to six months after the U.S. training sessions, ACDI/VOCA volunteer consultants, with FCB or commercial banking backgrounds, provided follow-up training in Poland with each participant.



• Conducted video-based training: ACDI/VOCA developed cutting-edge videos covering marketing, human resources management and the roles and responsibilities of directors. The videos, scripted by American consultants with assistance from Polish consultants and featuring Polish actors, ultimately reached more than a third of the banks. An accompanying manual facilitated their widespread use. Bank presidents employed the videos for staff development, and ACDI/VOCA consultants used them in their assignments. A video addressing the role and responsibilities of cooperative directors was incorporated into training of directors of 1,500 banks in the cooperative banking system.



• Computerized bank financial planning: ACDI/VOCA developed a computer-based operational and strategic planning model that encompassed all aspects of bank operations and enabled bank managers to plan up to four years ahead. The software allowed managers to test financial ramifications of various “what if” scenarios. More than 160 banks received training in using the model. The National Bank of Poland (similar to our Federal Reserve) came to recognize it as a necessary bank planning tool and required all banks applying for financial assistance to use it. ACDI/VOCA also provided training for 150 employees of the National Bank of Poland and 30 employees of the Bank Guarantee Fund (similar to our FDIC).



• Provided peer bank comparative analysis: Under this initiative, ACDI/VOCA gathered financial data from participating banks and provided it to bank presidents, allowing them to compare their bank’s performance to that of other banks of similar size. In 1996, more than 170 banks provided financial data for the annual review, and in 1997, 340 banks did so. The annual data was analyzed in two publications, one for bank presidents and another for bank directors.



• Conducted cross-border training: Project managers realized that while it takes much time and effort to design and carry out bank training, functional principles remain the same from country to country. Therefore the project worked with ACDI/VOCA’s West Ukraine Initiative to transfer skills and enhance bank capacities there. The West Ukraine Initiative translated training manuals and dubbed training videos. Staff from the Poland project conducted several training sessions for Ukrainian bank staff in Ukraine and Poland.

Still Serving the Niche

ACDI/VOCA’s work continues to pay off. In November 2007 Marcin Mazurek of Intelace Research reported that today, even though fewer than 18 percent of Polish banks are cooperatives, they occupy an important position in many rural areas because of their farmer orientation.

In terms of assets, Mazurek’s report holds that the cooperative banking sector continues to grow and prosper, even exceeding in recent years the growth rates of the commercial banking sector. Due to the ownership structure, high service costs and a nonprofit orientation, it says that profitability of the cooperative sector is lower than that of the commercial banks. Significantly, it tends to serve less affluent customers. However he concludes that the cooperative sector holds a firm position in the Polish banking market and is expected to keep growing faster than commercial banks, especially as it continues to improve its products and services, becoming an alternative to commercial banks in serving mass retail customers.