What is cooperative banks?

Question

Why the dividends from it are actually interest? How do you know a bank is a cooperative band or not?

Answer 1

A co-operative bank is part of the co-operative movement. A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. The co-operative model of enterprise can be applied to any business activity. They exist in traditional economic sectors such as agriculture, fisheries, consumer and financial services, housing, and production (workers' co-operatives). However, co-operative activity spans to large number of sectors and activities including car-sharing child-care, health and social care, funeral, orchestras and philharmonics, schools, sports, tourism, utilities (electricity, water, gas, etc.), and transport (taxis, buses, etc).

Co-operatives have members, not shareholders. They can redeem their shares anytime and get their money back, unlike a shareholder in a corporation, who has to find a buyer if he wants to sell his shares. Because co-op shares are redeemable, accounting policies dictate that the members are creditors and not shareholders, and correspondingly, their subscriptions are liabilities, not capital. That's why when dividends are paid, they are finance costs (interest) and not dividends, altho' in practice they're pretty much the same thing.

You can tell a co-op usually from its name alone. It has the word co-operative in it.