Governance Control Mechanisms in Portuguese Agricultural Credit Cooperatives

GOVERNANCE CONTROL MECHANISMS IN PORTUGUESE GOVERNANCE

CONTROL MECHANISMS IN PORTUGUESE AGRICULTURAL CREDIT
COOPERATIVES

1. Introduction

The Portuguese Agricultural Credit Cooperatives (ACCs) have their origins in the 16th
century. However, until 1976, the ACCs played a minor role in the Portuguese banking activity,
with a share of only 1% of total deposits and credit. Moreover, with the democratization of the
country in 1974, ACCs were placed in the framework of a financing strategy for the development
of the agricultural sector. So, during the eighties of the last century the ACCs activity showed a
spectacular development, expressed in annual growth rates for deposits and credits of, on
average, 40% and 32%, respectively. Nowadays, this group of agricultural credit cooperatives is
the second largest national banking network with a standalone brand, with 120 ACCs, almost 600
branches and over 1.5 million customers.

However, ACCs have been developed in a top-down process, i. e., given the prevailing
economic environment at that time, public entities considered ACCs the most appropriate form of
financial organization which reduce or eliminate market failures, namely, farmers’ accessibility to
credit. In fact, agriculture was (and still is) considered a risky economic activity. This makes the
availability and cost of agricultural credit an enormous constraint to farmers, especially the
smaller ones, who form the basis of Portuguese agriculture. We can say that ACCS are the way to
oil the wheels of the Portuguese rural economy.

In relation to the governance, the ACCs are regulated by the Portuguese legislation on
cooperatives and in their banking activity they are subject to similar regulations applied to the
banking system as a whole. But ACCs differ from banks in two important aspects: they are non-
profit enterprises (therefore ACCs do not remunerate equity); and they do not have access to

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