Cooperative

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Cooperative

"Co-op" redirects here. For other uses, see Co-op (disambiguation).

The volunteer board of a retail consumers' cooperative, such as the former Oxford,

Swindon & Gloucester Co-op, is held to account at an Annual General Meeting of

members

A cooperative ("coop") or co-operative ("co-op") is an autonomous association of people

who voluntarily cooperate for their mutual social, economic, and cultural

benefit.[1] Cooperatives include non-profit community organizations and businesses that

are owned and managed by the people who use their services (a consumer cooperative)

or by the people who work there (a worker cooperative) or by the people who live there

(a housing cooperative), hybrids such as worker cooperatives that are also consumer

cooperatives or credit unions, multi-stakeholder cooperatives such as those that bring

together civil society and local actors to deliver community needs, and second and third

tier cooperatives whose members are other cooperatives.

The International Co-operative Alliance was the first international association formed by

the movement. It includes the World Council of Credit Unions. A second organization

was formed later in Germany, the International Raiffeisen Union. In the United States,

the National Cooperative Business Association (NCBA) serves as the sector's oldest

national membership association. It is dedicated to ensuring that cooperative businesses

have the same opportunities as other businesses operating in the country and that

consumers have access to cooperatives in the marketplace. A U.S. National Cooperative

Bank was formed in the 1970s. By 2004, a new association focused on worker co-ops

were founded, the United States Federation of Worker Cooperatives.

Origins

Cooperation dates back as far as human beings have been organizing for mutual benefit.

Tribes were organized as cooperative structures, allocating jobs and resources among

each other, only trading with the external communities. In alpine environments, trade

could only be maintained in organized cooperatives to achieve a useful condition of

artificial roads such as Viamala in 1472.[2] Pre-industrial Europe is home to the first

cooperatives from an industrial context.[3]

Robert Owen (1771–1858) was a social reformer and a pioneer of the cooperative

movement.

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In 1761, the Fenwick Weavers' Society was formed in Fenwick, East

Ayrshire, Scotland to sell discounted oatmeal to local workers.[4] Its services expanded

to include assistance with savings and loans, emigration and education. In

1810, Welshsocial reformer Robert Owen, from Newtown in mid-Wales, and his partners

purchased New Lanark mill from Owen's father-in-law David Dale and proceeded to

introduce better labor standards including discounted retail shops where profits were

passed on to his employees. Owen left New Lanark to pursue other forms of cooperative

organization and develop co-op ideas through writing and lecture. Cooperative

communities were set up in Glasgow, Indiana and Hampshire, although ultimately

unsuccessful. In 1828, William King set up a newspaper, The Cooperator, to promote

Owen's thinking, having already set up a co-operative store in Brighton.,

The Rochdale Society of Equitable Pioneers, founded in 1844, is usually considered the

first successful cooperative enterprise, used as a model for modern co-ops, following the

'Rochdale Principles'. A group of 28 weavers and other artisans in Rochdale, England set

up the society to open their own store selling food items they could not otherwise afford.

Within ten years there were over 1,000 cooperative societies in the United Kingdom.

Other events such as the founding of a friendly society by the Tolpuddle Martyrs in 1832

were key occasions in the creation of organized labor and consumer movements.[7]

Social economy

In the final year of the 20th century, cooperatives banded together to establish a

number of social enterprise agencies which have moved to adopt the multi-stakeholder

cooperative model.[8][9] In the last 15 years (1994–2009) the EU and its member

nations have gradually revised national accounting systems to "make visible" the

increasing contribution of social economy organizations.[10]

Organizational and ideological roots

The roots of the cooperative movement can be traced to multiple influences and extend

worldwide. In the Anglosphere, post-feudal forms of cooperation between workers and

owners that are expressed today as "profit-sharing" and "surplus sharing"

arrangements, existed as far back as 1795.[11] The key ideological influence on the

Anglosphere branch of the cooperative movement, however, was a rejection of

the charity principles that underpinned welfare reforms when the British

government radically revised its Poor Laws in 1834. As both state and church institutions

began to routinely distinguish between the 'deserving' and 'undeserving' poor, a

movement of friendly societies grew throughout the British Empire based on the

principle of mutuality, committed to self-help in the welfare of working people.

Friendly Societies established forums through which one member; one vote was

practiced in organization decision-making. The principles challenged the idea that a

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person should be an owner of property before being granted a political

voice.[8] Throughout the second half of the nineteenth century (and then repeatedly

every 20 years or so) there has been a surge in the number of cooperative

organizations, both in commercial practice and civil society, operating to

advance democracy and universal as a political principle.[12] Friendly Societies and

consumer cooperatives became the dominant form of organization amongst working

people in Anglosphere industrial societies prior to the rise of trade unions and industrial

factories. Weinbren reports that by the end of the 19th century, over 80% of British

working age men and 90% of Australian working age men were members of one or

more Friendly Society.[13]

From the mid-nineteenth century, mutual organizations embraced these ideas in

economic enterprises, firstly amongst trade’s people, and later in cooperative stores,

educational institutes, financial institutions and industrial enterprises. The common

thread (enacted in different ways, and subject to the constraints of various systems of

national law) is the principle that an enterprise or association should be owned and

controlled by the people it serves, and share any surpluses on the basis of each

member's cooperative contribution (as a producer, laborer or consumer) rather than

their capacity to invest financial capital.

The cooperative movement has been fueled globally by ideas of economic democracy.

Economic democracy is a socioeconomic philosophy that suggests an expansion of

decision-making power from a small minority of corporate shareholders to a larger

majority of public stakeholders. There are many different approaches to thinking about

and building economic democracy. Both Marxism and anarchism, for example, have

been influenced by utopian socialism, which was based on voluntary

cooperation, without recognition of class conflict. Anarchists are committed to libertarian

socialism and have focused on local organization, including locally managed

cooperatives, linked through confederations of unions, cooperatives and communities.

Marxists, who as socialists have likewise held and worked for the goal of democratizing

productive and reproductive relationships, often placed a greater strategic emphasis on

confronting the larger scales of human organization. As they viewed the capitalist class

to be politically, militarily and culturally mobilized for the purpose of maintaining an

exploitable working class, they fought in the early 20th century to appropriate from the

capitalist class the society's collective political capacity in the form of the state, either

through democratic socialism, or through what came to be known as Leninism. Though

they regard the state as an unnecessarily oppressive institution, Marxists considered

appropriating national and international-scale capitalist institutions and resources (such

as the state) to be an important first pillar in creating conditions favorable to solidarity

economies.

Meaning

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Cooperatives as legal entities

A cooperative is a legal entity owned and democratically controlled by its members.

Members often have a close association with the enterprise as producers or consumers

of its products or services, or as its employees.

In some countries, e.g. Finland and Sweden, there are specific forms of incorporation for

cooperatives. Cooperatives may take the form of companies limited by shares or by

guarantee, partnerships or unincorporated associations. In the UK they may also use

the industrial and provident society structure. In the USA, cooperatives are often

organized as non-capital stock corporations under state-specific cooperative laws.

However, they may also be unincorporated associations or business corporations such as

limited liability companies or partnerships; such forms are useful when the members

want to allow

some members to have a greater share of the control, or

some investors to have a return on their capital that exceeds fixed interest, neither of

which may be allowed under local laws for cooperatives. Cooperatives often share their

earnings with the membership as dividends, which are divided among the members

according to their participation in the enterprise, such as patronage, instead of according

to the value of their capital shareholdings (as is done by a joint stock company).

Identity

Cooperatives are typically based on the cooperative values of "self-help, self-

responsibility, democracy and equality, equity and solidarity" and the seven cooperative

principles:[18]

Voluntary and open membership

Democratic member control

Economic participation by members

Autonomy and independence

Education, training and information

Cooperation among cooperatives

Concern for community

Cooperatives are dedicated to the values of openness, social responsibility and caring for

others. Such legal entities have a range of social characteristics. Membership is open,

meaning that anyone who satisfies certain non-discriminatory conditions may join.

Economic benefits are distributed proportionally to each member's level of participation

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in the cooperative, for instance, by a dividend on sales or purchases, rather than

according to capital invested.[18] Cooperatives may be classified as

worker, consumer, producer, purchasing or housing cooperatives.[19] They are

distinguished from other forms of incorporation in that profit-making or economic

stability are balanced by the interests of the community.[18] Co-ops can sometimes be

identified on the Internet through the use of the coop suffix. Organizations using .coop

domain names must adhere to the basic co-op values.

The United Nations has declared 2012 to be the International Year of Cooperatives

(IYC) [20]

Economic stability

Capital and the Debt Trap reports that "[C]cooperatives tend to have a longer life than

other types of enterprise, and thus a higher level of entrepreneurial sustainability. In

[one study], the rate of survival of cooperatives after three years was 75 percent,

whereas it was only 48 percent for all enterprises ... [and] after ten years, 44 percent of

cooperatives were still in operation, whereas the ratio was only 20 percent for all

enterprises" (p. 109). "Cooperative banks build up counter-cyclical buffers that function

well in case of a crisis," and are less likely to lead members and clients towards a debt

trap (p. 216). This is explained by their more democratic governance that

reduces perverse incentives and subsequent contributions to economic bubbles.

Types of cooperative

A non-monetary cooperative provides a service based on entirely voluntary labor in the

maintenance and provision of a particular service or good, working in the identical

manner of a library. These co-ops are locally owned and operated and provide the free

rental of equipments of all kinds (bicycles, sports, gear). This idea has been said to

reduce general human consumption of goods, a key subject in sustainable development

Retailers' cooperative

A retailers' cooperative (known as a secondary or marketing cooperative in some

countries) is an organization which employs economies of scale on behalf of its members

to receive discounts from manufacturers and to pool marketing. It is common for locally

owned grocery stores, hardware stores and pharmacies. In this case the members of the

cooperative are businesses rather than individuals.

The Best Western international hotel chain is actually a retailers' cooperative, whose

members are hotel operators, although it refers to itself as a "nonprofit membership

association." It gave up on the "cooperative" label after some courts insisted on

enforcing regulatory requirements for franchisors despite its member-controlled status

Worker cooperative

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A worker cooperative or producer cooperative is a cooperative that is owned and

democratically controlled by its "worker-owners". There are no outside owners in a

"pure" workers' cooperative, only the workers own shares of the business, though hybrid

forms exist in which consumers, community members or capitalist investors also own

some shares. In practice, control by worker-owners may be exercised through

individual, collective or majority ownership by the workforce, or the retention of

individual, collective or majority voting rights (exercised on a one-member one-vote

basis). A worker cooperative, therefore, has the characteristic that the majority of its

workforce owns shares, and the majority of shares are owned by the workforce.

Membership is not always compulsory for employees, but generally only employees can

become members either directly (as shareholders) or indirectly through membership of a

trust that owns the company.

The impact of political ideology on practice constrains the development of cooperatives

in different countries. In India, there is a form of workers' cooperative which insists on

compulsory membership for all employees and compulsory employment for all members.

That is the form of the Indian Coffee Houses. This system was advocated by the Indian

communist leader A. K. Gopalan. In places like the UK, common ownership (indivisible

collective ownership) was popular in the 1970s. Cooperative Societies only became legal

in Britain after the passing of Slaney's Act in 1852. In 1865 there were 651 registered

societies with a total membership of well over 200,000. There are now more than 400

worker cooperatives in the UK, Suma Whole foods being the largest example with a

turnover of £24 million.

Volunteer cooperative

A volunteer cooperative is a cooperative that is run by and for a network of volunteers,

for the benefit of a defined membership or the general public, to achieve some goal.

Depending on the structure, it may be a collective or mutual organization, which is

operated according to the principles of cooperative governance. The most basic form of

volunteer-run cooperative is a voluntary association. A lodge or social club may be

organized on this basis. A volunteer-run co-op is distinguished from a worker

cooperative in that the latter is by definition employee-owned, whereas the volunteer

cooperative is typically a non-stock corporation, volunteer-run consumer or service

organization, in which workers and beneficiaries jointly participate in management

decisions and receive discounts on the basis of sweat equity.

Social cooperative

A particularly successful form of multi-stakeholder cooperative is the Italian "social

cooperative", of which some 7,000 exist. "Type A" social cooperatives bring together

providers and beneficiaries of a social service as members. "Type B" social cooperatives

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bring together permanent workers and previously unemployed people who wish to

integrate into the labor market. They are legally defined as follows:

no more than 80% of profits may be distributed, interest is limited to the bond rate and

dissolution is altruistic (assets may not be distributed)

the cooperative has legal personality and limited liability

the objective is the general benefit of the community and the social integration of

citizens

Those of type B integrate disadvantaged people into the labor market. The categories of

disadvantage they target may include physical and mental disability, drug and alcohol

addiction, developmental disorders and problems with the law. They do not include other

factors of disadvantage such as unemployment, race, sexual orientation or abuse.

type A cooperatives provide health, social or educational services

Various categories of stakeholder may become members, including paid employees,

beneficiaries, volunteers (up to 50% of members), financial investors and public

institutions. In type B cooperatives at least 30% of the members must be from the

disadvantaged target groups1

voting is one person one vote

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Consumers' cooperative

A consumers' cooperative is a business owned by its customers. Employees can also

generally become members. Members vote on major decisions and elect the board of

directors from among their own number. The first of these was set up in 1844 in the

North-West of England by 28 weavers who wanted to sell food at a lower price than the

local shops.

The world's largest consumers' cooperative is the Co-operative Group in the United

Kingdom, which offers a variety of retail and financial services. The UK also has a

number of autonomous consumers' cooperative societies, such as the East of England

Co-operative Society and Mid-counties Co-operative. In fact, the Co-operative Group is

something of a hybrid, having both corporate members (mostly other consumers'

cooperatives, as a result of its origins as a wholesale society), and individual retail

consumer members.

Business and employment cooperative

Business and employment cooperatives (BEC's) are a subset of worker cooperatives that

represent a new approach to providing support to the creation of new businesses.

Like other business creation support schemes, BEC's enable budding entrepreneurs to

experiment with their business idea while benefiting from a secure income. The

innovation BECs introduce is that once the business is established the entrepreneur is

not forced to leave and set up independently, but can stay and become a full member of

the cooperative. The micro-enterprises then combine to form one multi-activity

enterprise whose members provide a mutually supportive environment for each other.

BECs thus provide budding business people with an easy transition from inactivity to

self-employment, but in a collective framework. They open up new horizons for people

who have ambition but who lack the skills or confidence needed to set off entirely on

their own – or who simply want to carry on an independent economic activity but within

a supportive group context.

New generation cooperative

New generation cooperatives (NGCs) are an adaptation of traditional cooperative

structures to modern, capital intensive industries. They are sometimes described as a

hybrid between traditional co-ops and limited liability companies. They were first

developed in California and spread and flourished in the US Mid-West in the

1990s.[21] They are now common in Canada where they operate primarily in agriculture

and food services, where their primary purpose is to value to primary products. For

example producing ethanol from corn, pasta from durum wheat, or gourmet

cheese from goat’s milk.

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Types and number of cooperatives

Co-op City in The Bronx, New York City is the largest cooperative housing development

in the world, with 55,000 people.[22]

The two largest supermarkets chains in Switzerland, Migros andCoop, are cooperatives.

The top 300 largest cooperatives were listed in 2007 by the International Co-operative

Alliance. 80% were involved in either agriculture, finance, or retail and more than half

were in the United States, Italy, or France. In the United States, cooperatives,

particularly those in the Midwest, are analyzed at the University of Wisconsin Center for

Cooperatives.

Housing cooperative

A housing cooperative is a legal mechanism for ownership of housing where residents

either own shares (share capital co-op) reflecting their equity in the cooperative's real

estate, or have membership and occupancy rights in a not-for-profitcooperative (non-

share capital co-op), and they underwrite their housing through paying subscriptions or

rent.

Housing cooperatives come in three basic equity structures

In market-rate housing cooperatives, members may sell their shares in the cooperative

whenever they like for whatever price the market will bear, much like any other

residential property. Market-rate co-ops are very common in New York City.

Limited equity housing cooperatives, which are often used by affordable

housing developers, allow members to own some equity in their home, but limit the sale

price of their membership share to that which they paid.

Group equity or zero-equity housing cooperatives do not allow members to own equity

in their residences and often have rental agreements well below market rates.

When the building is finished, each member is the sole owner of a homestead, and the

cooperative may be dissolved. This collective effort was at the origin of many of

Britain's building societies, which however, developed into "permanent "mutual savings

and loan organizations, a term which persisted in some of their names (such as the

former Leeds Permanent). Nowadays such self-building may be financed using a step-

by-step mortgage which is released in stages as the building is completed. The term

may also refer to worker cooperatives in the building trade.

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Utility cooperative

A utility cooperative is a type of consumers' cooperative that is tasked with the delivery

of a public utility such as electricity, water or telecommunications services to its

members. Profits are either reinvested into infrastructure or distributed to members in

the form of "patronage" or "capital credits", which are essentially dividends paid on a

member's investment into the cooperative. In the United States, many cooperatives

were formed to provide rural electrical and telephone service as part of the New

Deal. See Rural Utilities Service.

In the case of electricity, cooperatives are generally either generation and transmission

(G&T) co-ops that create and send power via the transmission grid or local distribution

co-ops that gather electricity from a variety of sources and send it along to homes and

businesses.

In Tanzania, it has been proven that the cooperative method is helpful in water

distribution. When the people are involved with their own water, they care more because

the quality of their work has a direct effect on the quality of their water.

Agricultural cooperative

Grain elevators are used by agricultural cooperatives in the storage and shipping of

grains.

Agricultural cooperatives or farmers' cooperatives are cooperatives where farmers pool

their resources for mutual economic benefit. Agricultural cooperatives are broadly

divided into agricultural service cooperatives, which provide various services to their

individual farming members, and agricultural production cooperatives, where production

resources such as land or machinery are pooled and members farm jointly.[23] Known

examples of agricultural production cooperatives are Ocean Spray, collective

farms in socialist states and the kibbutzim in Israel.

Agricultural supply cooperatives aggregate purchases, storage, and distribution of farm

inputs for their members. By taking advantage of volume discounts and utilizing

other economies of scale, supply cooperatives bring down members' costs. Supply

cooperatives may provide seeds, fertilizers, chemicals, fuel, and farm machinery. Some

supply cooperatives also operate machinery pools that provide mechanical field services

(e.g., plowing, harvesting) to their members.

Agricultural marketing cooperatives provide the services involved in moving a product

from the point of production to the point of consumption. Agricultural marketing includes

a series of interconnected activities involving planning production, growing

and harvesting, grading, packing, transport, storage, food processing, distribution and

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sale. Agricultural marketing cooperatives are often formed to promote specific

commodities.

Commercially successful cooperatives include India's Amul (dairy products), Dairy

Farmers of America (dairy products) in the United States, and Malaysia's FELDA (palm

oil).

Credit unions, cooperative banking and Co-operative insurance

The Co-operative Bank's head office in Manchester. The statue in front is of Robert

Owen, a pioneer in the cooperative movement.

Credit unions are cooperative financial institutions that are owned and controlled by their

members. Credit unions provide the same financial services as banks but are

considered not-for-profit organizations and adhere to cooperative principles.

Credit unions originated in mid-19th century Germany through the efforts of

pioneers Franz Herman Schulze'Delitzch andFriedrich Wilhelm Raiffeisen. The concept of

financial cooperatives crossed the Atlantic at the turn of the 20th century, when

the caisse populaire movement was started by Alphonse Desjardins in Quebec, Canada.

In 1900, from his home in Lévis, he opened North America's first credit union, marking

the beginning of the Movement Desjardins. Eight years later, Desjardins provided

guidance for the first credit union in the United States, where there are now about 7,950

active status federally insured credit unions, with almost 90 million members and more

than $679 billion on deposit.

Cooperative banking networks, which were nationalized in Eastern Europe, work now as

real cooperative institutions. In Poland, the SKOK (Spółdzielcze Kasy Oszczędnościowo-

Kredytowe) network has grown to serve over 1 million members via 13,000 branches,

and is larger than the country’s largest conventional bank.

In Scandinavia, there is a clear distinction between mutual savings banks (Sparbank)

and true credit unions (Andelsbank).

The oldest cooperative banks in Europe, based on the ideas of Friedrich Raiffeisen, are

joined together in the 'Urgenossen'.

Federal or secondary cooperatives

In some cases, cooperative societies find it advantageous to form cooperative

federations in which all of the members are themselves cooperatives. Historically, these

have predominantly come in the form of cooperative wholesale societies, and

cooperative unions. Cooperative federations are a means through which cooperative

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societies can fulfill the sixth Rochdale Principle, cooperation among cooperatives, with

the ICA noting that "Cooperatives serve their members most effectively and strengthen

the cooperative movement by working together through local, national, regional and

international structures."

Cooperative wholesale society

According to cooperative economist Charles Gide, the aim of a cooperative wholesale

society is to arrange “bulk purchases, and, if possible, organize production.” The best

historical example of this was the English CWS and the Scottish CWS, which were the

forerunners to the modern Co-operative Group. Today, its national buying program,

the Co-operative Retail Trading Group performs a similar function.

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Cooperative union

A second common form of cooperative federation is a cooperative union, whose

objective (according to Gide) is “to develop the spirit of solidarity among societies and...

in a word, to exercise the functions of a government whose authority, it is needless to

say, is purely moral.” Co-operatives UK and the International Cooperative Alliance are

examples of such arrangements.

Cooperative political movements

In some countries with a strong cooperative sector, such as the UK, cooperatives may

find it advantageous to form political groupings to represent their interests. The

British Cooperative Party, the Canadian Cooperative Commonwealth

Federation and United Farmers of Alberta are prime examples of such arrangements.

The British cooperative movement formed the Cooperative Party in the early 20th

century to represent members of consumers' cooperatives in Parliament, which was the

first of its kind. The Cooperative Party now has a permanent electoral pact with

the Labor Party meaning someone cannot be a member if they support a party other

than Labor. An alternative grouping, the Conservative Co-operative Movement is open to

people of all parties or none. Plaid Cymru also run a credit union that is constituted as a

co-operative, called the 'Plaid Cymru Credit Union. UK cooperatives retain a strong

market share in food retail, insurance, banking, funeral services, and the travel industry

in many parts of the country, although this is still significantly lower than other business

models.

Women in cooperatives

Since cooperatives are based on values like self-help, democracy, equality, equity,

and solidarity, they can play a particularly strong role in empowering women, especially

in developing countries. Cooperatives allow women who might have been isolated and

working individually to band together and create economies of scale as well as increase

their own bargaining power in the market. In statements in advance of International

Women's Day in early 2013, President of the International Cooperative Alliance, Dame

Pauline Green, said, "Cooperative businesses have done so much to help women onto

the ladder of economic activity. With that come community respect, political legitimacy

and influence."

However, despite the supposed democratic structure of cooperatives and the values and

benefits shared by members, due to gender norms on the traditional role of women, and

other instilled cultural practices that sidestep attempted legal protections, women suffer

a disproportionately low representation in cooperative membership around the world.

Representation of women through active membership (showing up to meetings and

voting), as well as in leadership and managerial positions is even lower.

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Cooperatives in popular culture

As of 2012, the number of memberships in cooperatives reached one billion, and so the

organizational structure and movement has seeped into popular culture.

In the HBO drama television series The Wire, several drug dealers create a democratic

alliance with the interests of cutting back on violence and increasing business. This is

called the "New Day Co-Op."

Co-opoly: The Game of Cooperatives is a popular board game played around the world

that challenges players to work together to start and run a cooperative and overcome

major hurdles.

My So-Called Housing Cooperative is a web series focusing on the humorous side of

living in a housing co-op.

Types of Co-operatives

A co-operative is a different way of doing business. As such, the co-op model can be

used by many types of organizations, non-profit or for-profit. A key difference between a

traditional structure and a co-op's structure comes in the order of priorities which, for a

co-op, are to first meet the needs of its membership in a productive, self-sufficient and

socially responsible manner.

A growing number of people in Canada, and around the world are recognizing the

benefits of doing business the co-op way and although every co-op is unique, here are

five key types:

Producer co-operatives: Some co-operatives process and market their members'

products and services directly while others may also sell the input necessary to their

members' economic activities.

Examples: Agriculture co-operatives, pooling of equipment, advisory services, etc.

Multi-stakeholder co-operatives: The membership of these co-operatives is made of

different categories of members who share a common interest in the organization.

Examples: home care services, health services, community services, etc.

Worker co-operatives: The purpose of these co-operatives is to provide their members

with work by operating an enterprise. The co-operatives are owned by their employee

members.

Examples: forestry, leisure, production and manufacturing, tourism, communications

and marketing, etc.

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Worker-Shareholder co-operatives: These are incorporated co-operatives that hold

partial ownership of the business in which the co-op's members are employed. Because

of its share capital, the co-operative may participate in the management of the business

and the workers may influence work organization.

Examples: production and manufacturing, technology, etc.

Consumer co-operatives: They provide their members with goods and services for their

personal use.

Examples: Food, credit unions, housing, insurance co-operatives, etc.

There are different ways to categorize co-operatives.

Today, about 10 million people are members of one or more of the 10,000 plus co-ops

and credit unions in Canada, and these numbers are growing because people recognize

the value in bottom-up influence as opposed to top-down control.

Rural Credit Cooperatives

History

In the 1950s, a network of rural credit cooperatives was created. At this time, they were

not commercial enterprises similar to banks, but rather channeled credit between the

state and the people's communes in rural areas.

In the late 1970s, after economic reforms enabled some

individual entrepreneurialism and the creation of collective enterprises, the RCCs began

to function as grassroots banks that provided credit and savings accounts to families and

collective enterprises. In the reform era, the RCCs were intended to serve as a means

for the Agricultural Bank of China to funnel credit into rural areas. However, the RCCs

were insufficient to meet the high demand for credit in these areas.

Individual and enterprises often turn to other sources of credit, which range

from Rotating Savings and Credit Associations to pawn shops. However, these other

forms are all illegal (although some are tolerated to a greater degree than others, and

are tolerated in some locations more than in others). Commercial banks are legal, but

since less than one percent of loans from state banks go to private entrepreneurs, they

do not meet the credit needs of rural areas.

Until 1996, the RCCs were supervised by the Agricultural Bank of China. In 1996, they

were transferred to the People's Bank of China.

In July 1998, the rural credit foundations issued the “Provisions on the Cancellation of

Illegal Financial Institutions and Activities.” This left the RCCs as the only legal financial

institution (other than banks) that served rural enterprises and individuals. As of 1998,

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when the RCFs were banned, there were approximately 44,000 township-level RCCs and

280,000 village-level RCC branches.

Since 1998, many of the RCCs have gradually been transformed into rural commercial

banks (RCBs). The first foreign investment in an RCB was allowed in 2006, when Rabo

bank and the International Finance Corporation (the private sector arm of the World

Bank) acquired stakes in the United Rural Cooperative Bank of Hangzhou.

Challenges

Due to a high volume of non-performing loans, many of the RCCs are

technically insolvent. Since 1998, central banking authorities have injected

approximately US$4 billion into recapitalization the RCCs, and have considered other

measures for improving the performance of the RCCs.

Although the RCCs are gradually being transformed into independent commercial banks

(RCBs), they are still not immune from government requests to make policy loans (loans

issued for political reasons, such as the desire to support certain politically important

industries or firms, rather than because the firm is an attractive candidate for a loan).

Amendment in constitution in 2013 for cooperatives

The Karnataka State Souharda Federal Cooperative has welcomed the amendment to

the Constitution making it a fundamental right to form cooperative societies. “The 97th

amendment to the Constitution passed in January this year grants citizens the

fundamental right to form cooperative societies. The amendment has added the term

cooperative societies along with the right to form unions. It has fulfilled a long-standing

demand,” vice-president of the cooperative Gurunath Jantikar has said.

The amendment needs to be ratified by the State governments before February 14,

2013. “However, even if the States don’t do it before the deadline, it will be deemed as

ratified” he said. The amendment has also added a directive principle of State policy,

asking the State “to promote voluntary formation, autonomous functioning, democratic

control and professional management of cooperative societies’. This would go a long way

in developing the cooperative sector, Mr. Jantikar said. The amendment would ensure

representation to the Scheduled Castes, Scheduled Tribes, Other Backward Classes and

women on the board of directors of cooperative societies. This was a progressive move,

he said, adding that the amendment would strengthen cooperatives and prepare them to

face challenges like foreign direct investment in sectors like retail trade.

The Constitution (Ninety Seventh Amendment) Act 2011 relating to the co-operatives is

aimed to encourage economic activities of cooperatives which in turn help progress of

rural India. It is expected to not only ensure autonomous and democratic functioning of

17

cooperatives, but also the accountability of the management to the members and other

stakeholders. As per the amendment the changes done to constitution are:-

In Part III of the constitution, after words "or unions" the words "Cooperative Societies"

was added

In Part IV a new Article 43B was inserted, which says: The state shall Endeavour to

promote voluntary formation, autonomous functioning, democratic control and

professional management of the co-operative societies".

After Part IXA of the constitution, a Part IXB was inserted to accommodate state vs.

centre roles.

Salient features Part IXB

It makes Right to form cooperatives is a fundamental right.

Reservation of one seat for SC/ST and two seats for women on the board of every co-

operative society

Cooperatives could set up agency which would oversee election.

Uniformity in the tenure of Cooperative Board of Directors

Provisions for incorporation, regulation and winding up of co-operative societies based

on the principles of democratic process and specifying the maximum number of directors

as twenty-one

Providing for a fixed term of five years from the date of election in respect of the elected

members of the board and its office bearers;

Providing for a maximum time limit of six months during which a board of directors of

co-operative society could be kept under suspension;

Providing for independent professional audit;

Providing for right of information to the members of the co-operative societies;

Empowering the State Governments to obtain periodic reports of activities and accounts

of co-operative societies; which have individuals as members from such categories?

Providing for offences relating to co-operative societies and penalties in respect of such

offences

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Implications

The amendment of the Constitution to make it obligatory for the states to ensure

autonomy of cooperatives makes it binding for the state governments to facilitate

voluntary formation, independent decision-making and democratic control and

functioning of the cooperatives.

It also ensures holding regular elections under the supervision of autonomous

authorities, five-year term for functionaries and independent audit. Significantly, it also

mandates that in case the board is dissolved, the new one is constituted within six

months. Such a constitutional provision was urgently required as the woes of the

cooperative sector are far too many, long-lasting and deep-rooted to be addressed

under the present lax legal framework

However, it fails to establish what constitutional amendments can’t do in reviving

institutions and may be victim of rival political institutions at the state level as happened

in case of 73rd amendments. It is feared that state-level politicians will do to this

amendment on cooperatives what they did to the one on panchayats. Barring exceptions

in a few sectors and states, the cooperative sector, particularly cooperative credit

societies numbering over 120 million, has for a long time been in a shambles with all

kinds of vested interests using them as personal fiefdoms and ladders to political power

and means of personal aggrandizement.

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Credit Cooperatives

A co-operative that lends money, collected from its members, at low rates of interest

Savings and Credit Co-operative (SACCO) is a type of co-operative whose objective is to

pool savings for the members and in turn provide them with credit facilities. Other

objectives of SACCOs are to encourage thrift amongst the members arid also to

encourage them on the proper management of money and proper investments practices.

Whereas in urban areas salary and wage earners have formed Urban SACC0s, in rural

areas, farmers have formed Rural SACCOs. There are also traders, transport, jua-kali

and community based SACCO’s. SACCO is the acronym for Savings and Credit Co-

operative. There is no difference between a credit union and a SACCO. The term “credit

union” is generally not used in Africa and specifically in South Africa to avoid confusion

with the various labor movements. However some habits die-hard A Savings and Credit

Co-operative (SACCO) is a democratic, unique member driven, self-help co-operative. It

is owned, governed and managed by its members who have the same common bond:

working for the same employer, belonging to the same church, labour union, social

fraternity or living/working in the same community. A Savings and Credit Co-operative’s

membership is open to all who belong to the group, regardless of race, religion, colour,

creed, and gender or job status. These members agree to save their money together in

the SACCO and to make loans to each other at reasonable rates of interest. Interest is

charged on loans, to cover the interest cost on savings and the cost of administration.

There is no payment or profit to outside interest or internal owners. The members are

the owners and the members decide how their money will be used for the benefit of

each other.

Savings and Credit Co-operatives are democratic organizations and decisions are made

in a structured democratic way. Members elect a board that in turn employs staff to

carry out the day-to-day activities of the SACCO. The number of board members is

between nine and fifteen. Members also elect a supervisory committee to perform the

function of an internal audit.

Credit cooperative formed by a group of people with some common bond who, in effect,

save their money together and make low-cost loans to each other. The loans are usually

short-term consumer loans, mainly for automobiles, household needs, medical debts,

and emergencies. Credit unions generally operate under government charter and

supervision. They are particularly important in less developed countries, where they may

be the only source of credit for their members. The first cooperative societies

providing credit were founded in Germany and Italy in the mid-19th century; the first

North American credit unions were founded by Alphonse Desjardins in Levis, Quebec

(1900), and Manchester, N.H. (1909). The Credit Union National Association (CUNA), a

federation of U.S. credit unions, was established in 1934 and became a worldwide

association in 1958.

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Credit and Saving Cooperatives and Contemporary Problems

The first credit and saving cooperatives were established in the mid - 19th century,

mainly in Germany. Two men are considered as the founding fathers of the credit

cooperative movement: Herman schultze- Delitsche, who established a credit

cooperative for minor artisans and the urban middle classes, and Freidrich Reifeisen, the

founder of the rural credit cooperative. In Italy, Luigi Luzzatti established credit

cooperatives which combined the principles established by his two German

predecessors. After the consumer cooperative, the credit cooperative is the most

common type of cooperative to be found in the modem world, including the Third World.

This form of cooperative has been established in both rural and urban districts by labor

unions and other organizations, including government bodies. Because of its very

abundance, it provides an answer to the most pressing need of large groups of people:

the necessity of obtaining monetary credit for various purposes.

Today, it is quite clear that credit and saving cooperatives are facing serious and

fundamental problems. Issues at the centre of these problems include such basic

concepts as the nature and aim of the cooperative, as well as its structural and the

principles on which it operates. We are witness to severe managerial problems. Even

worse, among the majority of members of credit and saving cooperatives throughout the

world and, in particular, among their administrators, there is a lack of understanding of

everything connected with the processes by which this particular form of cooperative

operates. Thus, in the everyday life of the cooperative, a basic, simple formula enabling

us to determine its operating and service costs is lacking. Another key problem is the

credit and saving cooperative's ability and, in practice, its failure to initiate projects for

increasing revenues, both via the use of accumulated savings and by acting as a channel

for transferring outside sources of finance to its members.

As far as the five above-mentioned problems are concerned, it transpires that credit and

saving cooperatives around the world do not properly satisfy their members' needs. In

most cases, in fact, the members of the cooperatives, including their administrators, are

quite unaware and quite unable to comprehend the problems in question.

The aim of this paper is to throw new light on the above mentioned problems and

discuss them from a different angle. A new look at the credit and saving cooperative,

particularly in the developing countries, will serve to re-emphasize the overwhelming

importance of this form of organization to the economic progress of nations throughout

the world.

The Nature of the Credit and Saving Cooperative

What do credit cooperatives have to offer? Apart from avoiding the difficulty, red tape

and sometimes even outright impossibility of obtaining credit from a bank, the answers

21

are many. The credit cooperative satisfies the requirements of its members without

undue complications. Thus, it provides them with interest on their respective shares and

rewards for participating in its operation. The credit cooperative helps to-prevent or

overcome poverty. It furthers members' education, as well as a spirit of mutual aid and

self-reliance. This form of cooperative also encourages productive activity by providing

credit required by its members and, in particular, leads to a greater understanding of

democracy and the democratic process. What then, is the credit and saving cooperative?

The Saving Aspect

It is a cooperative which encourages its members to save money and enables them the

obtain loans they may require for various purposes from their accumulated savings. This

definition provides an indication of the two main tasks of the cooperative. The first task

is to enable members to save their money on a regular basis, or according to their

needs. The member saves his/her money within the framework of the cooperative.

Knowing that he/she will receive a suitable return for his effort, in the form of interest

on his savings. Accordingly, in order to encourage savings, it is desirable to pay

members interest at a higher rate than that obtainable at any other type of financial

institution. The member will then realize that it is preferable to save with his/her own

cooperative. Cooperatives in many countries make the mistake of paying interest on

their members' savings at a lower rate than that offered elsewhere.

The Credit Aspect

The second task of the cooperative is to grant loans to its members. Loans are granted

from the members' accumulated savings. Obviously, not all the members can take out

loans, or obtain them immediately or simultaneously. Members are granted loans in

accordance with their seniority within the cooperative and the amount of their savings.

Generally speaking, the size of loans granted from the cooperative's fund is governed by

the liquidity regulations of the country in which it is located. Clearly therefore, the size

of loans granted to members does not exceed the total of their savings. But there are

some exceptional cases where the cooperative serves as an intermediary for obtaining

additional credit for members. This subject will be discussed more extensively later. The

member pays the (cooperative) fund interest on the credit he receives. The rate of

interest will be lower than that at other, commercial financial institutions, for this is part

of the service the cooperative provides to its members. The interest rate is calculated

according to a simple formula: the total interest paid on the loans granted by the fund

must cover the total amount of interest paid to members on their savings as well as the

fund's total operating cost. Clearly, the more efficiently the fund is managed, the smaller

the difference between the interest charged on loans and the interest paid to members

on their savings - a factor which also encourages members to save more.

The Differential between Saving and Credit

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Let us take an example where the banks pay interest of 7% on savings, while the

interest charged on loans is 15%. On the basis of this 8% differential, therefore, the

cooperative must cover its entire operating expenses, plus a certain reserve for

unforeseen circumstances. It also follows that these operating expenses must be much

lower than the 8% differential, in order to ensure that the interest paid on members'

savings will be higher than that available elsewhere and that the interest on loans

granted to them will be lower. A common misunderstanding among cooperative

members is that the cooperative should earn profits in the course of the year in order to

pay interest to members. Making profits is not the objective of the cooperative, which is

actually intended to be a system that exclusively serves its members. Theoretically, it

could be said that the ideal cooperative is one which ends the year with zero profits or

surplus. This means that it would have served its members in the best possible manner,

by collecting the minimum amount necessary to cover its operating costs while enabling

members to obtain the maximum service from it.

The Surplus

Although a cooperative does not make profits, it is reason able and desirable for it to run

up surpluses. Surpluses are created in the cooperative because the world we live in is

full of uncertainties. To protect itself against these uncertainties, the cooperative must

marginally increase the amount collected to cover its annual expenses. The surplus

created as a result will be used to implement the fourth principle of cooperation

(including division among members). The surplus will be distributed among members in

proportion to the size of the loans they have taken out, and not in accordance with the

amount of their savings accumulated in the cooperative.

The Interest on Share Capital

The interest paid on share capital must also be considered. Every member joining the

cooperative must acquire only one share unit. According to the third principle of

cooperation, a limited amount of interest may be paid on members' shares. This is a

very misleading approach. Share capital in a cooperative should be remunerated in any

form or way.

Safeguarding the Real Value of Member's Savings

An important objective of credit and saving cooperatives is to safeguard the value of

member's savings in real terms. As previously mentioned, credit and saving

cooperatives have to pay their members interest at rates higher than those paid by

commercial financial institutions. But this is not the whole story. Most countries suffer

from inflation, and the annual rate of inflation is usually higher than the rate of interest,

which credit cooperatives pay to members on their savings. As a result, the real value of

members' savings is eroded. Most people are unaware of this and lose money every

23

year. In some countries, savers receive interest of 10% per annul, while the prevailing

rate of inflation may be as high as 50% or even 100% annually. In such a case,

therefore, it is not difficult to calculate how much members are losing on their savings. A

savings fund run by those who are unaware of this problem is effectively failing to carry

out one of its most important goals - maintaining the value of its members' savings.

A Credit Channel for Productive Purposes

Thus brings us to another task of the credit cooperative. As it is built on the principles of

mutual aid and responsibility, the cooperative effectively acts as a guarantor for its

member’s loans. An individual requiring a loan, which is usually for productive purpose,

will find it very difficult to negotiate with a bank. He will often receive a negative reply

and even if his loan application is approved, he will have to produce a large number of

guarantors and fulfill numerous conditions aimed at assuring the bank that the loan wi ll

be repaid. The credit cooperative, by representing a large number of savers and having

considerable financial resources at its disposal, provides a safe and convenient channel

for the transfer of credit to productive members. The cooperative ensures that loans to

members are repaid by centralizing the marketing f members' products or produce

under its own auspices. This is an essential prerequisite for cooperatives, particularly for

rural, agricultural cooperatives. The granting of credit to a member effectively creates a

closed loop within the cooperative. The credit granted is intended for investment, which

is meant for production. The resulting produce is marketed by the cooperative, thereby

ensuring that the credit is returned. This process is called the "essential triangle" of the

agricultural cooperative

Fig. 1 The Essential Triangle of the Agricultural Cooperative

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In most agricultural cooperatives throughout the world, this closed "essential triangle"

does not exist. The absence of the essential triangle is one of the main reasons why

these cooperatives fail.

Share Capital in the Credit and Saving Cooperative

The concept of cooperative share capital is far from understood in countries where there

are credit and saving cooperatives. Many of their members are unable to distinguish

between share capital, and savings and deposits. This confusion is increased by the fact

that a member can buy a number of shares, leading him to think that share capital,

savings and deposits are one and the same thing. Misconceptions such as these are very

common.

First of all, it should be explained that share capital is not a clearly defined concept.

Share capital is effectively a ticket for entering the cooperative. Paying it in full allows

the prospective member to become a member equal to all the others. Secondly, share

capital represents the member's relative portion in the total investment necessary to

establish the cooperative. (It should be remembered that the money necessary for

running the cooperative must be considered as part of its operating expenses, and not

part of its share capital.)

The credit and saving cooperative usually has a very large number of members. The

amount of investment required for establishing such a cooperative relative to other

enterprises is very low. If we take the total number of members and divide them into

the total investment required, then we will have the amount of share capital per

member. Usually, the amount in question is relatively, very low. This fact, it should be

noted, makes it easy for a large number of members to join the cooperative. The most

important criterion for joining a cooperative is the size of the member's savings, and not

the size or number of his shares. In practice, there is no need for a member to buy more

than one share. When the cooperative needs to invest capital, then the size of the

member's share must be increased and the difference financed out of his own pocket.

The member's remuneration on his share is the interest paid on it. This interest, it

should be noted, is part of the cooperative's indirect operating expenses and is definitely

not the same as the interest paid on the members' savings. Avoiding this common

mistake will help the vast majority of cooperatives operate and serve their members

more fairly.

The Surplus in the Credit and Saving Cooperative

How the surplus is reimbursed to the member of a credit and saving cooperative and

from where is it actually derived? The credit cooperative is, in fact, a cooperative which

functions on the bass of the differential between its credit and saving operations. The

25

cooperative's income is the interest it receives on the credit it allocates to members,

while it’s outgoing are:

- Interest payments on members' savings

- Direct and indirect operating expenses.

The cooperative's management is guided by a single criterion: that the rate of interest

members pay for credit should be lower than the rate offered by the banks, and that the

rate of interest payable to members on their savings should be higher than that

available at the banks.

In order to increase its revenues (which consist of interest payments levied on credit

allocations), the cooperative must try to grant the maximum possible amount of credit

to its members. Theoretically speaking, an efficient cooperative is one which initially

grants its members credit allocations equal in value to their total savings, in order to

maximize its long term receipts. The aim of such a policy is to offer members as high an

interest rate as possible on their savings, while apportioning a certain amount of money

to cover the cooperative's operating costs. This indicates that two principles are at work.

- Encouraging members to save by offering higher interest rates than the commercial

banks

- granting members the maxi mum possible amounts of credit, providing that all the

necessary guarantees are supplied.

These two rules can help us understand the system by which a credit cooperative

functions. (The credit cooperative's principle of operation, in fact, stems from the

difference between the two rates of interest, on loans and savings.) For example, an

interest rate of 7% is offered on savings and members are charged 12% interest on

their credit allocations. The 5% differential between the revenues on credit allocations,

and the expenses incurred in paying interest to savers constitutes the basic capital used

The Remuneration of the Manager

There is another problem to consider: the method for remunerating the manager of the

cooperative. In order to provide the manager with the necessary motivation for his task,

he must be paid a reasonable salary reflecting his success in running the cooperative

efficiently. The manager needs to earn an amount which is sufficiently high, and above

traditionally accepted wage scales, and which will induce him to produce satisfactory

results on behalf of the members. How can this be done? The answer is to pay the

manger a percentage of the cooperative's revenue, that is, a percentage of the interest

charges on members' credit transactions.

What are the resulting practical implications for the cooperative?

26

1. By receiving a percentage of the interest payments charged on credit transactions,

the manager should be motivated to increase the total amount of credit granted to the

members.

2. The sum he receives is totally dependent on the amount of money saved by the

members, as the cooperative cannot grant credit in excess of its overall receipts from

members' savings.

3. The manager is aware that ca any increase in his salary is dependent on the

members' receiving an increased amount of credit which, in turn, depends on their

saving an increased amount of money.

4. The manager, as a result, will do everything in his power to encourage members to

save, in order to increase the level of credit available.

5. Members will have an incentive to save if the interest rate accrued in so doing is

favorable, if the manager is efficient and if the manager does his utmost to reduce the

cooperative's operating expenses.

6. The manager is paid a salary commensurate with his performance. So theoretically, if

he is highly remunerated he will be less inclined to indulge in any form of financial

abuse.

Rural Industrialization

The third field of activity of the regional purchasing organization is rural industrial

development. This refers to industries located in rural areas close to the member

settlement industries located in rural areas close to the member settlement and which

are mainly involved in processing or packing agricultural product. Examples of these

industries are chicken and turkey slaughter-houses, packing plants for export

consignments of fruit and flowers, processing centers for cotton fibers and feed stuff

production plants. Agricultural purchasing organizations are therefore secondary

cooperatives, that is, cooperatives whose members are themselves cooperatives.

National Federations

The farmer has another credit source at the national level - the cooperative federations.

Let us take the example of the Moshav Movement. The federation in this case has a

department responsible for liaising with financial institutions to which it can turn for

support. The Moshav Movement owns a bank (which is, of course cooperative bank)

belonging to the entire member Moshavim, and a Moshav fund, which consolidates the

financial resources, provided by the Moshavim. The fund is responsible for supplying

credit to the member Moshavim when it is needed. It is also responsible for providing

guarantees to the Moshavim when they apply for credit from various financial

27

institutions. The guarantees for each credit allocation granted to a Moshav are as

follows:

-25% of the guarantees must be provided by the Moshav's individual members. The

Moshav provides the bank with a document confirming the decision of its general

meeting to approve the loan, and another document containing the signatures of the

members guaranteeing the loan.

-50% of the guarantees are provided by the regional purchasing organization.

-25% are provided by the Moshav Movement Fund.

The regional purchasing organization and the Moshav Movement, it should be noted,

hold permanent joint guarantees of all their Moshav members. In addition, the Moshav

Movement organizes its financial and economic institutions to provide an insurance

service for all members of the movement as well are served fund for elderly members.

The movement also provides emergency credit to its member Moshavim.

Guided Credit

The Ministry of Agriculture plans the distribution of credit through its guided credit

department. This department is responsible for allocating credit from governmental

sources to credit applicants in the agricultural sector. It is also responsible for ensuring

that the credit granted is properly used.

Marketing Agencies

Various governmental marketing agencies, mainly concerned with financing exports,

provide another source of agricultural credit. These supply special credit allocations,

which are invariably short-term but carry a relatively low rate of interest. The credit is

granted to a farmer as soon as he signs a contract, via his Moshav, to export all of his

production through the governmental agency. The credit granted is repaid in

installments when the farmer begins to export his produce.

The Essential Triangle of Production (ETP)

Agriculture is of course based on production. But the farmer cannot produce if he does

not have the necessary agricultural inputs. In order to acquire them, he needs finance,

which he usually lacks. Consequently, he has to find a source of credit in order to buy

the inputs he needs. Once he has done this, the farmer is able to start producing.

Eventually, he will have to repay the credit, which has been granted. By marketing his

produce, he receives money, which he can use to repay his debts. These transactions

are illustrated by a triangle whose sides represent credit, inputs and marketing. In short,

the farmer obtains finance for purchasing the inputs necessary for production which,

when it is sold, will provide the money, to repay the initial credit granted.

28

In a, traditional society, the farmer uses moneylenders and obtains credit at a very high

cost. He buys his inputs from traders who charge high prices and impose stiff terms of

payment. The farmer's production is purchased by middlemen who pay the lowest

possible price for it. This situation, which is termed as traditional, is very widespread and

always operates to the detriment of the farmer. It can, however, be changed by

introducing into the previously described triangular relationship an additional element for

the benefit of the farmer, namely, the cooperative.

The credit and saving cooperative provides the farmer with the credit which is essential

for purchasing production inputs from a supply cooperative. This is the starting point of

production. The sale of all the fanner's agricultural produce via the marketing

cooperative enables him to repay the credit he has received, at the end of the farming

season. Clearly therefore, the addition of the cooperative to the essential triangle of

agriculture promotes agricultural and rural development (13).

In traditional farming societies, the triangle is always closed. The money-lender, the

trader who sells farming inputs and the middleman who sells the agricultural produce -

who may be a number of people or one and the same person - keep a tight grip on their

money. When they provide credit for agricultural production, therefore, they do so

with an eye to controlling the market, which ensures that they get their money back.

In cooperative systems throughout the world, this consideration is ignored. There is no

need for the essential triangle of agriculture to be closed in order to assure the success

of the cooperative. But every cooperative system involved in agricultural production

must ensure that those providing credit will always be able to get their money back

when produce is sold at the end of the farming season.