Posted by / Thursday 19 October 2017 / No comments

The sources of finance for co-operative societies

Co-operatives describes a form of business organisations where a group of consumers or producers come together voluntarily or out of their free will to form an association with the aim to produce, distribute or consume a particular good or service. A co-operative can therefore be seen both as a business organization and an association. 

In a co-operative, the owners are united often by the fact that they have a common interest. One main reason why people form co-operative is because they believe that by coming together, they can better protect their interest.

Savings and contributions of its members 
To raise capital, Co-operative Society members may decide to pull all their personal savings together to use as capital with which they will start their business operations. Normally, the number of shares a member has is commensurate with the amount of money or contribution made by the member. The greater the amount, the more the shares he or she will own. Financing can also be derived from the annual, monthly or weekly contributions or dues collected from its members.  This money may be given back only when the member decides to leave the organization.

To finance their business, a co-operative society can take a loan from a financial institution or a bank. Financial institutions usually see a co-operative society as a much safer body to lend money to than leading it to them individually. This kinds of syndicated loan allows for proper use of co-operatives money because the use of the funds is not left to the care of just one person, since these loans are secured by the collateral of several members and not just one person, offering a much better guarantee of repayment. 

Credit Purchasing or Purchasing on Credit
Co-operatives can also make purchase on credit from their suppliers. This enables the co-operative to be able to engage in their desired business without having to spend money up front. Once the goods bought on credit are sold, the co-operative may keep the profit after paying back for the amount of goods obtained on credit. This way a co-operative is gradually able to raise the capital they require.

Government Subsidies and Government Subvention
Governments can also decide to subsidize the things cooperatives buy. For example, if a product is sold for $ 20, the government could decide to pay $5 of that amount on each of the items purchased by the co-operative, this increases the profit margin when the society sells the item. Subsidies are actually another way government gives money to co-operatives. Subventions are specified amount of money that organizations receive from government to help them run their activities. A government may decide to give subvention to a co-operative because the government feels that the co-operative is engaged in an area which is important to the government.  For example, a consumer co-operative society which is very active in protecting consumers from being cheated or exploited by producers.  

Tax Rebates/holiday
A government may decide not to tax the activities of a co-operative because the government believes that the co-operative’s operation is considered a social good. In other words, they are in the general    interest of the public.  These tax rebates are therefore a way of putting money into the activities of co-operative societies. 

Donor Funding 
A co-operative can also receive money from both international and local donors in the form of Aids or grants. International organisations, who’s interest is in the kind of business the co-operative is engaged in, may decide to donate money, equipment or materials to the co-operative. This is often given to the co-operative in the form of aids or grants. 

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