Growth and Development of Cooperative Banks

8/13/2019 Growth and Development of Cooperative Banks

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+he co#operative movement in India was basically organi*ed against the moneylenders to rescue

farmers from the clutches of the poverty and indebtedness. +he need for agricultural credit through co#

operatives felt because of rural indebtedness. +he Indian co#operative movement was initiated by the

government0 it spread and diversified with the encouragement and support of the government. In this

connection, observation made by -"/"2 in its "nnual eport, ''1#'' is0 3o#operatives have

contributed significantly to the growth of institutional infrastructure in the rural areas, private capital

formation in the agriculture sector and distribution of farm inputs li&e fertili*ers, seeds etc.41 +he

determination of 5overnment interest in co#operatives and the importance attached to them was reflected in

the appointment of various committees regarding to review their development and functioning.

+he cooperative sector in India is divided into two ma)or segments, vi*., the rban ooperative

/an&s 7/s8 and ural ooperatives. "s names indicate, /s concentrate on credit delivery in urban

areas, while ural ooperatives concentrate on rural areas. +he structure of the cooperative ban&ing sector

in India. 9ince time immemorial, India has been, still continues to be and will remain in the foreseeable

future, a land of village communities. :ith more than '' million of its people living in rural areas and withits rural sector contributing about ; % of its gross domestic product at factor cost at the 1;;#;! prices

75owsoever we define its development is a

universally cherished goal of individuals, families, communities and nations all over the world. +he term,

?rural development@, connotes overall development of rural areas as revealed in improved quality of life of

rural people. In this sense, it is a comprehensive and multidimensional process and phenomenon. It

encompasses the development of agriculture and allied activities, village and cottage industries and crafts,

socio#economic infrastructure, community services and facilities, and, above all, the human resources in

rural areas. 5enerally spea&ing, development can be conceptualised as a non#decreasing set of desirable

societal ob)ectives such as increase in real per capita income, improvement in income distribution 7equity8,

political and economic freedom, and equitable access to resources, education, health care, employment

opportunities, and )ustice 79ingh 1;;;aA;8.

ural development is influenced by a multitude of factors such as natural resources, human

resources 7labour8, capital, technology, public policies, and institutions and organisations. "lthough the old

school of institutionalists led by +horstein Beblen, Cohn . ommons, and Darl Earx emphasised the role of

1 5oI, "nnual eport ''1#'', -"/"2.

5overnment of India 71;;;8Economic Survey (1999-2000). Fconomic 2ivision, Einistry of (inance, -ew 2elhi.

9ingh, Datar 71;;;a8 =9ustainable 2evelopmentA 9ome eflections, Gresidential "ddress, Indian Journal of AgriculuralEconomics, $!718.


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institutions in economic development, the neo#classical economists did not assign any place to institutions

in their theories 79ingh 1;;;aA$81. >owever, of late, as a result of failure of neo#classical economics to

explain international and Intra#national differences in economic development, it is now widely recognised

that institutions and organisations are an important aid to development. +he economic life of a community

ta&es place in a milieu of institutions and organisations0 the former embodying the rules of the game and the

latter denoting formal or informal structures comprising groups of individuals having common interests.

+hey together largely determine the economic structure of the community and set the rules in which the

economic game is played.

e highlights the

crucial importance of institutional reforms, particularly in the domain of public systems for sustainedagricultural development.

+here are many forms of organisations such as public 7government8 agencies, sole proprietorships,

partnerships, companies, co#operatives and charitable trusts that can and are, in fact, serving the needs of

rural people in India. 5overnment intervention in the rural sector in India can be traced to the last quarter of

the 1;th century. 9ince then, the government has expended thousands of crores of rupees on agricultural and

rural development programmes and is, by all accounts, the biggest agent of rural development. o#

operatives also have played an important role in promoting agricultural and rural development in India,

particularly in the field of credit, processing, and mar&eting. +he dairy co#operatives of 5u)arat and sugar

co#operatives of Eaharashtra are good examples of co#operatives that can promote and sustain rural

development.

5andhi)i saw a great virtue in co#operation as an instrument of rural development. >e assigned

specific roles to co#operatives in the field of agriculture commending the promotion of co#operative farming

and thereby preventing further fragmentation of land holdings. >e also advocated the establishment of other

types of co#operatives such as credit co#operatives, weavers@and spinners@co#operatives and dairy co#

operatives. Gt. Cawahar Jal -ehru, the first Grime Einister of India, also had a strong faith in the co

operatives. >e wanted India to be =convulsed with the co#operative movement . 9ardar Ballabhbhai Gatel,

the first 2eputy Grime Einister and >ome Einister of India, had grate faith in co#operation as a means of

promoting farmers @wellbeing. >e was the prime source of guidance and assistance for the Dheda 2istrict

19ingh, Datar 71;;;a8 =9ustainable 2evelopmentA 9ome eflections, Gresidential "ddress, Indian Journal of AgriculuralEconomics, $!718.

Baidyanathan, ". 71;;68 ="gricultural 2evelopmentA Imperatives of Institutional eform,Economic and !oliical "ee#ly,9pecial -umber, 9eptember, pp. !$1#!$.


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o#operative Eil& Groducers@nion Jimited, popularly &nown as "EJ, which later became a model of

co#operative dairy development in India.

Development Approa!e"In terms of the development approaches used vis#H#vis co#operatives as development instruments,

the literature points broadly to three experiences. In the first experience, mainly in the +hird :orld, co#

operatives were used in primary export sectors, which were very important to the local economy. +he

rationality of centralised macro planning gave politicians the power to decide policy ends and planners thepower to decide means or policy interventions to realise these ends 7>yden, 1;81.Glanners in the state

provided 3blue prints4 or models for the role of co#operatives in agrarian reform and farmers on the ground

were forced into these socially engineered co#operative relations. In the main these co#operatives where

largely state controlled and where conveyor belts of state policy, rather than understood as institutions that

needed to be nurtured in a wider web of political and economic relations.

In an attempt to reclaim the autonomy of co#operatives as development instruments, a &ey theme in

the literature has pointed to a @green house approach 7>yden, 1;8. In this approach, rather than organising

people for purposes beyond their comprehension and interest, the greenhouse approach focuses on factors

which help local efforts grow on their own. +hus, rather than insisting on implanting organisational models,

irrespective of whether or not they fit the political economy of a given society, the green house approach

ta&es as its starting pointing what exists on the ground and encourages organisational development from

below or from within. +o this extent, this approach recognises the richness of institutional forms and origins

that exist in the global co#operative movement. >owever, beyond this, green house development of co#

operatives is about a philosophy of incubating a 3self#help4 culture0 informal co#operatives are nudged to

become formal co#operatives. +his would happen by reclaiming the autonomous nature of co#operatives,

while at the same time, empowering and strengthening apex organisations to perform a host of support

functions for primary co#ops.

(rom a -orthern donor perspective the green house approach is useful and allows donors to wor&

closely with national apex organisations in the +hird :orld. +hree problems emerge from this approach.

(irstly, the assumption that the organic &nowledge of people outside any informal self#help group is less

than those in it, is not necessarily the case. +his means wor&ing with people that have not formed any &ind

of informal co#operative does not mean that a co#operative cannot grow even from very 3formal

beginnings4 particularly if the process capacitating the co#operative is empowering. 9econdly, the state

cannot be ignored completely in the context of co#operative development. +he state in any country is crucial

for the development of a co#operative movement. >owever, the challenge is finding the right balance

between state control and complete non #intervention. (inally, in the context of liberalisation the greenhouse

1 >yden 5. 71;8A$$roac%es o &o-o$eraive 'evelo$men lue$rin versus *reen%ouse in "ttwood 2.:. and /avis&ar /.9.71;8 "%o S%ares+ &o-o$eraives and ,ural 'evelo$men


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approach to cooperative development produces weeds and sic& plants that are basically capitalist enterprises

that undermine the essential founding principles and philosophy of cooperatives.

" third approach in the literature to co#operatives in development can best be termed the

3transformation from below4 approach 7:ainwright, 1;;!81. +his approach proceeds with the understanding

that co#operatives are part of social movements in which the organic &nowledge of its members is crucial for

its development and existence. +his however, does not preclude political relationships with parties or 3new

vanguards4. +his party#to movement relationship is not one#sided or instrumentalised and it provides co#

operatives with a political and strategic role to advance transformation from below such that control of the

economy and development is a central driving force. +ransformation through cooperatives means socialising

economic relationships and changing the basis of overall economic coordination. In Jega Italy, this existed

in the relationship between the Italian ommunist Garty and the co#operative movement. +ogether with

support from the state the co#operative movement in Jega was able to advance wor&er ta&e#overs and buy

outs and even new co#operatives were established in a host of economic sectors. "lso in /ra*il currently, the

:or&ers Garty is supporting the Jandless :or&ers Eovement by using its positioning in local and provincialstate legislatures to open up bloc&ed spaces for advance.

THE GENESIS AND EVOLUTION OF CO-OPERATIVES

" co#operative is a form of organisation that is widely prevalent in developing countries including

India. It has great potential as an instrument of rural development. o#operation as an ethical norm has been

eulogised all over the world since time immemorial. "s a mode of social behaviour, it is manifest in

countless activities of people performed for the purpose of achieving a common goal. (rom the

philosophical perspective, co#operation and its opposite, competition, are two basic tendencies of human

behaviour and both co#exit in every individual. o#operation can emerge under highly diverse situations and

accordingly there are several theories propositions that see& to explain why people do and do not co#

#operate 79ingh 1;;6a8. +he origin of formal co#operation in the form of a co#operative organisation is

traced to Furope, particularly, Fngland, (rance and 5ermany, in the mid#nineteenth century. obert err (.:. aiffeisen and >err (ran* 9chul*e of 5ermany are

considered as the founding fathers of the modern co#operation 7raig 1;'A, Eadan 1;;!A$#8 . In

1!!, a group of people in ochdale, Fngland, formed the ochdale 9ociety of Fquitable Gioneers to obtain

higher wages from their employers and to set up a co#operative store. +he ochdale 9ociety became the

model for similar stores and related enterprises throughout the world. "round the same time, (ourier

established =phalanxes in (rance and aiffeisen and 9chul*e pioneered and implemented the idea of co#

1 :ainwright >. 71;;!8Argumens or A e/ ef Ans/ering %e ree ar#e ,ig%/lac&wellA D and 9"

9ingh, Datar 71;;6a8 =+he Fmergence and 9urvival of o#operationA " eview of 9ome +heoretical propositions, in .a)agopalan 7ed.8,ediscovering &oo$eraion. Bol. III3 Institute of ural Eanagement, "nand.

raig, C.5. 71;'8 =Eanaging o#operative


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operative ban&s in 5ermany. 9ubsequently, in other Furopean countries also, co#operatives emerged

primarily as people@s response to their exploitation by moneylenders and traders. :ith the emergence of co#

operative movement in Furope, the International o#operative "lliance 7I"8 was established in 1;$. Its

main responsibility was to coordinate the activities of affiliated co#operative federations in various parts of

the world. Fstablishment of communism in 99 and subsequently in other countries was instrumental in

promoting government#directed or parastatal cooperatives. 9ome co#operatives failed and some others

succeeded. 2espite their failures and wea&nesses, co#operatives have survived over time and now control

significant shares of mar&ets in many developed and developing countries including mar&et#oriented

economies. (or example, in 9", cooperatives command ' per cent of the fluid mil& mar&et, ' per cent

of the fresh fruits mar&et, $ per cent of agricultural credit of all types, and ' per cent of the grains and

oilseeds mar&et 72wivedi 1;;6A8.1

In most developing countries including India, co#operatives were promoted by their governments as

instruments of rural development. In India, than&s to the /ritish legacy, the co#operative form of

organisation was born in 1;'! consequent upon the enactment of the o#operative redit 9ocieties "ct.9ubsequently, a more comprehensive act, the o#operative 9ocieties "ct, was enacted in 1;1. +his "ct

provided, iner alia, for the creation of the post of egistrar of o#operative 9ocieties, registration of co#

operative societies for various purposes, and audit. nder the Eontaque#helmsfort eforms effected in

1;1;, co#operation became a Grovincial 9ub)ect and the provinces were authorised to ma&e their own co#

operative laws. nder the 5overnment of India "ct 1;$, =co#operative societies were treated as a 9tate

9ub)ect. In order to facilitate the establishment of co#operatives having membership from more than one

Grovince, the 5overnment of India enacted the Eulti#nit ooperative 9ocieties "ct, 1;!. Jater a more

comprehensive entral legislation, the Eulti#9tate o#operative 9ocieties "ct, 1;!, was enacted by

Garliament with a view to consolidate different laws governing the same types of cooperative societies.

"fter India attained Independence in "ugust 1;!, co#operatives assumed greater significance as an

instrument of socio#economic development and became an integral part of India@s (iveKear Glans. +he "ll

India ural redit 9urvey ommittee eport, 1;$! recommended an integrated approach to cooperative

credit and emphasised the need for viable credit co#operative societies by enlarging their area of operation,

encouraging rural savings, and diversifying their business. +he ommittee also recommended that the

government should contribute to the share capital of the co#operatives. In 1;$, the -ational 2evelopment

ouncil 7-28 adopted a esolution on -ational Golicy on o#operatives. 9ubsequently, in Canuary 1;$;,

the :or&ing 5roup on o#operative Golicy set up by the Einistry of (ood and "griculture, 5overnment of

India, recommended a blueprint for implementing the -2@s esolution. +he 5overnment of India has

1 2wivedi, .. 71;;68 =ole of o#operatives in ural Fconomy,Indian Journal of Agriculural Economics3 $17!8, pp. 1#.


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since provided massive financial, technical and administrative support to co#operatives both directly and

indirectly through 9tate governments 72wivedi 1;;6A1#1!81.

+o prospers, cooperatives must be well organi*ed, well financed, well managed, and governed well

by a committed membership. +hey must be progressive, adopting to changing climates and responsive to

their members changing needs. Eembers the board of directors, and management each have responsibilities

within the cooperative. 9trong, viable cooperatives require all three groups to their shares.

"lthough capital, employees, business volume and good management practices are all very

important for successful operations0 a co#ops members are its most important asset.

ooperative success also hinges on effective member education and communication. Indeed,

providing education, training, and information to members is one of the seven cooperative principles

adopted by the I". +he unique education needs of cooperatives and the essential elements for a successful

education and communication program.

ooperative financing is also critical and in todays complex cooperative organi*ations it can be

quite complicated. "dequate capital is one of the fundamental principles of sound business operation and at

the same time one of the biggest challenges facing cooperatives today. (inancing options must be consistent

with principles of cooperation as well as with federal and state laws.

"s with other business forms, cooperatives should be established only to meet a well#defined need in

the mar&et. /efore cooperatives are created, advance research should be done by a steering committee to

ensure sufficient support by other potential members in the community. +he procedure for organi*ing co#

operatives. " good feasibility study, strong membership drives, and a comprehensive business plan are

essential ingredients.

+he historical development of cooperative business cannot be disconnected from the social and

economic forces that shaped them. ooperation then, as now, were created in times and places of economic

stress and social upheaval. "ncient records and archaeological discoveries point to the existence of

cooperative organi*ations created by early civili*ations in diverse part of the world 7hina, 5reece, Fgypt,

etc.8. /ut it is the founders of the ochdale 9ociety in 1; thcentury Fngland who are celebrated for launching

the modern cooperative movement. +he ochdale pioneers, and the early Furopean cooperative thin&ers and

organi*ers who laid the foundation for their success, are responsible for codifying a guiding set of principles

that helped guide the development of cooperatives across the world.

1 2wivedi, .. 71;;68 =ole of o#operatives in ural Fconomy,Indian Journal of Agriculural Economics3 $17!8, pp. 1#.

+his point is made by both >enry >./a&&en and Earvin ". 9chaars, in +he Fconomic of ooperative Ear&eting 7-ew Kor& A

Ec 5raw L>ill /oo& ompany, 1;;8, and /reet (airbairn, 3>istory


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Revolutionary root in En!lan"

+he first cooperative businesses created in Furope

arose during periods of great social upheaval and distress

caused by dramatic shifts in agricultural and industrial

production practices. Grior to the Industrial evolution

7about 1$'#1$'8, most families in Fngland and other

parts of Furope were largely self#sufficient, creating

enough food and goods for their subsistence and small

amounts for trading. +he Industrial evolution introduced

the factory system of production and was mar&ed by a rapid

succession of remar&able inventions that accelerated the

industriali*ation of business. Fxamples of inventions during

this period include smelting iron with coal instead of

charcoal, the cotton gin and power loom, and the steam

engine. +he writing of "dam 9mith at the time, especially

his advocacy of the laisse* faire principle 7no government

intervention in the economy8, further spurred the

revolution.

+he industrial system gradually replaced cottage

industries and home#based production. :or&ers were

required to move into cities to find wor&. "way from land,

their families were increasingly integrated into a mar&et

economy0 instead of producing most of their household

requirements, especially food, they had no other choice but

to purchase them. "dvances in production were not,

unfortunately, accompanied by fair labor standards.

:or&ers were typically paid very low wages and were

sub)ected to harsh wor&ing conditions.1

Geople remaining in rural areas were

not much better off. "n agricultural

revolution was already well underway I the

1th century. +he introduction of new

cultivation methods and crop varieties

supported a dramatic change in land tenure

patterns. 9cattered, small plots of farmland

were aggregated into large, enclosed

estates, primarily for the purpose of gra*ingsheep and other livestoc&. /etween 16'

and 1!, nearly seven million acres of

agricultural land in Fngland were enclosed

in estates. "s a result, large numbers of

small farmers were driven from their land

into neighboring towns and villages with

few remaining )obs.

" movement towards greater

freedom of expression was another

hallmar& of this revolutionary period. +he

citi*ens of Fngland began to publicly

dissent with government policies, ta&ing

issue with the status quo and demanding

more personal rights. +herefore, the

widespread poverty, unemployment, and

general social deterioration that were left in

the wa&e of the industrial and agricultural

1 For a review of the living and workingconditions in England during this period,see Johnston Birchall, Co-op: ThePeoples Business (Manchester:Manchester University press,1!"#

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ic outcry to the government for improved wor&ing and

living conditions.

Early #oo$erative o#ietie

In the absence of public assistance, the people of

Furope established various types of self#help organi*ations.

Eutual fire insurance companies existed in Jondon and

Garis as early as 1$', although the first highly successful

and well# &nown example was organi*ed in Fngland in

16;6, the "micable ontribution ship.1 +he people of

Fngland also created Eutual "id 9ocieties 7they eventually

became &nown as (riendly 9ocieties8 that offered financial

payments and assistance to members in times of sic&ness,

unemployment, or death. /y the mid#1th century many

well established societies were already in operation. +hey

were legali*ed with the passing of the first (riendly 9ociety

"ct 7also called the ose "ct8 in 1;." number of bills

were introduced in the 1;th century to encourage (riendly

9ocieties since they lessened the public burden.:or&ers

organi*ed labor unions to bargain with employers for more

favorable wor&ing conditions and to lobby the government

for improved labor legislation.

ooperative or quasi#cooperative industrial

1 Cohn /ainbridge. /iography of an IdeaM+he 9tory of uual ire

and &asualy Insurance 75arden ity, -KA 2oubleday andompany,1;$8.

(riendly 9ocieties are still prevalent in the nited Dingdom today.(or more information, visit the "ssociation of (riendly 9ocieties siteAwww.afs.org.u&.

/y defining legal societies as Eutual "id 9ocieties, the governmentalso hoped to prevent the formation of labor and political unions.:illiam >enry /everidge, 4olunary Acion 7-ew Kor&A Eacmillanand o.1;!8 and Geter 5ray,3" /rief >istory of (riendly 9ocieties,4+he "ssociation of (riendly 9ocieties 7''!"#

businesses were in operation in Fngland by

16'.Eost were consumer#controlled

organi*ations focused on flour milling and

ba&ing industries. ooperative corn mills

for grinding flour appeared in a number of

cities shortly after the turn of the 1;th

century to cut the cost of flour and prevent

tampering by greedy millers. Gurchasing

cooperatives already existed in most

:estern Furopean countries by the 1thcentury. +he :eavers 9ociety in (enwic&,

9cotland 7often referred to as 3penny

capitalists48 began to purchase supplies as a

group in 16;.!

+he precursors to mutual and

unions were guilds, the associations of

merchants, artisans, and crafts# men thatdate bac& to Eedieval times. 5uilds had

binding rules for production and business

practices. "lthough guilds were created

partially in an attempt to establish local

trade monopolies, they incorporated

socialist practicesA member control,

equitable treatment of all members, and

financial support of members who were ill

or faced family crises.

Ro%ert O&en '())(-(*+*, T/e

! >enry >./a&&en and Earvin ". 9chaars. 5%eEconomics of &oo$eraive ar#eing 7-ew Kor&AEc5raw#>ill /oo& ompany,1;.p.!8.

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++agen >enrQ ndrevised edition ''$ 7httpAPPwww.ilo.orgPempentPGublicationsP:E9R';!'!$Plang##enPindex.htm8


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+he agricultural cooperative sector has grown to be a ma)or economic force. +he 9"

has the largest sector0 in 1;;! there were !1! farmer#owned businesses with a membership

of nearly four million and a turnover of S; billions. "s one commentator recently put it

@cooperatively owned businesses are considered a ma)or player in rural "merica1. Its

mar&eting cooperatives have well &nown brand names such as Jand


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aiffeisen cooperatives handle more than half of all farmers sales and purchases. In "ustria,

the share of mar&eting and processing is 6' percent. Fverywhere the mar&et share in mil&

distribution is very highA in (rance $ percent, 9lovenia percent, /elgium ' percent, the

-etherlands $ percent, the D ;' percent, and -orway ;; percent. In 9candinavia,

cooperatives are dominant in the mar&et0 in 2enmar& they process ; percent of dairy

products and ;6 percent of por&, while in 9weden they are the countrys third largest

corporate group, controlling percent of the agri#food industry.

ecently, this sector has begun to face pressures from a rapidly changing and

globalising agri food industry. In response, cooperatives have formed subsidiaries co#owned

by external investors, or have opened up their own societies to investment by non#farmer

interests1. 9ome have demutualised and become investor#owned. >owever, in most cases

farmers are determined to &eep control of their core business, and the future of the sector

seems assured. "gricultural cooperatives are really the best &nown example of a broader type,

the primary producer cooperative.


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and renovated by housing cooperatives designed for low income people1. In /ritain,

management cooperatives have ta&en over unpopular @council estates, and tenant#owned

cooperatives are challenging conventional social housing landlords to involve more tenants in

the governance over social housing.

"nother important area of cooperative involvement is in utilities. In the 9", over

1''' electricity cooperatives supply power to around 1per cent of households, mainly in

rural areas. In :ales, the privati*ation of water to investor#owned businesses proved

unpopular, and has now been bought bac& by a semi#cooperative which has sta&eholder

members.

9ome of the worlds biggest insurers are cooperatives. +he International ooperative

andEutual Insurance (ederation 7IEI(8 has 1! insurance companies in membership from

' countries, with seven percent of the worlds premiums. /ehind the success of these

insurance companies is the underpinning principle of pooling ris&s among large numbersof

people without having to pay outside investors thereby providing insurance at cost.+his is a

particular business advantage in with#profits pensions.>owever, recently there have been

some serious governance failures in mutual insurers in the D which had to demutualise

because of poor decision#ma&ing by boards that had insulated themselves from member

influence. "s a result, the D government advocated for a new code of conduct for life

insurance mutuals.!

E +reasury 7''!8yners ,evie/ of %e *overnance of ife uuals.


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+here are primary producer cooperatives, which supply inputs and do mar&eting and

processing of products for farmers, fishermen and forestry wor&ers. +hey include some of the

worlds biggest businesses, including conglomeration of farmers, ranchers andprimary

cooperatives whose success made to the (ortune $'' listing. 9ome are cooperatives of small

farmers struggling to survive in a tough mar&et where prices paid by supermar&et chains are

falling and farm subsidies are being cut. In the D, there is acooperative that operates !''

mar&ets on behalf of 6$ cooperative mar&et societies, through which 1,''' producers can

sell direct to consumers1.

" recent development is the new generation cooperative in the .9. where members

contribute capital in proportion to the amount of product they intend to supply to a processing

coop. +he resulting share confers a right to supply, and can be traded among farmers at

mar&et value. In return, they get a guarantee from the co#op to return all the value from

processing bac& to the farmers, again in proportion to the amount they have supplied. +his

new form of co#op, of which there are around '', is raising the incomes of farmers

dramatically, and revitalising the local economies of -orth 2a&ota, Einnesota and

neighbouring states.

T/reat an" #/allen!e 3a#e" %y #oo$erative in "evelo$e" #ountrie


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board members who are insulated from criticisms. In the D, the recent financial crisis has

caused problems for demutuali*ed building societies, while those that have remained as

mutual building societies have largely avoided the problem.

Coo$erative in tranitional an" "evelo$in! #ountrie

+he growth of cooperatives in transitional and developing countries at first faced

many challenges. In the transitional countries, cooperatives have been viewed as state

enterprises0 with the collapse of communism, these cooperatives collapsed as well. In the

developing countries, cooperatives in the 1;$'s and 1;6's operated under the sponsorship of

nationalist governments. +hese governments saw cooperatives as instruments, ta&ing them

over and using them as parastatals within a controlled economy and as mass organisations

through which the ruling party could reach the rural population. +here were success stories in

sugar and cotton cooperatives in India, dairy cooperatives in India and /angladesh, coffee

cooperatives in +an*ania and Denya and in several countries a more independent credit

sector. -evertheless, with mar&et liberali*ation in the 1;;'s and the withdrawal of

government support, many state sponsored cooperatives could not compete with the private

sector and had to shut down.

"fter these experiences, independent cooperatives have since formed. In the transition

economies, new laws were passed and old cooperatives were returned to their members and

new ones have formed. In /osnia and in 9erbia 1,for example, agricultural and mar&eting

coops were formed in response to the demand for produce by a growing supermar&et sector.

:hile the whole cooperative movement in these transitional economies remains wea&, they

are expected to continue to grow in such areas as credit, agricultural supply and mar&eting,

and even a renascent consumer cooperative sector. +he 9"I2 has been active in the /al&an

region in promoting cooperative formation0 governments in Fastern and entral Furope and

the I9 countries can go a long way in promoting the formation of autonomous cooperatives.

In the developing countries, the international efforts by I", IJ< and the -, have

been instrumental in the formation of new cooperatives that are independent of their

governments. +he I" Identity 9tatement and cooperative principles, the nited -ations

5uidelines of ''1 and the IJ< ecommendation -o. 1; on the promotion of cooperatives

have served to guide cooperative formation, as well as limit the role of governments to one of

providing an enabling environment and level#playing field so cooperatives can operate on a

1 >elped by a 9"I2 programme.


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sustainable basis alongside other types of business. +hese mechanisms recommend that there

should be an @early and complete disengagement of governments from the internal affairs of

cooperatives1. +he IJ< ecommendation -o. 1; emphasises the need to promote the

business potential of cooperatives so they can contribute to sustainable development and

decent employment. It does not advocate the complete withdrawal of government but

recommends an institutional framewor& in which government registers cooperatives as

simply and efficiently as possible, regulates them in the same way as other forms of

enterprise, and provides a wide range of support such as human resource development, access

to credit, and support services for mar&eting, all without infringing cooperative autonomy.

+he cooperative sector is experiencing a renaissance despite many difficulties. "

study of 11 countries in "frica estimates that around seven percent of "fricans are co#op

members and that even in countries where apex cooperatives have collapsed, such as ganda

and wanda, the numbers have continued to grow there were only $$! cooperatives

registered in ganda in 1;;$, but nearly $'' now. 9avings and credit cooperatives are

growing, including non#traditional sectors such as housing, consumer, cottage industries and

distilleries. +hey are demand driven, mar&et oriented, and bypassing the old cooperative

unions in favour of new networ&s. (armer cooperatives are meeting a growing demand from

supermar&ets for fresh fruit and vegetables. offee mar&eting cooperatives are gaining high

prices through fair trade. Flectricity cooperatives show that the cooperative model can wor&

in rural areas where the private sector does not want to go. 9mall dairy cooperatives are

growing rapidly in Fastern Furope, Jatin "merica, and "frica to provide raw mil& to private

dairies. +here has been a ma)or resurgence of mar&eting cooperatives in Fthiopia, Tambia

and >onduras.

+elecommunications cooperatives are strong in Goland, "lbania, "rgentina, /olivia,

and electricity cooperatives in the Ghilippines and /angladesh. redit unions are growing in

many countries and extending access to credit, savings and remittance services by poor

people and migrant wor&ers. In /olivia cooperatives are a serious alternative toprivatisation

of water services to urban consumers. >ealth professionals also sometimesfind it useful to

1 nited -ations 7''18,e$or of %e Secreary-*eneral on coo$eraives in social develo$men, "P$6P#FP''1P6 annex, p1, andInternational Jabour


25/27

organi*e through a cooperative, as in /ra*il where the biggest cooperative medical system in

the world has 6 local member cooperatives operating in over ' per cent of /ra*ilOs

counties with ;,''' doctors in membership, serving 1 million service patients. In "rgentina

$ per cent of rural electricity is supplied by cooperatives, and they are also strong in

telecommunications. In ''1, wor&ers in "rgentina from some '' failed enterprises were

ta&en over by the wor&ers to formwor&ers cooperatives1.

+he reform of the basic rules by which cooperatives are registered, regulated and held

accountable to their members and the wider public has been critical in the growth of strong

cooperatives. In the case of +an*ania, for example, a Gresidential ommission met in ''' to

analyse the problems faced by the sector. It was followed by a new cooperative law, new by#

laws that ensured primary cooperatives were run properly, and a process of re#elections to

societies vetted by the egistrar to ensure that ineffective and corrupt board members are

removed. +his reform has led to strong growth in the savings and credit movement and in

coffee cooperatives in particular. In another example, an Fthiopian reform process which

began in 1;; with 9 development support, has led to growth of cooperatives. -ow more

than $ per cent of Fthiopias total inputs in rural areas are distributed through cooperatives,

and over $ per cent of its coffee is exported by cooperatives.

T/reat an" #/allen!e 3a#e" %y #oo$erative in "evelo$in! #ountrie

+he preceding optimistic view has to be tempered with awareness of the constraints

that cooperatives in developing countries face. " recent study of !$' cooperatives in +an*ania

and 9ri Jan&a reports that cooperatives lac& access to loan finance to help them expand their

business.


26/27

through setting up womens cooperatives li&e the womens cooperative ban&s in the 9outh of

9ri Jan&a. "wareness campaigns, as in the :omens 2airy ooperative leadership

programme in India, helped double the participation rates of women1 In addition, the

challenge of low level of involvement of young people and the need to provide them with

decent wor& could be addressed through setting up specialised youth cooperatives and

running awareness campaign in existing cooperatives.

In "frica, cooperatives face the specific threat from >IBP"I29 . +he cost in human

resources L loss of trained employees and committed members L adds to those imposed by

the difficult business environment. In particular, credit cooperatives face increased ris&s from

default on loans, and need to provide insurance that may, in the long run, be costly. IBP"I29 and their families, and this can

only be done by businesses that are sound. -evertheless, cooperatives are an ideal setting for

increasing awareness and >IB education. (or instance, in India cooperative networ&s are

being used for health education, while in Fthiopia !'' cooperatives with a total family

membership of .$ million are developing educational materials with help from

"2IPBIBP"I29 and o#operatives, EanchesterA o#operative ollege.

/ibby, " and 9haw, J 7eds,''$8a#ing a 'ifference co-o$eraive soluions o glo6al $overy, EanchesterA o#operative ollege.


27/27

return, while in Fl 9alvador electricity cooperatives have boosted the local economy so ex#

combatants can find wor&. 9imilar stories can be told of 5uatemala, Jebanon, "*erbai)an,

9erbia and Eontenegro. +here is also evidence of cooperatives bridging longstanding ethnic

divides0 electricity cooperatives in /angladesh have a common membership among the

million users, and in India dairy cooperatives treat members of different castes as equals.

Documents

Growth and Development of Cooperative Banks