Definition
Co-operatives are organizations that are owned and run jointly by their members, who share the profits or benefits. In the financial world, they typically refer to credit unions or mutual insurance companies, where members are both the customers and the owners. The primary goal of co-operatives is to meet the common needs of the members rather than to generate profit.
Key Takeaways
- Co-operatives are member-owned enterprises and businesses wherein the profit and earnings generated are distributed among the members who are also the users. Unlike the traditional organizations, co-operatives are driven by values not just profit.
- Co-operatives prioritise human needs and foster a balanced economic, social and cultural development. They do so by allowing direct user participation in their governance, aiming to ensure both economical and customer satisfaction.
- Co-operatives can exist in various sectors including agriculture, finance, health care, retail, housing, and utilities among others. They significantly contribute to job creation and poverty reduction.
Importance
Co-operatives are significant in finance due to their unique structure and operation style, which prioritizes members over profits.
They are essentially businesses owned and controlled by their members, who are also their customers, ensuring that the benefits generated by the cooperative are directly funneled back to the members.
This structure fosters a democratic approach to business, as each member has a vote in the decision-making process, irrespective of their share.
Co-operatives enable sustainable economic growth, social development, and financial inclusivity, especially in rural or underserved areas, by providing accessible financial services, job opportunities, and promoting community development.
Furthermore, their underlying principles of solidarity and mutual assistance make them resilient during economic downturns.
Explanation
Co-operatives serve a distinct purpose in the financial and economic landscape which is largely characterised by their member-focused approach. The primary objective of a co-operative is to meet the common needs and aspirations of its members, rather than focusing on generating profit. They achieve this objective through jointly-owned and democratically-controlled enterprises.
Members make decisions collectively and benefits are shared equitably, based on each member’s level of participation or investment. Depending on its specific type, co-operatives may focus on providing affordable financial services, distributing products at equitable prices, or supporting agricultural and other productive activities of their members. A co-operative is typically used as a tool for economic cooperation, enabling its members to pool resources in order to achieve a common goal.
This collaborative approach can provide several advantages, including the ability to operate at a scale that would not be possible for individual members, and the potential to provide products, services, and opportunities that may not be readily available in the market. Depending on the nature of the co-operative, these might include financial services like loans and savings accounts, access to markets for agricultural products, or housing and utilities services. Co-operatives can also have a broader social purpose, helping to foster economic stability, promote social cohesion, and reduce inequality in the community.
Examples of Co-operatives
The Greenbelt Cooperative: The Greenbelt Cooperative is a national cooperative of 14 independent, regional distributors serving natural food stores. The objective of this cooperative is to achieve economies of scale and hence ensure the financial viability of each independent store.
REI (Recreational Equipment, Inc.): REI is an American retail and outdoor recreation services corporation. It is organized as a consumers’ co-operative, and sells outdoor recreation gear, sporting goods, and clothing. Members pay a lifetime membership fee and receive a share in the company’s profits through an annual dividend.
The Mondragon Corporation: A Spanish federation of worker cooperatives, Mondragon is the largest cooperative in the world. Founded in the Basque region, it includes over 100 separate cooperatives working in finance, industry, retail, and knowledge sectors. It’s seen as an alternative model to traditional for-profit corporations, showing a successful example of worker ownership and direction, and social responsibility in finance.
FAQs about Co-operatives
1. What Are Co-operatives?
Co-operatives are businesses or organizations owned and run by the people who work there or use its services, with profits shared among them or used for the benefit of the community.
2. What Are Some Examples of Co-operatives?
Co-operatives come in many different forms and operate in various sectors such as retail, agriculture, production, and service sector. Examples include worker cooperatives, consumer cooperatives, housing cooperatives, and more.
3. What Are the Principles of Co-operatives?
The International Co-operative Alliance lists seven key principles: voluntary and open membership, democratic member control, members’ economic participation, autonomy and independence, education, training and information, cooperation among cooperatives, and concern for community.
4. What Are the Benefits of Co-operatives?
Co-operatives can provide numerous benefits such as democratic control, equal share of profits, improved economic stability, and socio-economic inclusion. They also empower individuals and communities and promote sustainable development.
5. How Can I Start a Co-operative?
Starting a co-operative involves various steps: identifying a need, conducting a feasibility study, creating a business plan, developing a governing structure, raising capital, and more. It is suggested to contact local authorities or a cooperative federation for guidance.
Related Entrepreneurship Terms
- Members’ Equity
- Profit Distribution
- Democratic Control
- Cooperative Principles
- Collective Bargaining
Sources for More Information
- World Council of Credit Unions: An international trade association and development platform for credit unions. It offers a wealth of resources on cooperatives.
- National Cooperative Business Association: This organization focuses on all types of cooperatives in various industries, including financial cooperatives.
- International Co-operative Alliance: A non-profit international association which advocates for co-operatives worldwide.
- Filene Research Institute: An independent, consumer finance think tank dedicated to scientific and thoughtful analysis about issues affecting the future of credit unions, retail banking and cooperative finance.
