How can mobilization of member funds be improved?

Cooperatives need to find ways to increase member funding, since this provides the lowest cost, lowest risk form of capital for operations and investment. As government and donor support continues to decline, increasingly this also becomes the only practical source of funding for cooperatives. Even where outside support is still available, the advantage of increased reliance on member funding is that it gives greater autonomy to the cooperative and lowers the risk of eventual withdrawal of outside funding.
The strategy for increasing member funding depends on the particular circumstances of the cooperative, the type of activity it is engaged in and its scale of operation. Among the strategies to consider are:
Improving operating efficiency
Improving efficiency can be important for the mobilization of funds. It enables a cooperative to offer more competitive prices, securing and keeping member loyalty.
Funding and efficiency are related. Cooperatives with sufficient funds are able to invest in training and technology to reduce costs, and to increase or improve production. Well managed, technologically efficient cooperatives are generally more likely to accumulate capital.
Promoting patronage
The more members use the cooperative’s services – that is by taking loans and saving with the the cooperative – the more funds the cooperative will receive. It is therefore important for the cooperative to promote patronage. This is most easily achieved when cooperatives provide services valued by members, offer competitive interest rates and prompt payments.
Giving priority to mobilizing member funds
Most cooperatives will have to rely on member generated funds to finance their operations. Members’ financial stakes in the cooperative enforce greater accountability of the cooperative to members, build member participation in decision making and strengthen cooperative financial self-reliance and operational autonomy.
There are a number of ways in which member funds are obtained. In many cases, increased levels of funding can be achieved through adjusting these methods:
· Non-refundable membership fees upon joining/entrance/registartion fees
These fees are often small, but they need not necessarily be so if new members are buying into a successful business that provides valuable services.
·          Member shares
All members are required to purchase shares, which are usually the primary source of member capital. Shares purchased should earn dividends and are transferable to other members upon withdrawal from membership or given to his/her heirs in the event of the member’s death.
·         Member deposits
Co-operatives can also consider increasing minimum monthly contributions.
     Other than loan products, co-operatives can introduce saving products e.g. holiday savings, withdrawable savings scheme, etc. Major source of affordable loans/credit. Why?
1)      Core objective and best form of saving
2)      Prerequisite for investment
3)      Saving for retirement
4)      Members earn GOOD returns at the end of the year
·          Retention of surplus.
Surplus can either be retained by the cooperative as institutional capital, or paid out in patronage refunds to members following the close of each year. In practice, cooperatives often offer interest rates more favourable than those prevailing in the market, creating little surplus and making it impossible to offer patronage refunds. Whenever possible, these practices should be altered either to build up surpluses or increase patronage refunds and attract new members.
·          Deferred payments
A surplus creates two opportunities for increasing capital available to a cooperative. One is the surplus retained, and the other is the patronage refund that is allocated but not immediately paid out in cash. During the period between the realisation of the surplus and the cash pay-out of patronage refunds, the cooperative has the use of the cash. Pay-out may take the form of a share or of an obligation to pay the member in the future.
Consider use of outside funding
In simple terms, the higher the institutional capital and member deposits, the more outside lenders such as banks and suppliers will be willing to loan funds to the cooperative. Care should be taken in borrowing, however since the higher the outside funding as a proportion of funds used, the higher the risk if something goes wrong.
Too much institutional capital?
For the majority of cooperatives in developing countries, the possibility of accumulating too much institutional capital any time soon is small. However, members should be aware that it is actually possible for the original purpose of the cooperative to be lost if the amount of institutional capital becomes too large.
This may result in the exclusion of new members, because present members do not want others to benefit from the services provided and surpluses produced by the capital accumulated.

Member financing builds the sense of member ownership

Cooperatives have always been referred to as “member-owned” organizations, yet in countries where cooperatives have depended too heavily on outsiders for financial support, that sense of ownership and personal financial stake has been lost. It is not uncommon to hear members and shareholders refer to their cooperative as the “government’s cooperative” instead of their own cooperative. This is largely because the financial stake or contribution of the membership of the cooperative is small relative to the non-member stake. In spite of the one-member-one-vote principle, the major suppliers of capital, in this case non-members, have the largest say and tend to determine the main priorities of the cooperative business. Cooperative member participation drops and the cooperative promise is weakened.


It is important to build the membership’s financial stake in the cooperative. This increases the sense of collective ownership, makes the cooperative’s management more accountable to serving members, strengthens member commitment and loyalty and thus provides a true and sustainable basis “or cooperation.



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