in cooperative operations

Reporter: Lucille Gacutan Aramburo

The main pillars of good governance are: 1.transparency, 2.accountability, 3.risk management 4.control

The history of cooperatives in the Philippines is replete with tragic stories for the downfall of many co-ops. Learning from past mistakes, can pave the way for stronger foundation for successful cooperativism.

Cooperative Values and Way of Life Members of rural communities have common, socio-economic needs of:

Obtaining marketing and purchasing services at lower cost;Accessing credit at a reasonable rate of interest; andSecuring financial assistance for provident purpose.

There should be a continuing effort to cultivate appropriate cooperative values.

At the co-op management levelAvoiding misrepresentations in any form, e.g., weight, quality, cost and others;Transparent with complete disclosure at all times;Serving as a role model to its members, especially in honoring pledges, contracts, and appointments and in accepting responsibilities/commitments.Financially prudent;Giving what is due to others and overcome destructive competition;Encouraging and promoting viable livelihood projects and self-help activities among its membership; andBeing forward-looking, innovative and dynamic.

At the personal (membership) level

Doing away with the “crab mentality”Taking interest and active participation in all co-op activities;Demonstrating unwavering loyalty to the cooperative;Patronizing and supporting all co-op business undertakings

and projects;Being constantly well-informed in all co-op matters;Undertaking viable livelihood projects and self-help activities;Practicing and cultivating the value of honoring

pledges/promises, thrift and financial prudence, and passing on these same values to their children.

Dedicated Leadership and Effective Management An important factor in the success of a

cooperative is the presence of capable and dedicated leaders. These are the people expected to provide guidance and support to the cooperative.

Co-op leaders promote more activities membership participation. In many case, the absence of qualified leaders turns cooperatives into political instruments of opportunists.

The associations will lack proper guidance and be susceptible to outside control and manipulation without competent leaders.

Board of DirectorsMany cooperatives have failed mainly because its funds

were used by their treasurers for personal interest or borrowed by the members of the board of directors and never paid. There is always the danger related to handling co-op money. Therefore, it is the task of the members to elect the people whom they can trust to lead and manage the cooperative’s business.

• Cooperative leaders, especially the Board of Directors, must be chosen on the basis of good business judgment and proven ability, and not on friendship, neighborliness or favorable financial standing in the community.

The members of the Board should:

•Assume the role models for capital build-up, savings, transparency, and honoring promises, pledges and contracts;

•Represent the common interest and genuine welfare of the members of the co-op;

•Consistently patronize their co-op’s services and refrain from engaging in competing businesses;

The members of the Board should:Help disseminate information on membership rights, duties and responsibilities in order to gain strong membership support and cooperation;

Spend cooperative money as carefully as they would spend their own;

Manage financial operations with a well studied/rewarded and approved operating budget;

The members of the Board should:

•Select cooperative employees based on appropriate qualifications such as education, training, experience and character; and

•Be able to analyze and consider problems/audit reports as inputs planning, problem-solving, conflict –resolution, and policy review and modification.

Management Officers & Staff Management should focus its operation on efficient service for

the members and the co-operative as a whole.Co-op managers, in particular, should:

have an open mind, willing to adopt new ideas and be knowledgeable in his/her field of operation;

act as the leader. He/she should train understudies to take his/her place in his/her absence or when called upon to take higher and

maintain good record keeping. Well-maintained records are very important in any cooperative. This means that all minutes of meetings, records of membership, and similar documents must be properly filed and maintained.

Management Officers & StaffFinancial transactions should be properly recorded.Receipts should be issued for all contributions and other collections of members. These receipts must be properly recorded in the books of the cooperative.

All expenditures incurred by the cooperative must be supported with invoices or vouchers and properly recorded.

Records must be accurately recorded to prevent numerous problems to occur.

Management Officers & Staffpractice sound financial management. No one

person should be responsible for the release of funds while at the same time maintaining the books and be on top of co-op operations.

submit to frequent audits. The financial records of the cooperative should be checked and audited regularly be competent auditors. They may either be co-op member or external auditors to uncover errors in recording and detect irregularities.

The audit process should be welcomed to assure the members that their interests (funds and property) in the cooperative are properly spent and adequate protected.

CommittedEnlightened and responsible membership who recognize a common

need and direction.• The cooperative is of, for, and by the people. The hallmark of a

successful cooperative is an enlightened and responsible membership that:

• Have definite financial stake in the cooperative;• Take active interest in voting and in other important matters presented

during meetings;• Demonstrate unswerving loyalty to the cooperative;

Committed Membership•Patronize the cooperative;•Help to maintain their co-op’s sound financial structure and performance;

•Well-formed about the operation of the cooperative; and

•Actively recruit more members to help increase volume of business and co-op capital

The cooperative is organized mainly because of the members’ recognition of common needs and concerns, to serve as the vehicle for obtaining solutions to these problems. As such, the members should protected the interests of their respective cooperatives and capitalize on the realization that there is strength in members.

Self-determination of cooperative members to help themselves and do away with the “dole-out mentality”

•Members must be willing and determined to help themselves to meet their problems. The government may assist by putting up the needed infrastructure and other related basic service but, much of the effort, the planning and the sacrifices must come from them.

In this regard, members should be willing to meet their obligations and

work hard so their cooperative can provide the desired services

committed to the success of the cooperative by generously contributing to build-up capital by increasing their stockholdings.

Continuing Cooperative Education•Continuous membership education. Successful cooperatives recognized the necessity and importance of cooperative education. All members should be informed on the objectives, functions, structures and policies of the cooperative even before being accepted into the organization. This is the reason why Pre-membership Education is necessary.

education

Continuing Cooperative Education Even among long-standing members, membership seminars should be conducted to keep them informed of their cooperative’s services, new policies, plans, and ongoing activities and projects.

education

Specialized Training for Officers and Management Staff. Officers and committee members have specific functions in the cooperative requiring certain knowledge and skills. For example, members of the audit and inventory committee, should learn how to audit the association’s book of accounts. Similarly, the Board of Directors should be able to develop co-op plans and programs and formulate sound policies appropriate for their implementation and the efficient operation of the co-op.

Specialized Training for Officers and Management Staff. The efficiency and effectiveness of cooperative leaders, officers and staff performing their duties will build and strengthen members’ trust, confidence, patronage and loyalty to their cooperative.

• Leadership Training• Values Orientation• Project Management and Monitoring• Credit and Collection Management• Members Saving Operation Orientation• Co-op Financial Intermediation Development• Co-op Marketing and Business Alliance-Building• Tellering and Cashiering• Forgery Detection• Conflict Management• Membership Training

Officers, committee members and employees, therefore, should be well-trained for their jobs. Such trainings may comprise any of the following, among others:

Viable Cooperative Direction and Business Operations

The viability of a co-op’s business operation and overall direction can only be ensured by:

1. Promoting cooperative marketing to ensure adequate volume to co-op business. A member must promote and contribute to the building up of patronage and co-op capital.

Members’ patronage is the lifeblood of any successful business enterprise. Sufficient volume of business is necessary for the cooperative to render maximum service at the lowest possible cost and maintain a strong bargaining position in marketing farm products and procuring goods and services.

Cooperative Business Concerns include:• Sufficient volume and adequate variety of

goods on sale to effectively reduce operating cost;

• Availability of quality goods for sale to members at reasonable prices;

• Sale of commodities at the proper time and place to maintain low inventory carrying costs;

• Sustainable networking relationship with viable markets; and

• Active membership in co-op federations and business alliances

2. Encouraging the internal generation of funds through capital build-up and member savings operation (MSO) to ensure availability of funds for financing co-op and members’ livelihood projects.

Every member should have enough investment to feel a definite responsibility and loyalty to his co-op. Membership stakeholders and savings deposits can serve as co-op equity for loan financing or the means of gaining the confidence of financial institutions. These funds can also spur co-op business diversification and enhance its on-lending performance:

To be successful, a cooperative must have:Workable and practical financing program for

members’ provident needs;A program for promptly liquidating all its current

borrowings;A fair policy on lending and collection;A vigorous members savings program;An effective program for building up co-op

capitalization;An increasing volume of business;An established systems and procedures; andAn honest and competent leadership and

management staff.

3. Developing and promulgating sound operating policies applicable to all.

Cooperative members have an important voice in the development of their co-op’s policies. An enlightened Board of Directors would do well in heeding the wishes of the members, specially when these would redound to the benefits of everyone. These policies are usually those that address the economic and provident needs of the membership.

Managers, officers, and management staff recommend the adoption of policies governing their co-op’s operation and management. Such operating policies should include, but not be limited to:

Internal resource generation/capital build-up; Members saving operation; Interco-on alliance; Co-op marketing; Continuing education and skill training programs; Lending/re-lending; Membership (recruitment, dropping from the rolls, members-in- good-standing, and others); and Accounting.

Operating policies must be conservative and not speculative

4. Practicing transparency and self-disciplineSuccessful cooperatives practice transparency and self-discipline. This implies that these

co-ops:Subject themselves to periodic, unannounced audit;Have sound and update bookkeeping and accounting systems;Maintain clean, orderly, and updated files;Are open to members’ scrutiny of all co-op records and documents at all times during

office hours;Have responsible and competent officers and staff holding accountable positions;Welcome all recommendations, comments and observation to improve their systems and

business operations; andAre dynamic, flexible and willing to adopt new/improved systems and project;

4. Practicing transparency and self-discipline

Successful cooperatives practice transparency and self-discipline. This implies that these co-ops:

Subject themselves to periodic, unannounced audit;Have sound and update bookkeeping and accounting

systems;Maintain clean, orderly, and updated files;Are open to members’ scrutiny of all co-op records and

documents at all times during office hours;Have responsible and competent officers and staff holding

accountable positions;Welcome all recommendations, comments and observation

to improve their systems and business operations; andAre dynamic, flexible and willing to adopt new/improved

systems and project;

Cooperative Marketing & Business Alliance

The cooperative has a better chance for success if members are convinced of the advantages of doing things as a group. This is the underlying principle behind all co-op business undertakes and the rationale for implementing co-op marketing and business alliance-building.

a. Advantages of group actionBy pooling their resources and efforts, the members have a

better chance to obtain more benefits than if they were each on their own. A broom can sweep dirt because the sticks are bound together. This same principle also applies to the members of any co-op.

As a group, the co-op wields a better bargaining power than when its members transact business individually. They are in a better position to obtain higher prices for their produce and lower costs for their purchases.

By pooling their produce and purchases, they can distribute and effectively decrease their individual cost of transportation. They are able to obtain discounts on bulk purchases. As a group, they may also be granted access to facilities and services not available to them if they act individually.

One must do his as a member of the group. There are times when decisions of the group may be contrary to his/her own wishes but should this decision be for the good of the majority, he/she should abide by the decision.

The members of the cooperative must work hard to preserve the value of honoring contracted agreements and pledges.

b. Importance of discipline and honoring contracts/pledges

c. Benefits of capital formation and savings mobilizationWhen co-ops rely on external funding for their business

operations, they lack the flexibility to undertake business ventures that would require additional capital, specially when such projects are not consistent with the lending programs of their assisting financial institutions.

In business alliance, may opportunities for market networking could crop up. The co-ops would be in a position to grab such opportunities and earn additional income if they had managed to raise funds, through capital build-up and member-savings campaigns that will give them more investible resources.

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in cooperative operations

Incompetent management Lack of proper understanding of the principles, practices

true aims, and purposes of cooperative associationsImproper use of credits by the borrowers who, instead of

using money borrowed for production, spent it for fiestas or luxuries.

Defective securitiesPolitical interference particularly in the collection of

overdue accountsLack of compensation of officersInadequate character and moral responsibility in handling

the other fellows money

Causes of failure of cooperatives in the Philippines:

Lack of adequate safeguard against unscrupulous officers who took advantage of their position to grant loans to themselves and their compadres which later proved disastrous to the system.

The dominance of the individualistic attitude instead of the spirit of cooperation among the people.

Inability of cooperatives to secure adequate capitalTheir dependence on alien suppliers and distributorsIneffectiveness of the government and promotion of

cooperative organizationsInadequate marketing facilities“Structural weakness

Reasons why cooperatives in the Philippines failReason #1. Lack of Education

The so-called experts in the Philippines are well-versed on western type of cooperatives but know little of the homegrown types. They tried to implant this idea to Philippine soil but the rural people are so illiterate to understand modern ideas because they have their own homegrown coops. However, as years pass by, many colleges and universities offered cooperative management but they failed to introduce cooperativism the Philippine style. With the emergence of some coop advocates, cooperative development are being taught but to only few specialized schools.

Reason #2. Lack of Management Expertise

The only way a person could learn how to run a coop is to do so using a trial and error approach. The moment he masters all of the skills needed to run a coop, he will get offer from giant companies which are willing to pay three or four times his pay.

Reason #3. Coops Don’t Really Serve Their Members

The most important measures of success of any cooperative is the service it gives to its members. Evidence shows that coops that serve their members well grow to become highly viable.

Reason #4. Government MeddlingOvernight experts from the

government sector have gone on organizing without taking into consideration that coops are voluntary associations. Government meddling is not only confined to organizing. Government official’s limited the activities of privately initiated coops hovering above the economic enterprise of the coop leaving big business alone.

Source:CDA PMES Book