Bringing Co-operatives to Centre

Stage

Dr Shanta Raj Sharma Neupane Independent Consultant

International Cooperative Alliance Asia Pacific Research ConferenceKobe, Japan November 26, 2012

What distinguishes co-operatives from business firms?

A South Asian perspective in measuring the efficiency of co-operative enterprises.

Studied the co-operative movements of South Asia; Nepal, India, Bangladesh and Sri Lanka

Examined the trend and impact of co-operatives and identified the best cases in South Asia.

Background

Rapid globalization and recent failures of privately managed banks and financial institutions

Public and co-operative enterprises facing pressure from private enterprises

Background

To elaborate the role and efficiency of co-operative enterprises when competing with private enterprises

To demonstrate that it is important for coops and private enterprises to co-exist in the competitive market 

Purpose

Public and government enterprises are being rapidly privatized globally

Privatization adversely affects the population

Private enterprises emphasize on profit sustainability and growth of the business benefitting few owners and senior executives

Issues

Privatization poses competition and a new challenge for co-operative enterprises

Co-operative enterprises would be the best alternative in this Public-Private tango with its restructured new face

Issues

Draperi (1997) shows the importance of cooperatives on the verge of de-regulated capitalism and a state managed regulatory system

The cooperative sector versus contemporary globalized capitalist multinational private sector

Literature Review

Primary data from cooperatives and individuals

Secondary data from publications and international organizations database

Data analyzed in SPSS software

Data Sources and Analysis

DEA was originally proposed by Charnes et.al (1978)◦ a linear programming procedure for a frontier analysis of

inputs and outputs. ◦ assigns a score of 1 to a unit only when compared with

other relevant units◦ assigns an efficiency score of less than 1 to relatively

inefficient units for estimating the relative technical efficiency (TE) of production activities

DEA is commonly used to evaluate the efficiency of a number of products or services provided by an organization

Data Envelopment Analysis (DEA) Model

Data Envelopment Analysis is concerned with comparing the efficiency of Co-operative organizations at the local, district, and central levels.

If there was a single input and a single output, it would define a measure of efficiency. If every one could agree on a common set of weights that would end the story, however, people cannot agree.

Measuring Efficiency of the Cooperative Organizations

DEA allows units in the systems to choose their own weights in the way, which is most advantageous to them.

If the unit is inefficient, even with the set of weights which is most favorable to it, then there are serious grounds for investigating further.

Measuring Efficiency of the Cooperative Organizations

Health care institutions

Education (schools, universities)

Financial Services (banks and co-operatives)

Manufacturing , Benchmarking, Management Evaluation, Fast Food Restaurants , Retail Stores

Model Applicable to

Fi(y,x | C,S) Gross Profit and Capital Inputs:

◦ X1=Total Share Capital ◦ X2= Ratio of AM/TM◦ X3= Ratio of TS/TM

Output:◦ Y1= Total Profit

  Fi(y,x | C,S) Per Capita Profit and Capital Input:

◦ X1= Per Capita Share Capital◦ X2= Ratio of AM/TM;◦ X3= Ratio of TS/TM and

Output:◦ Y1= Per Capita Profit

DEA Efficiency index

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 300

0.2

0.4

0.6

0.8

1

1.2

Results: Data Envelopment Analysis

30 cooperatives under study

DEA

Effi

ciency

index

Gross Profit and capitalPer Capita Profit and capital

Using a threshold of 0.75 on DEA efficiency index . Out of 30 coops there were◦ 7 (23.34%) efficient cooperatives in terms of Gross Profit

◦8 (26.67%) efficient cooperatives in terms of Per Capita Profit

Number of efficient Coops

In order to characterize the efficient and inefficient cooperatives, I used qualitative traits of the coops under observation

Efficiency Results Analysis

27% (8) of the co-operatives were found efficient or nearer to efficiency in terms of per capita profit◦ minimal but qualified and professional staff, who is

assigning optimum workloads. ◦ higher and regular participation of board members ◦ regular and pro-active participation of general members

in day to day business, services and management◦ regular savings and credit mobilization program in

different schemes of business◦ careful in using the balance or surplus money in their

own co-operative’s business activities◦ very high business turnover and a limited number of

members are retained to maximize per capita income.

Traits of Efficient Coops

◦ encouragement to women members to remain active and participate regularly in cooperative activities

◦ Selected women members are taken to observation tour of best practiced projects in different parts of the country

◦ Women members are trained and motivated by the management staff to start small income generating activities like goat raring poultry vegetable production Sewing knitting petty trade vegetable and fruit vendor

Efficient Coops: Women members

Regular training provided to members

each member is running at least one income generating business activity

full understanding and maintenance of faith among board members, management staff and general members

Co-operatives are also involved in the social events or problems of their members’ community - marriages, deaths, emergencies

Efficient Coops: Member participation

maintaining strict budgetary control and business planning: expenses are incurred either to make more income or to provide quality services to the members

wholesale business and services and promoting to member co-operatives only .

standard and uniform pricing policy and minimum-profit margins which increase the volume of business and maintain faithful understanding among the business members

presence of unions to advocate on behalf of the member societies

Faithful understanding and strict to contractual agreement with business parties (members, banks, producers, suppliers, non-member bulk buyers like government agencies)

Efficient Coops: Business aspect

Incapable and careless board members.

Some of the board members took portion of the working capital away ◦ as an advance without paying any interest◦ without a time-bound document signed to settle the co-operative

assets◦ sometimes even took away without proper accounting records

Overstaffing due to hiring of unskilled and unprofessional staff through a coercion-hiring attitude of the board members

non-active and non-participative board members

managers who are non-transparent towards the board and general assembly

political or personal bias when passing resolutions in the general assembly and in the board

Inefficient coops: Board members

a severe lack of education, training, and motivation among the members

lack of communication between members resulting in an automatic loss of business

no budgetary control and no attempts are made to minimize unproductive expenses. It was also found, in our observations and discussions, that the members blame each other for the wrong doings

non-activeness and non-participative trend of the members in any business activities of the co-operatives

knowingly or unknowingly the results of their action (fraction of board members, members and staff) go wrong and cause failure of projects, which makes the members suffer economically

Inefficient coops: Members

Purpose Co-operative Sector

Business

(Members)

Service Driven and

Limited Profit

Private Sector

Business

(Investor Owned)

Profit-Driven

Public Sector Business

(Government) Mix of Service

and Profit-Driven

Ownership Ownership vested in

members

Ownership vested in

capital

Ownership vested in State

and / or Capital

Owners Member users Investor owners of

capital

Investor and/or state owners of

capital

Differences between co-operative (members-owned), private sector (investor-owned), and public sector (government-owned) businesses

Purpose Co-operative Sector

Business (Members)

Service Driven and

Limited Profit

Private Sector

Business

(Investor Owned)

Profit-Driven

Public Sector

Business

(Government) Mix of

Service and Profit-

Driven

Voting One vote per member

irrespective of number of

shares and usage

Number of votes depends

on number of shares

owned

Number of votes depends

on number of shares

owned

Management Management responsible

to members

Management responsible

to capital

Management responsible

to investor and/ or State

capital

Shareholding Usually one share for each

member Or

shareholding in limited

proportion

Changing value of shares

and no limits on shares

owned

Changing value of shares

and any limits on shares

owned dependent on

legislative requirements or

the Acts.

Co-operative enterprises are increasing moderately and have increasingly competitive role in the socio-economic sectors.

Public enterprises have decreased in numbers and have a diminishing role in the economy.

Private enterprises are increasing in numbers with higher coverage - technology of work and have an increasingly greater role in the economy

Conclusion

The co-operative will remain as a public-private partnership organization controlled by the public at large and its members and operate business in co-operative form and continue to grow in the future balancing the economy.

Conclusion

Review of International Cooperation, No 101, ICA, Geneva, 2005  Neupane, Shanta RS (2006), Co-operative Movement: Its role in the Economy of

Nepal, An unpublished PhD Thesis, Jamia Millia Islamia-Central University, New Delhi, India

 Birchhal, W. (1994) Co-operatives A Members Business, Manchester University Press, Manchester, UK

World Development Report 2007, World Bank, Washington DC Frontiers of Development Economics: The Future in Perspective

Edited by Joseph E. Stiglitz, Gerald Meier, Published in April 2002, Oxford University Press for World Bank, Washington DC

Development, Trade, and the WTO: A Handbook, Edited by Bernard M. Hoekman, Philip English, Aaditya Mattoo, Published in June 2002, World Bank, Washington DC

Global Issues for Global Citizens: An Introduction to Key Development Challenges Edited by Vinay K. Bhargava, Published August 2006, World Bank, Washington DC

Tatyana P. Soubbotina (2004), Beyond Economic Growth: An Introduction to Sustainable Development, the World Bank, Washington D.C.

Jean-Francis Draperi, (1997) Co-operatives’ Role in Building Markets, Chief Editor of Co-op Journal ‘RECMA’, France 1997

Muhammad Yunus, (2005) Grameen Bank at a Glance, Grameen Bank, Dhaka, Bangladesh

References

Thank you for your attention!