The Business of financing Cooperative Societies: GENERATING FUNDS

The ability of any business to grow financially is dependent on how much income it generates, not to mention that the income must far exceed its expenses. For Cooperative Societies, the trend is the same. Like any institution, they require money for their operations and this money is gotten from different sources that are approved by the laws and bye-laws of the society. As was the norm even before the legalisation and introduction of structure into the business of cooperatives, the traditional cooperatives were funded by its members and that hasn’t changed. Although now, other means of earnings have been explored.

Don’t forget that this article is talking about the business of financing cooperative societies. Here are some ways cooperatives source for funds:

The Entrance Fee: This is a pre-condition for acceptance of members into the society, determined by the society and included in its bye-laws.

Ordinary Savings: This is the regular savings members have agreed to pay mostly on a monthly basis. At Prime Asset Housing Co-Operative Multi-Purpose Society Limited (PAHCMS LTD), this regular savings can be as low as N1, 000 and as high as whatever your capacity is. This figure is as low as N1, 00 because it is a cooperative society with the initiative of helping individuals to not only own a home but also achieve their dreams whether in business or in their personal lives.

Interest and Dividends: When cooperatives invest in shares and other businesses, extra income comes into the purse of the society from the dividends and interests received from these investments. Sometimes, money from the cooperative can even be put in fixed deposit to generate a substantial amount of interest on such savings. Also, interest on loans granted is another way income is generated. The rate of interest is determined by the society at its General meeting but in most States in Nigeria, it is determined by the State Government.

Reserve Fund: This is indivisible and no member of the society is entitled to it. As the name implies, it is a fund that has been reserved for rainy days and can only be utilised subject to the approval of the Director of Cooperative Societies for the expansion of the business of the society.

Grants: When specific projects are handled by the society, one of the ways of getting funds is by applying for grants. The International Cooperative Alliance, United Nations Development Programme and other international non-governmental organisations have given grants to cooperatives in other to enhance their relevance and promote effective performance.

Revolving Fund: This is a good method of financing short term or even long term business projects and usually involves all members. The amount to be contributed is fair and usually involves the volume of business done with the society by an individual member. This fund can be operated in either two ways

• By deferring the payment of dividend or interest on shares to members to finance an urgent business. When this method is used, the business to be invested in is agreed on by all members and must be one that can pay back the money invested in it over a foreseeable period so that members can be paid their deferred dividend or interest
• Deduction of an agreed percentage of the sales proceeds to members on each weight of goods sold. Such deductions are meant for specific projects to be executed over a period of time. A certificate of deduction should be given to each contributing member and at the expiration of the agreed time, refund is made to contributors with interest.

Other ways funds are generated include debenture, subvention and loans from financial institutions or other cooperatives.

How well the funds of a society are managed will determine the result of its operations in terms of its annual turn-over, net surplus of the society and eventually, its continued existence. It is therefore not enough to know how to generate funds but to also appropriately disburse and manage them.

As always, keep your dream alive!