ORISSA STATE COOPERATIVE BANK LTD.
BHUBANESWAR - 751001
DO. No. _____________
Dated 17th Feb. 2000
S. N. Tripathi
Managing Director
Dear Sri Subrahmnyam,
Kindly recall our discussion regarding a brief resume
about my
visit to Israel. I am trying to recollect some pieces of wisdom at
the International Institute of Histadrut, Israel. This may be
published in the NAFSCOB Bulletin for wide circulation.
Yours sincerely,
(S.N. Tripathi)
To
Sri B. Subrahmnyam
Executive Director,
NAFSCOB, Mumbai.
Memo No.15763 /dt. 17-2-2000
Copy along with copy of enclosure communicated to Mr. Zvi
Galor,
Academic Director, International Institute of Histadrut, Beit Berl,
Kfar Saba ? 44905, Israel for kind information.
MANAGING DIRECTOR
Dear Subu
I am sending herewith a copy of my note prepared for my
bank. I
have shared this concept with many peoples and all have appreciated
this new concept of share = to fixed assets divided by no of members.
Details are in article.
For information
Surendra Nath Tripathi
An alternative view of Cooperatives of India
By Surendra Nath Tripathi
Managing Director
Orissa State Cooperative Bank, Bhubaneswar
India
WHAT IS A COOPERATIVE?
A cooperative is an association of persons united
voluntarily to
meet their common economic, social and cultural needs and assistance
through jointly owned and democratically controlled enterprise. The
above definition of cooperatives accepted under International
Cooperative Alliances appears to have been modified by the new
approach to provide best possible services (NOT HIGHEST) at a lowest
(NOT CHEAPEST) possible cost. Mr. Zvi Galor, the Academic Director of
the Institute of the Histadrut, Israel, whom I happen to meet, is a
staunch advocate of the above concept. He has made distinction
between SAVING AND CREDIT cooperatives and CREDIT AND SAVING
cooperatives. The saving and credit cooperative are those societies
where members save their money and cooperative is able to allocate
credit to its members mostly out of this savings. The credit and
savings cooperative are those, which provides loan to their members
by borrowing money from external sources even from non-members.
1. OWNERSHIP OF COOPERATIVES
We all believe in equal ownership of members in
cooperatives as
all members are one and equal irrespective of their value of share.
This is neither feasible nor practicable. How can a member with ONE
SHARE OF Rs 100/ can be equal to a member like State Govt. with a
Share of Rs 2000 lakhs? Unequal member cannot become equal and some
shall continue to be more than equal is unless they are really equal.
They can become equal only if value of each share is not only the
same and equal but by definition no member can hold more than one
share. The share of the members should express the real value of
fixed assets of the cooperative. Each member should have only one
share and value of the share should be decided by purely mathematical
principles. The value of share of a cooperative must be equal to the
real cost of fixed assets divided by No. members.
Value of share = Value of fixed assets
Number of members
This concept can bring success to the cooperatives, as
this will
ensure democratic functioning of cooperatives including management.
This will encourage non-members to become members of the cooperatives
as the value of share will not be nominal value on the other hand it
will have linked to the market value of fixed assets divided among
the No. of members.
Today the ASSETS i.e. own fund, buildings and other assets
of many
cooperatives in India do not belong to the members. Fore example OSCB
has own fund of Rs. 83.84 crores whereas the value of share capital
is only Rs. 24.55 crores which belong to 691 members/organizations
including State Government. Theoretically on liquidation of
cooperatives, members are expected to get the real value of the share
which never happens.
2. MEMBERSHIP
Another major exception is the cooperative sector is
inclusion of
new members. Since value of one share of cooperatives is divided by
the above principle, their bylaws or direction of any institution
outside the cooperative can no decide his market value of the share
price. For example if a society consisting of Rs.10,000/-. If 10 more
members are added i.e. the membership exceeds 20, the value of share
of each person will be reduced to Rs.5000/-. The new members will
contribute to the share capital @ Rs.10,000/- and Rs.5000/- collected
so from 10 additional member will be repaid back to the old 10
members. This brings equity and equality and participation of all
members.
3. MANAGEMENT
The Cost of Management (COM) of the society should be
based on the
actual Cost of Management excluding contribution to be made for
purchase of fixed assets like land, buildings, etc. The management of
the society by the officials could be on contractual basis where the
employees of the cooperatives engaged by the Board of Directors of
the society are paid a fixed wage or pays salary plus incentive on
each unit of service to the members. In a consumer society the value
of sale price of the members should be equal to purchase price plus
Cost of Management without any provision of additional profit.
Similarly, in Producers cooperatives the purchase price to the
members should be equal to highest market price minus Cost of
Management. This will enable the members to get the best possible
service at the lowest possible price.
4. RESERVE
The Israel concept of cooperatives totally based on
creation of
reserves in meeting the so-called unforeseen situation. The reserves
are generally created out of surplus. The surplus means the society
is charging to its participating members not only the cost price of a
particular service but a little more than that. For example if the
costs of deposit is 11% and Cost of Management is 2% , the members
receiving loan from the credit cooperatives should not be charged
more than (11+2) 13%. Similarly, in Producers Societies, if the sale
price of Potato is Rs. 1000/- per qtl. And Cost of Management is
Rs.200/- for transaction the members should not be paid less than
Rs.1000/- -Rs.200/-) =rs.800/ per qtl. Any reduction in payment to
the members or any higher collection from the participating members
for creation of reserves for any purpose necessarily means the
members are not getting the best possible services at lowest possible
price.
In other words the participating members are punished by
being
charged higher to create an assets which does not belong to them or
has not been created by equal participation of all members. This
brings inequality and in the process there is a problem of
non-participation of members. Less you participate less you
contribute to the reserves. Less you contribute to the reserves, less
you are the owner. Hence passive or no-association with the
cooperatives is becoming the order of the day.
Another argument generally given for creation of reserves
is to
meet the unforeseen situation. For example, non-recovery of loans or
deferred payment of dividend to the members. The argument given in
Israel is that why should a participating member contribute to the
reserves which is to be used against the bade debt not paid by
another member or to be paid as a dividend later which will be reduce
in its real market value due to inflation. This is again a premium on
non-participation. The phenomenon of reserve fund prompts
cooperatives to generate more profit by charging more than the
operational cost to the members and pay income tax to the Government.
This means that the profit is not distributed to the members and is
accumulated in reserve fund i.e. a good money of members is forced to
become bad money due to inflation even if the same is repaid back to
the members later. An active member in the process gets punished and
pays more to the reserve fund.
5. FEDERATION
The role of the Federation has been re-looked by the above
experiment and is expected to charge market price for their services
rendered to their primary users are being charged higher for the
services rendered to them in comparison to the market situation as
well as through cooperatives. The primary should play the role of
Federation and become members of the Federation based on the policy
of give and take. Here also concept of equal share holding should be
encouraged. Pricing policy being practiced by many cooperatives aims
at creation of profit. The generation of profit or any cooperative
generates surplus are originally not distributed among the members on
equal basis but often they are supposed to wait for the next AGB
meeting which takes place during the next 3-6 months. By that time,
there is erosion of real value of their money; the net result is
continuous erosion of real value. Similar is the case of interest
rate being offered to the members on deposits. The cooperatives must
serve the members at the competitive price without creation of profit
or surplus. This means that in an saving and credit cooperative, the
policy should be to offer members on their fixed deposit and interest
rate which would be competitive and higher than other financial
institutions.
6. HISTORY
Credit cooperatives were founded in Israel in the 20th
century.
These cooperatives were called credit funds and were founded when
JEWS came to Palestine at the end of 19th century from Eastern
Europe. This concept of cooperatives is very much nearer to the
establishment of Community Village i.e. Kibbutz. Kibbutz is
closely-knit egalitarian community based on common ownership of means
of production where all confer together take decision by majority. It
is almost 100 years ago a small group of people from Eastern Group,
inspired by social ideas set up the first KIBBUTZ on the shore of
Galilee. The above kibbutz was based on the cooperative discussed
above. Now Kibbutz is diversifying towards Dairy and other high tech
industry areas in addition to modern high tech agriculture.
7. FACTORS OF PRODUCTION
Cooperatives are economic institutions. They are not
formed to
distribute social charity like Rotary Clubs etc. Any cooperative
which assist its members towards production, market or supply of
input should look into the triangle of production i.e.
Credit+Input+Marketing. The Credit cooperatives are free to convert
themselves into Commercial Banks and create fixed assets by making
enough profit as soon as they loose their cooperative character. In
view of fiscal sector reforms undertaken by many developing countries
who are converting their affectionate economy with no or low subsidy
the cooperatives can emerge an instrument of development process. It
appears that the time has come to take a re-look over the
cooperatives in India to enable real members to join the
cooperatives.