Major Sources Of Co-operatives Finances

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SOURCE OF CO-OPERATIVE SOCIETY FINANCE

As a discipline finance is a body of facts, principles and theories which deal with raising (e.g. by borrowing or using ( e.g. By investing) of money by individuals cooperatives firms governmental organisations. 

Evidently, there are different sources of finance usually open to cooperatives. These sources are grouped as owned capital or borrowed capital.

The sources used by cooperative societies differ from country to country and from the nature of the co-operative society. The numerous sources available to cooperative societies are grouped under;

Owned capital (external sources).

 And borrowed capital (external sources)

1. OWNED CAPITAL

Owned capital is contributed from within the cooperative complex. (Cooperative complex refers to the members of the cooperative). Owned capital is comprised of share capital which is known as equity or risk capital and Reservers.

Only capital is regarded as that part of a cooperative society's financial resources which remains in the society and is not repayable at any future date with the exemption of the share contributions repayable on a member's withdrawal or expulsion.

Classification of Owned Capital:

Under Owned capital, we have SHARE CAPITAL and RESERVES.

(A) SHARE CAPITAL.

Share capital is money contributed by members of the cooperative when they join the society and by any subsequent payments. Such contribution is made to make their cooperative society functional.

In some countries like Germany for instance such share capital contribution is as a result of membership why in a country like Britain, it is a precondition for membership. Members are obliged to contribute such shares capital. 

The level of the share value is usually fixed at the cooperative society's discretion, though in some countries the bylaw and cooperative law or legislation provides certain minimum amount.

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(B) RESERVES.

Reserve as a source of owned capital is also known as common or social capital.

Reserves are funds created and maintained within the cooperative business Enterprise for different reasons but most especially as a form of security against unforeseen negative eventualities.

Reserves can be classified as statutory or voluntary.

Statutory Reserves derive their existence from the relevant laws (Statues) which require that they may be created the irrespective of whether members like it or not.

Voluntary Reserves derive their existence from the free will of the members who maintain them as a result of their confusion as to the advantages and necessity. It is usual that the voluntary reserves are created only after the requirement of statutory reserves have been met.

2. BORROWED CAPITAL.

Borrowed capital is finances (funds) sourced from outside the co-operative complex that is from the third parties.

The need for borrowed capital arises due to the limitations of share capital and reserves capital. This fund does not remain permanently in the cooperative. It is normally repayable at fixed predetermined date or interest. This interest motivates the lenders. Thus, the loan does not bear risk. The authority for borrowing would usually come from the general meeting.

 Cooperative will need borrowed fund when share capital and reserves capital are inadequate to finance projects.

The authority for borrowing usually comes from the general meeting because they are the people who will bear the risks. It is usual for the general meeting to fix the limit which cooperative can borrow.