Challenges Faced by Cooperatives

Topics: Cooperative, Housing cooperative, Consumers' cooperative Pages: 8 (2759 words) Published: April 28, 2013
“Labour can and will become its own employer through Co-operative Enterprise” - Leland Stanford

According to the International Cooperative Alliance (ICA), a cooperative has been defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. The main values that a cooperative enterprise is based on are self-help, democracy, self-responsibility, solidarity and equity. (ICA, 2013) The Merriam-Webster dictionary has defined a cooperative as an enterprise or organization owned by and operated for the benefit of those using its services. (Merriam-Webster, 2013) A cooperative generally follows a set of robust principles which include voluntary & open membership, democratic member control, autonomy & independence, member economic participation, concern for community, education & training and cooperation among cooperatives. (ICA, 2013)

My group decided to start a student housing cooperative in Exeter, which would provide affordable and sustainable accommodation to students from low-income backgrounds. Part of the idea came from the fact that Exeter has been indicated to have one of the highest ‘average student rent’ after London (Bachelor, 2012), and part of it was inspired by one of my group members’ personal story. Student housing cooperatives are common in USA and Canada, but are a first for the UK.

In this essay, I will start by talking about the challenges faced by cooperatives in general followed by specific problems faced by the group, and me in particular. Thirdly, I will elaborate on the cooperative knowledge and values that I have gained by being a part of the group and module. Finally, I will be concluding by talking about how I believe cooperators are better equipped to contribute to the political and moral life as well as my personal reflection of a cooperative.

1. Challenges faced by cooperatives in general (relating to consumer cooperative)

Cooperatives today face a range of challenges and problems while conducting business. The challenges faced by a cooperative in general mainly deal with the financials, strategy, planning and management of the cooperative. (Waner, 2001)

Financials or funding, as we know is the lifeline of any business, let alone a cooperative venture. Many a times, cooperatives (especially start-up) face various issues that relate to their finances. Typical cooperatives normally have two sources of finance or capital, namely debt and equity. (United States DA, 1994) Equity refers to ownership capital and debt means borrowed capital. Cooperatives can and do have both forms of capital. The first financial challenge that arises is the issue of equity. Consumer cooperatives do have an equity capital as members have to pay a joining fee in order to join the cooperative enterprise, but the fee is generally a nominal amount (£1), which cannot contribute much to the equity capital of the cooperative. Therefore, we can rule out equity capital as a significant method of finance for most consumer cooperatives. The second way of raising capital is by way of debt, which means that the cooperative will have to take a loan. Predominantly cooperatives have rules on how they can borrow money and banks lend to them at high rates of interest. Donations are also a method of raising capital, but are not preferred to be the prime method as they can be erratic. Even if they do have a secure source of capital, most cooperatives make the mistake of taking excessively low costs of operations, which lead to an inaccurate balance sheet. (Henehan & Anderson, 2001)

The other challenges faced by cooperatives are in the field of strategy and planning. Cooperative ventures have overly optimistic market predictions and do not account for a worst-case scenario while drawing up their strategy plan. Part of the reason for this is, that cooperatives...
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