Businesses cannot function without capital, and co-operatives are no exception. Whilst they have the ability to borrow (loan capital), as well as meeting working-capital requirements they need to fund their long-term business for which purpose they generally need some form of long-term risk or loss-absorbing capital. Co-operative capital generally comes from either members by way of share capital, or retained earnings (reserves). By definition, retained earnings take time to build up, and are obviously not available at start-up. Historically, co-operatives were funded by cash deposited by members, at a time before high street banks met this need. Members kept their savings at the co-operative, and could withdraw them as and when needed.
The Alliance's Survey of Co-operative Capital, released in February 2015, examines all the debt and equity instruments used to finance the assets and operations of co-operatives. The report looks at capital in co-operatives around the world. It tries to explore how to access additional member capital or external capital while still adhering to co-operative principles. The research also focuses on the special circumstances that apply to smaller and start-up co-operatives, providing an overview of selected programmes and innovations internationally. The survey includes references to new and smaller co-operatives, as well as some of the global 300 and financial co-operatives.
The need to determine a financial proposition
Co-operatives have to find a financial proposition, which provides a return, but without destroying co-operative identity as a means to accessing capital. The Blueprint sets out the challenges clearly. Co-operatives used to be a place for members to store their money, until banks became more mainstream and offered a better return. Read more.
The Blueprint describes a range of ways, which it calls "possible or indicative actions" which have already been suggested in order to prompt discussion and action:
- Promoting and encouraging generally the funding of cooperatives by existing members
- Ensuring that co-operatives have a clear proposition to make to providers of funds
- Promoting the inter-change of ideas and experiences between jurisdictions in relation to capital and financial instruments
- Developing a modern generic financial instrument which is classed as risk capital and meets the needs of co-operative businesses and co-operative funders
- Developing a range of variations to the generic model to suit different sizes of co-operative and sectors
- Identifying institutions which can act as aggregators or intermediaries for businesses (large and small) needing capital
- Utilising the Global Development Co-operative Fund to demonstrate establishment of the co-operative as an asset class
- Undertaking research on changing attitudes and motivation for funding, and for new financial instruments
- Reviewing risks and opportunities created by the use of subsidiary corporate entities, and other group structure arrangements, and the creation of co-operative groups or clusters to address capital accumulation
- Building the case for co-operative capital as an inspirational model, compared with debt and profit-seeking capital
- Creating a co-operative specific index to measure growth and performance
- Advocating for accounting standards that recognise the unique attributes of the co-operative model
- Accelerating global trade between co-operatives through broker arrangements and shared service structures