Objective:
To enable people to understand the role of primary cooperatives in relation to income-generating microprojects and see how they can contribute to the development of their cooperative.
Method:
1. It may first be necessary to explain the role of a cooperative as an input supply business. The following points are important:
A cooperative is a business. It is a business owned and controlled by its members and is intended to provide the services its members require.
Rural people need inputs for their farming activities and other enterprises. They need to be able to go to a shop and buy them, paying cash if they can or negotiating a credit purchase if they cannot.
This is a service that a cooperative can provide - buying and stocking the inputs their members need to run their enterprises. They can buy things in bulk, which is usually cheaper, and try to sell to their members at reasonable prices.
Members are important because they provide the capital a cooperative needs by buying shares and by buying the goods that the cooperative stocks.
The cooperative management have to be able to plan the business well. They must be able to calculate their costs and ensure they their selling prices will cover these costs. If they sell on credit, they must be able to get the rest of their money when it is due and need to keep good records of this.
The money they get back from selling goods is used to buy more goods to sell.
A successful cooperative will know how much to stock of each item, how fast they can sell it, how long they must allow for reordering, which suppliers to use, how to look after goods in stock and how to keep good records.
Successful cooperatives must make a surplus or “profit” in order to keep a reserve fund, invest in new facilities, expand the business and, if possible, give members some reward for their capital investment.
2. Community groups who would like to see a more effective cooperative operating in their village or kushet/gott, can get involved by becoming members and participating in meetings. Members can always ask for a meeting to take place if there is something important to discuss. If it is difficult for poor households to join a cooperative because of the need to pay membership fees or buy a share, this should be raised with the cooperative management. It is very important that people do pay their contributions but it may be possible to arrange some form of deferred payment or joint membership scheme.
3. A supply cooperative has to work out what its members want to buy. The management could start by asking some of their members what farm supplies are needed and when. They could look around at what other people are selling and talk to other organisations. To help them plan, microproject groups could provide them with lists of the things they want to be able to buy and estimates of quantities and frequency of purchase.
4. Then the cooperative must make a plan.
They will write down all the different items and quantities that they think they can sell each month for the next year.
They will find out where to buy these things and the prices they will have to pay for the goods, including transport to the cooperative.
They will decide whether to buy in small quantities or in larger quantities, depending on how fast they think something will sell and what the price difference is.
They will check their buildings and what they have to do to make them watertight, clean and organised. Do they need shelves, or containers for tools or wooden pallets to keep sacks off the floor? Do they need locks for doors or somewhere to keep money safe?
They will decide if they need to employ extra people and who needs training to run the new business.
They will have to review their record-keeping systems and decide on policies regarding credit sales management.
They have to decide on a pricing policy for selling the items they will stock. One way to do this is to add up all their overhead costs for paying wages, maintaining buildings, buying stationery, paying for electricity and so on. These are the costs they have to cover in addition to the cost of buying the items. Then they can work out what percentage the overheads are of the total cost of buying goods. This will be the “mark-up” needed. For example, if they have to cover costs of 10,000 and they spend 100,000 on goods to sell, the average mark-up will need to be 10%. So an item which cost 1,000 to buy will be sold at 1,010. In reality some goods may have a small mark-up and others a bigger one. The important thing will be making enough to cover costs and provide a small surplus or profit for reasons mentioned above.
After this they will make a cash flow budget, writing down what they have to spend each month on buying goods and paying bills and then writing down what income they will get from sales. It is this calculation that will indicate what working capital is needed to operate this plan.
More detailed guidelines to help cooperatives make business plans and budgets will be available to the cooperative promotion staff.
5. It may be possible for a cooperative to help people buy items without stocking them in the cooperative store. They can collect orders from people; place an order for the total amount and arrange for delivery on a certain day. The staff would be on hand that day to make sure each person gets the amount they ordered and pays for it. If the cooperative has sufficient working capital, they could allow credit purchases with this system.
6. Procedures for selling items to a member should be simple but adequate to allow proper follow-up of credit sales. Each member should have an account with the society with an account number and a record of transactions, money owed, etc. When an item is sold, a sales note should be completed. One copy is given to the member as a receipt for the transaction and one copy is kept by the cooperative for essential book-keeping. The sales note will indicate if it is a cash or credit sale.
7. Where does a cooperative supply business get its capital from? The first source is members’ contributions, e.g. shares, fees, and the second is any surplus it makes from its business activities. This may not be enough to conduct the required volume of business and the cooperative will either have to get a loan or in the case of this Project, may qualify for a working capital grant. This grant, if given, would remain in the society for the conduct of future business and the general benefit of members. To qualify for a grant, the cooperative must have proved its capacity to make and implement a business plan as explained above.
8. If a cooperative does not exist in a particular area, a community group can propose a microproject to create one. This could evolve slowly from a small buying group to one that has storage facilities and can run a full input supply business. It will be up to group members to work out how they wish to develop the business.
If communities are able to support and utilise an independent cooperative supply service in their kushet or gott, it will contribute to their ability to manage their household enterprises on a long term basis. The possibility will also be there for the cooperative to move into marketing services and other activities of interest to members.
