Cooperatives are groups formed by individuals to meet their diverse financial needs. It is formed by either a person or a group of people who pool resources in the form of savings to invest or lend to members of the cooperative.
It is a voluntary association established for the mutual benefit of all members working towards their common cause. The cooperatives are founded with the idea of supporting each other in order to achieve a common economic goal.
For example, farmers can join forces and form a cooperative to work together and benefit from economies of scale. When they work together, they have better bargaining power when buying commodities. They also enjoy better bargaining power when selling their agricultural produce.
Basically, cooperatives work to meet the needs of the community directly, encourage collaborative entrepreneurship and economic growth, and provide small loans to their members, among other things. In addition to contributing to social growth, another purpose of a cooperative is to make a profit.
Co-ops go through a lot of planning, funding and preparation before they start. Therefore, they expect good and encouraging returns. Traditionally, co-ops make investing fairly easy for their members. When members join an existing co-operative, they may be required to invest a nominal amount and then agree to invest over time by allowing the co-operative to retain or retain a portion of each year’s cooperative profits as equity.
So members must invest in their cooperative and not just use or patronize it. In other words, members who do business with other companies can only buy or sell, but in order to do business with their cooperative they must also invest.
Some cooperatives allow their members to borrow, while others allow members to buy items at cheaper prices as they make large purchases from members’ savings.
Being a member of a cooperative allows a person not only to save money, but also to get small loans with little or no interest to fund projects. Cooperatives can be formed either with members of a religious organization, professional associations, or even within workers in business organizations or government agencies.