Internal capitalization: self-financing is a cooperative duty

Mascha MiddelbeekAgriterra

7 May, 2015

© Agriterra 20141

Cooperative relations

• Transaction relation

• Financial relation

• Control relation

Cooperative entreprise needs finance

• Short term : working capital and expenses

• Long term: assets and investments

Financing

• Internal capital

• External capital

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Risks

• Internal capital risk for the cooperative or members (sometimes external parties participate in internalcapital)

• External capital risk for the external financers (banks)

•

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Balance sheet

(possessions)

Assets: 100

(financing)

External capital: 70

Internal capital: 30

Why Internal and External capitalInternal• Trust• Economic activity• Buffer• Sustainable• Cost effective• Equity

External• Growth• Diversification (more and other activities)• Be more cost effective• Be more competitive• Serve your members better• Attract more members• Add more value!

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The paradox

Conflict of interest

• Short term: member expects the highest payment forhis product

• Long term: the cooperative needs equity for its futuredevelopment and continuity

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Modalities of internal capital

Institutional capital or base capital

• retained surplus

Member capital

• Shares (transferable or non-transferable)

• Member accounts, -deposits, -certificates/bonds

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Member capitalCommon shares

• Proportion according by-laws

• Only for members

• Dividend according by-laws

• Dividend in cash

• Non transferable

• Right to vote on general assembly

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Member capitalSpecial shares

• Voluntary investment

• Flexibel capital

• Issue and withdraw by cooperative

• Members or non-members

• Dividend will depend on profit

• Dividend in cash or in shares

• Transferable or non-transferable

• No voting right

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Member capitalMember accounts

• Transaction based

• Compulsory according by-laws

• Only for members / users

• Market interest rate

Member deposits, - certificates, -bonds

• Voluntary investment / deposits

• Flexible capital

• Members only

• Attractive interest rate or dividend

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Admas Case

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Admas Case

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ZONAL OFFICIALS•Chief Administrator•Ruling party leaders•Public relation •Head of dept. of cooperative

District level authorities •Chief Administrator•Ruling party head•Public relation•Head of coop office

•Assistant cooperative promoters•Development agents

Create awareness about the business plan and internal capitalization processTo cover ten districts by using government structure

•P.coop executive committee•Kebele chairmen

Farmer’s

Admas Case

Internal capitalization action plan

• Consultative workshop with 20 PCS to outline and discussIC strategy

• Additional GA organized to decide on appraoch, # of shares, etc

• Workshops with

– Zonal administration, CPA and other stakholders

– District administraion, cooperative experts and promotors

– PCs and model farmers

• Brochures and radio campaigning

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Admas Case

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Consultative workshop with 20

PCS to outline internal

capitalization strategy

internal

capitalization

strategy developed

in participatory

manner

20 cooperatives from

different districts

participants:

45 chair men and secretary of primary coops and board members of the

union participated. In this meeting;

• the business plan of semi –refinery and feasibility,

• how internal capitalization plan will be effective and

• the stand of this selected coops towards the business plan and

• internal capitalization were verified additionally the leaders were very

interested vow to implement the process in their own cooperative.

Organize Additional General

Assembly in order to decide

about internal capitalization and

issuing shares

AGM approves

strategy

To create common

understanding about

the financial

capability of the

union, the business

plan.

71 cooperatives 197 the general assembly members were participated.

In order to change the mindset of the farmers

The whole business plan presented

Business ideas about share and the return on share

Approves the business plan and the internal capitalization process

How to collect money from the members were set.

Workshop with Zonal Chief

administrators , Department of

cooperatives, ruling party leaders

and other stakeholders

Mobilize joint efforts

to make farmers

aware about the

farmer-led business

venture ADMAS is

going to set up

50 people 60 zonal authorities participated

The business plan presented

Internal capitalization and coops developments to the rural economy

presented

All the officials were very interested and decided to be part of the

mobilization

Share Growth

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-

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

3,000,000.00

3,500,000.00

SHARE GROWTH/ ዕጣ

Factors influencing shareholdingSignificant - positively influencing

• model farmers

• training (on internal capitalization, cooperative principles)

• cultivated land size

• access to mass-media

• dividend payment by PCs and Union

• access to output marketing service

• level of transparency and accountability of PC

Significant – negatively influencing

• amount of non-farm income

• distance of the cooperative

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Pre conditions

• Good governance and sharp supervision

• Vision and strategic business plan > 3 years

• Highly professional management

• Member involvement and commitment

• Entrepreneurship / business approach

• Accurate bookkeeping and healthy financial management

• Transparancy

• Say what you do (strategic plan, budget and business plan)

• Do what you say

• Show what you did

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Take home messages

• Self financing is a cooperative must

• One of the main reasons cooperatives remained weak

• Right preconditions in place

• Different modalities possible, however limited knowhow on how to operationalize

• IC should become a priority in the sector.

• The sector needs to pay more attention and assess howvarious modalities can be promoted and employed.

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