Democratic Governance and Member Capital Stakes in Cooperatives

Are member capital stakes important to the performance of cooperatives?
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This paper attempts to review the literature on democratic governance at the cooperative level and its relationship with members' capital stakes.

The paper argues that there is a close positive relationship between:

  • The extent of member capital stakes in a cooperative;
  • The extent of member participation in the decision making processes;
  • The quality of services provided by the cooperative;
  • The performance of the cooperative and member satisfaction.

It states that if the members have a higher capital stake in the cooperative, they are more likely to take interest in the decision-making processes of the cooperative, influencing the cooperative to provide services that are relevant to the members, thereby enhancing the performance of the cooperative as well as member satisfaction.

The paper also argues that financing strategies in cooperatives that give high priority to the internal mobilization of funds as the primary source of funds will result in better and more sustainable performance than those that give priority to external funding sources.

To support its argument, the paper presents evidence from Indian cooperatives. It finds that:

  • There are two types of controls in organizations, the 'market type' and the 'hierarchical type';
  • Business enterprises use more of the market type of controls, while developmental organizations use them less;
  • The best path to member satisfaction might be through generating funds other than share-capital.

It concludes by describing two strategies for mobilizing funds, namely the 'mutual' strategy and the 'bank' strategy.

About this Publication

By Reddy, K., Srinivasan, R., Sriram, M. & Raju, K.