Post on 05-Jul-2020
INDPENDENT RESEARCH PROJECT
2009
A Comparative Study of The Credit Cooperatives Under The Old Act The Orissa Cooperatives Act, 1961 And The SelfHelp Cooperatives Under The New Act The Orissa SelfHelp Cooperatives Act, 2001
Submitted by:
Saurabh Kumar (U307046)
XAV IER INST I TUTE OF MANAGEMENT
Faculty Guide:
Prof. S.S. Singh
Declaration
This is to declare that I Saurabh Kumar, a 2 nd year student of PGDM (RM) programme have
completed my Independent Research Project on the topic “A Comparative Study of The Credit
Cooperatives Under The Old Act The Orissa Cooperatives Act, 1961 And The SelfHelp
Cooperatives Under The New Act The Orissa SelfHelp Cooperatives Act, 2001” under the
guidance of Prof. S.S. Singh. Apart from Prof. S.S. Singh the other faculty advisors for my
project are Prof. B.S. Mishra and Dr. R Ganesan, VicePrincipal, Madhusudan Institute of
Cooperative Management. The project report contains the original work of the author and
highlights the analysis of primary and secondary data collected from the field study of the
cooperatives, viz. “Welcome Self Help Savings Cooperative Ltd” and the “Khandagiri Service
Cooperative Society Ltd (Mini Bank)”. The report also expresses the independent views of the
author as a result of his understanding of the subject matter and do not necessarily reflect the
views and policies of the cooperatives under study.
Acknowledgement
The independent research project “A Comparative Study of The Credit Cooperatives Under The
Old Act The Orissa Cooperatives Act, 1961 And The SelfHelp Cooperatives Under The New Act
The Orissa SelfHelp Cooperatives Act, 2001”was carried out by me under the guidance of the
Prof. S.S. Singh and was fully supported by the Xavier Institute of Management. In this project I
was supposed to do literature review on the genesis of cooperative movement in India with the
emphasis on PACS and selfhelp cooperative. Based on the development of understanding as a
result of these literature reviews and the course on cooperative management I framed the
research objective and the methodology to carry out the study in consultation with the Prof. S.S.
Singh. I would take this opportunity to thank to the members and office bearers of the
“Welcome Self Help Savings Cooperative Ltd” and the “Khandagiri Service Cooperative Society
Ltd.(Mini Bank)” for the valuable contribution and support in my research project and without
whom cooperation it would have been difficult to complete my research successfully. Finally my
special thanks goes to my parents and the XIMB family for their moral support and assistance at
all the levels of completion of project.
Executive Summary
The cooperative society is defined as an autonomous association of persons united voluntarily to
meet their common economic, social and cultural needs & aspirations through jointly owned and
democratically controlled enterprise. In this research project considerable effort have put to
understand the concept of the principle of cooperation, genesis of cooperative movement in
India, cooperative credit structure (both long term as well as short term). Here again in literature
considerable focus was given to understand the roles and functions of the primary agriculture
credit societies (PACS) and the problems of mounting of overdues faced by these societies and
their subsequent failures. Similarly, emphasis was also given to study the self help cooperatives
registered under the new cooperative act as a result of implementation of the Ch. Brahm Prakash
Committee; through till date very literatures are available on these new act cooperatives which
seek the development of cooperative movement free from bureaucratic and political hassle.
Based on the understanding of the subject matter the research objectives and methodology to
study the PACS and the self help cooperatives was framed in consultation with the faculty guide.
As a result of these one PACS “Khandagiri Service Cooperative Society Ltd.(Mini Bank)” in the
Khandgiri block of Khurda District and a SHG cooperative “Welcome Self Help Savings
Cooperative Ltd” in the Astarang block of Puri district were chosen for the study purposes. From
the outcome of the research it was found that the SHG cooperatives to be more successful than
primary societies in terms of greater empowerment increase in awareness and greater
participation of members. As a result of these considerable socioeconomic changes were also
observed among the members of SHG cooperatives. Apart from the positive change in income,
behavior, lifestyle of members, it was also found the importance of members have increased
considerably in their families and these are receiving the support and cooperation of their
husbands which was not the case earlier. The financial analysis of the audited report also shows
the sound health and greater transparency in the process of the SHG cooperative in comparison
to PACS. But inspite of these successes these cooperatives do not have provision of government
financial support and assistance on account of negligible government stake in the functioning of
these cooperative. This speaks the dichotomy of government. Hence these shortcomings are
needed to be worked out for the successful revival measures of cooperative movement in the
country.
Table of Content
Topics Page No. Declaration
Acknowledgement
Executive Summary
Cooperation & Cooperative Principle
1.1 Introduction
1.2 Genesis and Evolution of Cooperative in India
1.3 Characteristics of a Cooperative Society
1.4 Cooperative Principle
1.5 Types of Cooperatives
1.6 Categories of Cooperatives
1.7 Professional Management in Cooperatives
Genesis of Cooperative Credit in India
2.1 Introduction
2.2 Primary Agricultural Credit Societies
2.3 NABARD Roles & Guidelines on PACS
2.4 New Act Cooperative Need of the Hour
Research Objective of the Study
3.1 Objectives to Study PACS
3.2 Objectives to Study Self Help Cooperatives
3.3 Methodology
Welcome Self Help Savings Cooperative Ltd.
4.1 Introduction
4.2 Goal
4.3 Objectives
4.4 Structure of the Cooperative
I
II
III
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12
2
23
34
4
45
56
716
78
813
1315
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1718
1927
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1920
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Topics Page No.
4.5 Eligibility Criteria for Membership of the Cooperative
4.6 Functions of the Cooperative
4.7 Sources of Finance & Other Assistances
4.8 SocioEconomic Impact Upon the Members
4.9 Financial Analysis of the Audited Report
4.10 Critical Remarks of the Study
Khandagiri Service Cooperative Society Ltd (Mini Bank)
5.1 Introduction
5.2 Membership & Eligibility Criteria
5.3 Aims & Objectives of the Society
5.4 Organizational structure of the Society
5.5 Functions of the Cooperative
5.6 Sources of Finance
5.7 Overdues
5.8 Assistance From the KCCB
5.9 SocioEconomic Impact Upon the Members
5.10 Financial Analysis of the Audited Report
5.11 Critical Remark of the Study
Analysis & conclusion
Limitations
Bibliography
Appendix 1
Appendix 2
Appendix 3
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Cooperation and the Cooperative Principles
Introduction
The concept of cooperation is present since the beginning of human history. Right from the
hunting age till the present day the progress and development of human beings, in all the spheres,
social, economic, religious and political is marked by a sense of thinking, working and living
together. The word cooperation is derived from the Latin word ‘cooperari’ meaning working
together. In other words, cooperation means working together to achieve some common goal.
Thus, cooperative society is defined as the voluntary and democratic association of persons with
common economic need, working on the basis of equality, selfhelp and mutual help. Robert
Owen (UK) and Charles Owen (France) are considered as the father of modern cooperative
movement. Both of them have thought to create small autonomous association to serve as model
to the society. In other words, both of them laid emphasis on the creation of a great number of
selfcontained groups or independent settlement of communities which will employ all the
working energy of their members. This will provide solution to the question of prevailing
economic disparity in the society. They however, were not interested in bringing changes at
macrolevel but were rather focused at microlevel activities.
The Rochdale society of equitable pioneers in 1844 marked the beginning of second phase of
cooperative movement their intention was to establish cooperative communities but the first step
was to set up cooperative stores. It had a strong influence on development process and principles
which could be applied to economic cooperative organization. Thus, Rochdale society became
model for similar stores and related enterprises. With the emergence of similar cooperative
societies elsewhere in Europe, a need for cooperative alliance was felt. Hence, as a result in 1895
International Cooperative Alliance was established with the task of coordinating the activities of
affiliated cooperative federations in the various parts of the world. During this second phase of
cooperative movement some thinkers particularly Prof. Gide (France) thought of cooperative
republic. These lot of thinkers argued to build cooperative movement on the on the foundation of
consumer cooperatives. Hence the focus was on complete transformation of society (macro level
changes).
Prof Gide proposed three stages towards cooperative republic:
1. Consumer cooperative society, grouped in strong central and regional organization,
establishing wholesale societies to make large central purchases of products they require.
2. Accumulated capital will help them to purchase raw material from source and process it
to be used by associates.
3. At latter stage, it may be possible for cooperative society to buy farm and thus produce
from land all products required.
Genesis and Evolution of Cooperative in India
In India the history of cooperative movement dates back to 1875 when the farmers in the Deccan
region due to poverty and debt led agitation. In 1883 land reform cash credit act was drafted
under which farmers were given loan against land landless were deprived. During this time
Madras government became the first government to implement cooperative system to solve
problems of farmers. The registration of cooperative society during that time was either done
under Company Act of 1882 or Society Registration Act of 1860. In 1912, government passed
more comprehensive act which helped cooperative movement to grow and by the Act of 1919
made cooperative a provincial subject and provinces enacted their own cooperative law. After
independence, in 1956 all acts were reviewed by a committee appointed by government of India
and a model bill was prepared, based on which all the states passed cooperative society act. But
soon the cooperative movement in various states came under the influence of politicians and
bureaucrats and these societies deviated from their goals and objectives, and most of them
became defunct with time. So, in order to revive these cooperatives and bring them out of
influence of politicians and bureaucrats in 1995, a committee headed by Ch. Brahm Prakash
suggested a new model of cooperative “selfhelp mutually aided cooperative”. It was first set up
in Andhra Pradesh to be followed by nine other states.
Characteristics of a Cooperative Society
1. It is a voluntary association of people with similar socioeconomic status and working to
achieve the common economic need.
2. Like any other business enterprise cooperatives are also a form of business enterprise
aiming to earn profit. But the primary objective is the welfare of its members and society.
3. Like any business enterprise which has its memorandum of association, the cooperative
society also has its own set of byelaws to govern it activities and functions.
4. Cooperatives are the democratic enterprises, managed democratically. Here every
member has one and only one vote irrespective of the number of shares held by people.
5. Cooperatives works on the principle of equality of its members and selfhelp & mutual
help.
6. Cooperatives aim to bring socioeconomic change and apart from members also aim to
serve the community at large.
Cooperative Principles
The cooperative principles are the set of rules which govern the activities and functions of cooperative societies. These are discussed below:
1. Voluntary & Open Membership: Cooperatives are the voluntary organizations open to
all the persons to use their services and willingness to accept the responsibilities
irrespective of gender, social, racial, political or religious discrimination.
2. Democratic Member Control: Cooperatives are the democratic organizations controlled
by their members who actively participate in setting their policies and making decisions.
Men and women serving as elected representatives are accountable to the members of
cooperative. In primary cooperative societies every member have equal voting rights (one
member, one vote) and cooperatives at various other levels are also organized in a
democratic manner.
3. Member Economic Participation: Members contribute equitably to, and democratically
control, the capital of their cooperative. A part of that capital is the common property of
the cooperative. Members usually receive limited compensation on the capital subscribed
as a condition of membership. Members allocate surpluses for developing their
cooperative by setting up statutory reserve fund, benefitting members in proportion to
their transactions with cooperative and supporting other activities approved by
membership.
4. Autonomy and Independence: Cooperatives are autonomous, selfhelp organizations
controlled by their members. If they enter into agreement with other organization or raise
capital from external sources, they do so on terms that ensure democratic control by their
members and maintain their cooperative autonomy.
5. Education, Training and Information: Cooperatives provide education and training for
their members, elected representatives, managers, and employees so that they can
contribute effectively to do the development of cooperatives.
6. Cooperation and Cooperatives: Cooperatives serve their members most effectively and
strengthen the cooperative movement by working together through local, national,
regional and international structures.
7. Concern For Community: Cooperatives work for the sustainable development of their
communities through policies approved by their members.
Types of Cooperatives
According to the function and purpose of the cooperatives, the cooperatives are classified into following types:
1. Credit Cooperatives: To promote thrift, create fund and advances loan to members for
both business and consumption purposes.
2. Consumer Cooperatives: To procure and distribute commodities to members and non
members.
3. Production Cooperative: Undertake joint production whether agriculture or industrial.
4. Marketing Cooperatives: Engage in supply of production inputs to members and market
their products.
5. Service Cooperatives: Engage in providing services to members like medical care,
transportation, insurance, housing, labour, electric light & power and other services.
6. Multipurpose Cooperative: Combines two or more business activities of different types
of cooperatives.
Categories of Cooperatives
The cooperatives can be classified into following categories based upon their membership and territorial consideration:
1. Primary Cooperatives: Members are the natural persons. A good example is the
Primary Agricultural Credit Societies (PACS) where the framers are members of the
society.
2. Secondary Cooperatives: Members of which are the primary societies. Central
Cooperative Bank (CCB) at the district level is good example for this as its membership
constitutes of all the PACS.
3. Tertiary Cooperatives: Members of which are the secondary societies and is the apex
organization in a given region. They are also known as federations or union as the case
may be. A good example of this is the State Cooperative Bank (SCB), whose members
consist of the CCBs in a given state.
Professional Management in Cooperatives
Cooperatives like any other business entity also require professional management for its day to
activity and functions. So, when the process and principles of cooperatives are applied to
cooperative organization it is known as cooperative management. The peculiar feature of a
cooperative organization is that it has to combine judiciously the principles of management with
the principles of cooperation. The flow of authority in a cooperative organization is shown
below:
The concept of professional management refers to the training and development of management
personnel, essentially for the exercise of managerial functions. It aims at providing more and
better qualified mangers who are expected to assume broader responsibilities for the conduct of
the cooperative societies as economic and social institutions. Professional management is
Members – the general body
Board of Directors
Chairman
General Manager (chief executive)
Departmental Managers
General Manager (chief executive)
necessary in cooperatives being the democratic institution people with little or no knowledge on
cooperation come to the board and hence in such scenario the role of the chief executive
becomes very important. Thus, he is needed to professionally trained so that apart from
cooperative principles he also possess sound knowledge on principles of management and is
assisted by the set of professionally trained managers for the purpose.
Moreover, in the Indian scenario it has been found that due to providing of grants and financial
assistance to the cooperatives by government, very often government officials are deputed to the
cooperatives as managers and since most of them are not professionally trained, so this
emphasizes the importance of professional training.
Thus, the economic and social obligation of the cooperatives necessitates the sound and scientific
management.
Genesis of Cooperative Credit in India
Introduction
In India about 80 percent of the population lies in the rural areas and agriculturists and
agricultural labourers constitute about 70 percent of the rural population. The agriculture section
contribute about 40 percent of national income, providing employment to about 69 percent of the
population and accounting for about 40 percent of total export earnings. Thus, the role of
agriculture in the development of the country cannot be ignored. Development of agriculture in
India as in other developing countries depends upon many factors like agrarian reforms, supply
of fertilizers and seeds, etc. But the most important factor out of all these is the supply of timely
credit which is the backbone of all the agricultural activities. Farmers over ages have depended
upon various informal sources like moneylenders, landowners, etc. to meet their credit
requirement and in the process were exploited by them. As a result of this the state of Indian
farmers was highly miserable and distressful. Hence the cooperative movement in India was
largely build around the credit requirement of agricultural sector and even today to this date
these cooperative credit are playing an important role in the development of agricultural sector.
At present the various sources of rural credit can be divided into two major groups: institutional
sources (or formal sources) and noninstitutional sources (or informal sources). The institutional
sources of credit include the commercial banks, regional rural banks, cooperatives and
government while the noninstitutional sources include moneylenders, indigenous bankers,
landlords, traders, commission agents, friends and relatives. Among the institutional sources,
cooperatives play very important role in supplying credits to farmers and thus government play
an important role in the development and strengthening of cooperatives in the country. The
cooperative credit structure consists of both shortterm and longterm credit structures. The short
term credit structure consist of 3tier pattern with state cooperative banks at the apex/state level,
central cooperative banks at intermediary/district level and PACS at the base/village level. The
short term structure takes into account the agricultural operational requirements of the farmers
and hence the loan advanced under these structure are also called crop loan. The long term credit
structure on the other hand is a 2tier structure with state cooperative agriculture and rural
development banks at apex/state level and primary cooperative agriculture and rural
development banks at base/subdivision level. The long term credit structure takes into account
the investment need of farmers for land infrastructure development purposes. Of all these various
credit cooperative structures PACS are the grass root organizations working at the base of the
short term credit structure and are of utmost importance for the success of cooperative movement
in the country. It is in fact, the oldest cooperative organization in the country and is discussed in
detail in the following sections.
Primary Agricultural Credit Societies (PACS)
Primary agricultural credit societies (PACS) as mentioned earlier are the grass root structures
and hence the nucleus of the cooperative movement in the country. Being the base organization
of cooperative movement they provide cheap credit to farmers for agricultural operation
purposes in the form of crop loans. These loans are expected to paid at the end of harvest from
the sale proceed of agricultural produce. The PACS can be started with 10 or more persons
normally belonging to the same village. The value of each share is generally nominal so as to
enable even the poorest farmers to become the member of the PACS. The members have
unlimited liability i.e. each member is fully responsible for the entire loss of the society, in the
event of failure of society. The success of the PACS in meeting the short term credit
requirements of farmers can be gauged from the fact that the short term loan advanced by the
PACS have increased from Rs 23 crores in 195152 to Rs 203 crores in 196061 and Rs 4973
crores in 199192. Similarly, the working capital and owned funds of PACS over the period has
shown steady increase. The working capital and owned funds have increased from Rs 309 crores
and Rs 76 crores respectively in 196061 to 12141 crores and Rs 1885 crores respectively in
199192. During the period the number of PACS has also risen from Rs 1.15 lakhs in 195051 to
2.12 lakhs in 196061. But later on the number of PACS has reduced considerably due to closure
of nonperforming PACS and reorganization of these into more viable units. Hence, by the end
of 19992000 there were about 92,000 PACS in the country. The membership of the PACS over
the years has also shown the steady rise and it is estimated that by the end of 2000 approximately
10 crores farmers benefitted out of PACS. The PACS have also steeped up advances to weaker
sections, particularly the small and marginal farmers. It is as a result of these dedicated efforts of
PACS, well supported by the government machinery that the share of institutional credit in the
rural credit has increased from mere 3.3 percent in 195051 to about 63 percent in 198081. But
inspite of these successes, PACS have also failed on various accounts. Some of these failures are
discussed below:
1. PACS failed to promote savings among the members and attract deposits from members
and hence had to largely depend upon CCBs and SCBs for finances.
2. The proportion of owned funds to working capital of PACS has reduced from 24.38
percent in 196061 to 15.52 percent in 199192, showing poor financial source base of
PACS.
3. The ratio of borrowing to working capital which has been 57.94 percent in 196061 has
increased to 63.84 percent during 199192. This shows the high dependency of PACS
upon borrowings leading to its failure in longer terms.
4. As a result of all these most of the PACS have become weak and economically non
viable units unable to meet the requirements of farmers.
5. It was also observed that overdues in case of PACS were ever mounting indicating again
the failure of PACS. This is evident from the fact that the percentage of overdues to the
loan outstanding have increased from 20.18 percent in 196061 to 38.14 percent in 1991
92.
6. Last but not the least; PACS were also not able to ensure adequate and timely credit to
farmers.
A more true picture of the working of the PACS can be obtained by studying some of the PACS
operating in various regions of the country. These are discussed in the following sections.
A. PACS in Kurukshetra (A study by Mr. Anil Sharma & Mr. Pradeep K. Lal, Dept. of
Pub. Adm., K.U., Kurukshetra)
A study on the analysis of the performance, problem and prospect of the PACS has shown that
the number of PACS in the district has increased from 194 in 198586 to 202 in October in 1992.
But due to carving out of Kaithal district out from Kurukshetra only 101 PACS in the district
exists. Also the membership during the period has increased from 1,42,000 to 2,14,511. The
amount of loan advanced has also increased from Rs 2739.23 lakhs in 198586 to Rs 4215.11
lakhs in October 1992. The overdues during the mentioned period have increased from Rs
1277.44 lakhs to Rs 1686.96 lakhs. But the number of profit making PACS increased from 34 in
198788 to 172 in October 1992. A detailed analysis of the PACS by taking 10 percent of the
PACS has shown the following reasons for the problems facing by PACS in Kurukshetra and in
Haryana in general:
(a) Heavy overdues as a result of lack of will and discipline among the members.
(b) PACS have been used mostly by affluent families, while the poor sections were still
deprived off the credit.
(c) Lack of proper management of PACS. Due to interference of politicians, the books of
accounts were manipulated and loans outstanding were shown to be recovered from the
proceeds of the newly advanced loans. Thus profit existed only on paper while in actual
there was no profit.
(d) Family feuds, illiteracy and ignorance in rural areas were other major reasons for the
hindrance in the development of rural cooperative system.
In the light of these inferences, following steps were suggested to revamp and strengthen the
PACS in the district:
(a) Emphasis should be given on periodical membership drive, identification of latent credit
requirements and educating the members about the benefits arising out of cooperative
credit system.
(b) Stern action must be taken against willful defaulters. This will set the example for other
defaulters to pay their overdues in time.
(c) The concerned field staff must pay regular field visit both at the time of presanction and
postsanction stage on ongoing basis for effective supervision, monitoring and guidance.
(d) Proper maintenance of books of accounts and following sound accounting principles
must be given due importance.
(e) There should be periodical assessment and evaluation of lending and borrowers by an
independent agency.
(f) The weak and sick PACS should be merged with large multipurpose societies to create
more viable units.
B. PACS in Kerala (A study by S. Hari Kumar, Lecturer, Dept. Of Economics,
Pondicherry University)
The cooperatives have emerged as a major lending agency in the rural areas of Kerala. The total
amount of short term credit supplied by PACS has shown an increasing trend from Rs 163.4
lakhs in 195859 to Rs 99,043 lakhs in 199293. The study of the progress of the PACS in Kerala
can be seen in two periods. The first period is from 195657 to 197475 and the second one is
from 197475 to 199293. In the first period the performance of the PACS were highly
unsatisfactory as were in the rest of the country. Thus, the membership count, proportion of
borrowing members, loan issued and the deposit mobilization were very low in the first period
and the percentage of overdues to loan outstanding were very high during this period. In the
second period the PACS made considerable progress. The number of PACS came down
considerably from 2440 in 196566 to 1616 in 197879 and finally to 1695 in 199192., as a
result of merger of the weaker societies to create more viable units. As a result of this the total
number of members as well as deposits and loan advance also increased during this phase. The
deposits increased tremendously from Rs 85.3 lakhs in 197879 to Rs 117757 lakhs in 199293
and the loan advanced increased from Rs 122 lakhs in 197879 to Rs 1222985 lakhs in 199293.
Another important feature was that the percentage of overdues to loan outstanding has come to
stayed around 20 percent after 198081. Thus, the loan repayment rate has been more or less
satisfactory. It was found in the study that during 198586 there were 895 profit making societies
while the number of loss making ones was 659. The corresponding figures for 199293 were
found to be 712 and 809 respectively. As far as the problem faced by PACS in Kerala is
concerned it was found that there is a stiff completion from commercial banks in raising the
deposits. Hence, here arises the phenomenon of channel conflict as both cooperatives and
commercial banks are channels of the institutional credit fulfilling the rural credit requirements.
The cooperatives are also facing completion from various agents and brokers in this regard. This
has in turn affected the ability of the cooperatives to create sufficient credit for the purpose.
Another problem faced by the PACS is that the quantity of credit supplied to beneficiary is not
sufficient. Further the cooperatives are still following the asset based lending, which has affected
the poor section of society. Even though the cooperatives suffer from various problems,
cooperatives are still found to be keeping pace with plan targets. Thus, cooperatives are playing
major role in rural credit market of Kerala.
C. PACS in Orissa (A study by Dr. R. K. Sahoo, Lecturer, Dept. of Economics, U.N.S.
Mahavidyalaya, Utkal University)
A study on the progress and growth of PACS in Athagarh and Tigiria block of Cuttack district
has shown that there were 26 PACS and 11 PACS in the above mentioned blocks of the district
during 199899. These 26 PACS in Athagarh and 11 PACS in Tigiria block cover about 19875
and 8200 members respectively. The working capitals of these PACS operating in Athagarh and
Tigiria blocks during the year 199899 were found to be Rs 596.67 lakhs and 270.56 lakhs
respectively. Similarly the number of households covered by PACS in Athagarh block was found
to have increased from 45 percent in 199899 to 54 percent in 200203. The figure for Tigiria
block in this regard stood at 70 percent and 78 percent respectively for the mentioned period. A
study on the working capital of the PACS operating in both the blocks by considering 10 PACS
from each of the block has shown that in case of Athagarh block the number of cases of
investment of working capital in kharif and rabi crop has increased from 1650 in 199899 to
2980 in 200203, while the average amount invested per case increased from Rs 7500 to Rs
10000 for the above mentioned period. Similarly, in case of Tigiria block the number of cases of
investment kharif and rabi crop increased from 1380 in 199899 to 2445 in 20203, while the
average amount invested per case increased from Rs 6800 to Rs 9500 during the above
mentioned period. These increases in amount of investment in case of both the block have been
attributed to the increase in membership and development of PACS. This is a healthy sign of
development of cooperative movement. A study of sample of 15 borrowers from each of two
blocks has shown that the amount of credit received both in cash and kind by each of these 15
households in Athagarh has increased from Rs 2940 in 199899 to Rs 5270 in 200102. While in
case of Tigiria block the figures were found to be Rs 4175 and Rs 11250 respectively for the
above mentioned period. It was also found that majority of borrowers in both the blocks opined
to receive credit for agricultural operation purposes for purchasing seeds, fertilizers, implements,
etc. But it was also found in the study that out of the 10 PACS studied in Athagarh block 80
percent had political men as their president and 75 percent of these political men put pressure on
the secretaries of the respective PACS to advance loans to their followers. Similarly in Tigiria
block again 80 percent of presidents of 10 PACS under study were found to be political men and
87.5 percent of these were found to be pressurizing the secretaries of the respective PACS to
advance loans to their followers. The study on recovery of loan outstanding has shown that the
percent of recovery to outstanding in Athagarh varied from 65.43 percent in 199899 to 44.87
percent in 200203. The similar figures for Tigiria block were found to be 34.06 percent
and72.64 respectively. A further study on the state of indebtedness of borrowers has shown that
nearly 67 percent of borrowers in Athagarh and 53 percent borrowers in Tigiria were in the state
of high indebtedness. The reasons for this were found to be poverty prevailing in the area,
expectation of debt relief from government, failure of crop due to natural calamity, etc. Apart
from these it was also found that willful default on part of borrowers and spending of money for
nonproductive purposes like education, marriage, etc. were the other major reasons for the state
of high indebtedness of the borrowers. It was also found in the study that majority of people as
well as the secretaries agreed for elimination of political pressure in sanctioning of loans,
surveying of repayment capacity, reduction of unnecessary expenditure of the society,
elimination of government interference, grant of credit for consumption, reduction in interest
rate, etc. for improvement of working of PACS in these two blocks.
NABARD – Roles & Guidelines on PACS
In order to make PACS viable and ensure adequately and timely flow of credit, NABARD since
its inception in 1982 has been making series of steps to strengthen the weak PACS and correct
the regional imbalances in the cooperative management. Steps have been taken for organizing of
viable PACS and for amalgamation of weak and nonviable PACS with FSS and large sized
multipurpose societies. These roles of NABARD are discussed below:
1. Transforming PACS into Multipurpose Societies
PACS being the grass root organization of cooperative credit structure so considerable attention
have been paid by NABARD on the strengthening of PACS. In the review of CRAFICARD
(Committee to Review Arrangements for Institutional Credit for Agriculture and Rural
Development), it was found that there were many drawbacks in the organization and functioning
of PACS. So in order to make them viable emphasis must be given for transforming the PACS
into single contact point at the village level and PACS should deal with all types of agricultural
credit beside the present preoccupation with seasonal agricultural operations only. Beside this it
was also suggested that PACS should also provide services like marketing societies and
fertilizers suppliers, etc. On the basis of these recommendations, NAABRD issued broader
guidelines for phased transformation of PACS into multipurpose societies. The satisfactory
results in this regard were obtained in the states of Haryana, Karnataka, Kerala and M.P. But
despite the best effort of NABARD, the desired result in this regard could not be achieved. The
major reason for the failure was attributed to the lack of support from the state government and
members. Beside these other factors like low turnover in credit and noncredit activities, high
level of overdues due to natural calamities, lack of trained staffs, etc. also contributed in the
failure of programme.
2. Reorganization of PACS
The programme for reorganization of PACS was started by RBI much before the existence of
NABARD and has been completed in most of the states. The result obtained by pilot study
conducted by NABARD to assess the result of programme in UP, Gujarat and Rajasthan
revealed that despite the reorganization of PACS, many societies still failed to attain viability
and incurred losses. A careful study in this regard has shown that the viability norms are not
uniform and differs from state to state. Thus, NABARD recommended for modification of some
of these norms according to the need and purpose of the particular state. It was also found that
barring Maharashtra almost all other states have accepted the programme.
3. 15point Programme for PACS and LAMPS
During the year 198586, NABARD announced 15point programmes for the development and
improving the operational efficiency of PACS and LAMPS. The programme was implemented in
20 pilot districts. Under this 3years programme it was decided to cover all the LAMPS and 30
selected PACS operating in each of 30 pilot districts. The state government and credit
institutions have shown the favorable response to this programme. By the end of December 1987
there were 480 PACS and 158 LAMPS under the programme in 15 pilot districts. During 1986
87 there were 480 PACS and 158 LAMPS under the programme in 15 pilot districts. During
198687 NABARD also provided financial assistance in the form of grants and soft loan in the
ratio of 30:70 to meet the cost of construction of godowns and storage facilities to enable
LAMPS to procure agricultural produce from its members. The societies selected under the pilot
project were expected to develop into mini banks for mobilization of rural deposits. Under the
programme the societies were successful in providing loans and mobilizing deposits, but the rate
of recovery of loans were poor.
New Act cooperatives – Need of the Hour
The study of the cooperative movement in the country has shown that cooperative movement on
a large was built around the credit requirements of the farmers. It was also observed that the
movement did not originated at the grass root level, but was started by the government. As a
result of this increasing role of government in the cooperatives considerable politicalization and
bureaucratization of these noble institutes took place with the passage of time and large number
of these societies deviated from their vision and mission. These developments were very
damaging to the fabrics of cooperative movement in the country. So in order to revive the
cooperative movement in the country Planning Commission in 1990 constituted a committee
under the chairmanship of Ch. Brahm Prakash to prepare a Model Cooperative Act. This
committee in 1995 suggested a model for new cooperatives base on the principle of “selfhelp
and mutual aid”. By the passage of this model bill it was expected the much defunct cooperative
movement in the country will be again revived with the minimum interference from politicians
and bureaucrats. Andhra Pradesh was the first state to implement this new act which was
followed by nine other states. In Andhra Pradesh these cooperatives are popularly called as
“mutually aided cooperative societies” (MACS). Though the names of the cooperatives differ
from state to state but the basic idea and cooperative principles remains the same everywhere.
For examples these cooperatives in Bihar are called as selfsupporting cooperatives and Orissa as
selfhelp cooperatives.
In Orissa the new cooperative act was passed in the year 2001 and is known as “The Orissa Self
Help Cooperatives Act, 2001”. Some of the prominent features of this new act are discussed
below:
(i) Internationally accepted principles of cooperation, values and definitions are
incorporated in this act (schedule D).
(ii) No role of state government and hence no equity, loan or guarantee will be given
from government to cooperatives.
(iii) Registrar of the Cooperative Society will have the role to register the cooperatives
under this act, but he need not register the amendments of byelaws, but the
cooperatives has to forward a copy of amendment to registrar.
(iv) Two or more cooperative can form the secondary cooperative which can function like
central or apex society.
(v) Any person competent to contract and willing to use the services of the cooperatives
and accepting the responsibilities as member can become the member.
(vi) The GB can amend the articles or byelaws and need not to be registered by Registrar
of Cooperative Society. But the Registrar can call their legality in question.
(vii) The management of the cooperative lies with the board, which must be elected by the
members of cooperatives.
(viii) Both surplus and deficit are to be distributed among members and cooperatives can
invest their funds as per section 11 of Income Tax Act, 1961.
(ix) Deficit if any has to be analyzed on annual basis and members have to meet their
deficit in proportion to their use of service of cooperatives. No member is allowed to
withdraw from the membership without paying his share of deficit, if any.
(x) The GB appoints auditor to audit the account of cooperatives who may be either an
charted accountant or cooperative auditor or a retired cooperative/government
auditor.
(xi) Disputes will be settled by the Arbitral Tribunal which is set by GB. The Arbitral
Tribunal consist of an individual or group of individuals not exceeding 5 chosen by
GB from among the members or others whose tenure shall not exceed 3 years.
Even the cooperatives registered under Orissa Cooperative Society Act, 1962 can be
converted into cooperatives under this new act provided it meet the norms as laid in this new
act. Thus, it seems that cooperatives registered under this act are promising and will be
guided by the “principles of cooperation” to achieve their goals and objectives. But as these
cooperatives are still in the nascent stage so nothing can be predicted at this moment. It is the
time which will determine how much objectives these cooperatives will achieve.
Research Objective of Study
The research objective of the study will focus on the comparative analysis of the SHG
cooperatives visàvis PACS registered under Orissa State Cooperative Act, 1961. Thus, the
research objective is divided into two sets. The first set of objectives will study and analyze the
PACS while the second set of objectives will be used to analyze the SHG cooperatives. The sets
of objectives are discussed below.
Objectives to Study PACS
1. Functioning of the PACS (organizational structure and purpose wise).
2. Existing members and processes & the best practices.
3. Technical and financial assistance from the government and DCCB.
4. Guidelines adopted by the PACS in the overall function.
5. Impact of the PACS upon the members.
6. Reasons for the failure of the PACS.
Objectives to Study SelfHelp Cooperatives
1. Organizational structure and the purpose wise functions of the SHG cooperatives.
2. Functioning of SHG cooperatives in the absence of government aid and grants.
3. External assistance and aid from local NGO and other organizations (monetary grant,
kind, technical assistance, etc.)
4. Impact of the SHG cooperatives in its area of operation.
5. Factors leading to the success of SHG cooperatives.
6. Shortcomings of the SHG cooperatives.
Methodology
1. One PACS and one SHG cooperative will be selected for the study purpose based on
certain criteria like area of operation, geographical coverage, overall function, etc.
2. The primary data for the study purpose will be collected through questionnaire and
interview of the 10 selected members and 3 office bearers of these cooperatives.
3. The secondary data from various other sources like 3 years annual audited report will also
be collected for study purpose.
4. The collected data will be analyzed both qualitatively and quantitatively including the
financial tools.
5. Based on the analysis the result and conclusion will be made.
Based on the consultation of the faculty following two cooperatives were selected for the study
purposes:
(i) “Welcome SelfHelp Savings Cooperative Ltd” operating in the Astrang block of Puri
district.
(ii) “Khandgiri Service Cooperative Society Ltd” operating in the Khandgiri block of
Khurda district.
Welcome SelfHelp Savings Cooperative Limited
Welcome SelfHelp Savings Cooperative Ltd is a SHG cooperative registered under “The Orissa
SelfHelp Cooperatives Act, 2001”. It is operating in 7 G.Ps in Astarang block of Puri district
since 2003. The reasons for selecting this cooperative for study purpose are:
(i) Apart from being running successfully with members, the members have a dual
presence both at SHG level and the cooperative level. The logic behind this is to
allow the members to reap the benefits out of the SHG – bank linkage programme
promoted by NABARD and at the same time take advantage of the services of
cooperative in form of addition credit requirement, capacity building and other
training programmes.
(ii) Moreover as a result of these various training programmes it is assumed that the
members have attained a considerable level of cooperation education and rich
dividends and insight will be obtained from the study of the cooperative.
(iii) Also, the cooperative being promoted by the Xavier Institute of Management will
give a very good chance to study and evaluate the functions of the cooperative.
There are at present 2369 members in the cooperative distributed in 153 SHGs. With the rise in
membership over the period the current membership process has been stopped so that the
cooperative can focus to effectively serve the existing members and there is no dilution in its
services.
Goal: Achievement of social, political and economic empowerment of the women in the weaker
section with organized initiatives, harmony and cooperation without caste, creed, colour and
religious discrimination.
Objective
(i) To emancipate social, economic, political and cultural sphere of the members through
savings, credit, selfhelp and cohesiveness.
(ii) To promote uplift and strengthen the community based women organization, SHGs.
(iii) To utilize the available natural and human resources for the development of the
community.
(iv) To promote the rural talents preserved among the fisher women and other S.C and
S.T women.
(v) To organize and empower the women folk for an enriched society.
(vi) To promote health and education for well being of the society.
Structure of the Cooperative
The structure of the cooperative is shown below:
(i) General Body: The general body consists of all the 2369 members and is the most
powerful body of the cooperative. All decisions regarding the policy of the
cooperative are needed to be passed and approved by the general body before their
implementation. The meeting of the general body takes place twice in a month i.e. on
9 th and 27 th of every month. The general body participates in the election process and
the SHG members go for election process for electing the members of the executive
body or representative body.
President/
Vice‐President
Board of Directors
(9 members)
Executive Body/ Representative Body
(150‐300 members)
General Body
(2369 members)
(ii) Executive Body/ Representative Body: The executive or representative body is an
intermediate body between general body and the board of directors. It is formed as a
result of election among the members of the SHGs registered under the cooperative
and hence the executive body represents members from every SHG of the
cooperative. Depending upon the size of the SHG either one or at most two members
get elected from each SHG for executive body. Thus, the size of the executive body
varies between 150 300 members. The members of the executive help in board of
directors in formulating and implementing the policies and hence in the process
safeguard the interest of their respective SHGs.
(iii) Board of Directors: The members of the executive body further elect 9 members
from among themselves for the post of board of directors. It is second body of the
cooperative and formulates all the policies of the cooperatives and upon their
approval from the general body implements them. The board of directors can also
give suggestions to the general body regarding policy matters of the cooperative
society. The board of directors further elects members for the post of president and
vicepresident from among themselves. At present the president of cooperative is
Smt. Bela Kandi
It was found from the study of the SHG cooperative that since these cooperatives are formed on
the principle of selfhelp and mutual aid so there is no provision of regular election of office
bearers at the fixed interval of time. It is assumed that the members of the cooperatives have the
full faith on the office bearers and unless the credibility of the elected members are questioned or
the elected members herself voluntarily steps down till then no election for various office bearer
will take place.
Eligibility Criteria For Membership of Cooperative
(i) Age Limit: The member must be between the age group of 1860 years.
(ii) The member must belong to one of the SHGs registered under the cooperative.
(iii) The member must be the permanent residence of the Astarang block of Puri district.
(iv) Entry Fees: The member must deposit a nominal entry fee of Rs 10. But with the
change in the policy of cooperative and making insurance policy mandatory, the new
member is supposed to pay additional Rs 100 towards one time premium for
insurance policy. While in case of older members this premium amount is deducted at
the time of availing fresh loan from the cooperative.
(v) Apart from these every member is also supposed to purchase atleast one share of the
cooperative which costs Rs 100 per share.
Functions of the Cooperative
With regards to financial services the Welcome SelfHelp cooperative is identified with the
following functions:
(i) Savings: The cooperative is mobilizing social surplus in the form of savings from its
members. The main feature of the saving services is that the cooperative is providing
8% interest rate on the savings deposit of the members which is at par with other
commercial banks operating in the area. For the saving mobilization the cooperative
is following a very unique procedure. Every member of a SHG has to deposit a fixed
amount every month. This amount varies from Rs 15 Rs 50 over the SHGs
depending upon the capacity of the members of the respective SHGs to mobilize
savings. These representative members of the SHGs collect the savings from their
group members and deposit the same at the cooperative when they are coming for the
meeting. The same day the cooperative deposit the collected savings into its bank
account. As per the audited financial report for the year 200708 total deposits of the
cooperative was Rs 600,909.80 which was an increase of about 43.6% over the last
years savings deposit.
(ii) Credit: The cooperative provides the loan for both productive as well as consumption
purposes. No collateral is required by members for availing the loan from the
cooperative. The main feature of the loan product of the cooperative is that only half
the members of a SHG group is granted loan at a time while the remaining half
monitors them and act as a pressure group. The interest rate charged on the loan is
18% (floating) per annum. The processing of the loan application is very quick which
can be gauged from the fact that normally the loan demanded today is disbursed the
very next day. As the board of directors are the part of members themselves so they
are in a better position to judge the merit of application for loan and hence
accordingly approve or reject the application. Sometimes, if there is a scarcity of fund
in the cooperative on account large numbers of members of other SHGs taking loan
then only a part of amount requested in application form is sanctioned for loan. As
per the audited report of 200708 total loan and advances made to members stand at
about Rs 12, 06,250.
(iii) Insurance: The Welcome selfhelp cooperative have recently also started its
insurance services to the members. The name of the insurance service is Maitri and
members have to deposit one time premium of Rs 100 and are insured 20 times i.e. if
a member dies then her family would get an insured amount of Rs 2000. As
mentioned earlier in case of new members the one time premium amount has to be
deposited along with the membership fees at the time of entry into cooperative and in
the case of existing members the amount is to be deducted from the fresh loan
sanctioned to them.
(iv) Others: Apart from the above mentioned services the cooperative has also introduced
the fixed deposit services for a period of 2 years and interest to be paid upon fixed
deposit is 8% per annum.
Apart from the financial activities the cooperative is also involved in various nonfinancial
activities. These are discussed below:
(i) Economic Activities: The cooperative is providing training to its members to carry
out the economic activities like dairy, poulty, dry fish business, etc and other
entrepreneurial development programmes.
(ii) Social Activities: In terms of social activities the cooperative is engaged in imparting
cooperative education to the representatives of each SHGs. Facilitators of the
cooperative also demonstrate the financial position of the cooperative for e.g. Profit
and loss account, Balance sheet, saving of every month, loan sanctioned, etc to the
members. The cooperative also educate them on the matters of social awareness in the
cooperative. The education gained by the representative in the cooperative is imparted
to the other group members. These educated representatives are in turn supposed to
educate the other group members of their respective SHGs. But this may be the
limitation of the cooperative as nothing is mentioned regarding the monitoring of
quality of educated imparted by these trained representatives to other members.
(iii) Political Activities: The cooperative also works for political empowerment of its
members and encourages them to actively participate in the G.P meetings. It also
trains the members of the various government development schemes available
through panchayats and their duties towards their respective panchayat. As a result of
this increase in empowerment, members now actively participate in the panchayat and
other local bodies and about 30 members of the cooperative are members of their
respective G.P.
Sources of Finance and Other Assistance:
The Welcome selfhelp cooperative being registered under the new cooperative act is not
entitled for financial assistance from the government bodies like NABARD. This reflects the
dichotomous principle of government which on the one hand advocates for greater
transparency and efficiency of noble institution like cooperatives and on other hand refuses
to provide any assistance to these new act cooperatives merely on the ground that the
government do not have any stake in them on account of being peoples’ cooperatives. From
the study of the cooperative and interaction with its members following sources of finance
and other assistances were found:
(i) Membership fees of Rs 10 per member which is collected at the time of entry into
cooperative.
(ii) Share capital which is raised by the purchase of at least one share of the cooperative
by the member. As already mentioned the shares are priced Rs 100 per share.
(iii) Insurance premium amount which collected as Rs 100 one time premium from every
member as a result of introduction of insurance service of the cooperative called
Maitri yojna.
(iv) A very major component of the sources of finance for the is compulsory savings of
the members per month which varies Rs 15Rs 50 per member depending upon the
capacity of the SHGs members.
(v) The cooperative have also recently received assistance from government in form of
allotting of space in the local government market building. The government collects
the nominal rent of Rs 400 from the cooperative. The cooperative on the other hand
has given the space on rent to one of the members of cooperative for running his shop
and collects Rs 700 per month from her as a monthly rent. This also contributes to
revenue of the cooperative.
(vi) The cooperative has also taken loan of about Rs 1 lakhs from the Nilanchal bank for
meeting the financial requirement of the society.
(vii) It has also received financial assistance from the donor agencies like Daikonia which
has provided its incentive of Rs 2 lakhs in the planning phase of cooperative. This
amount was disbursed to the cooperative in the phased manner where Rs 50,000 was
disbursed to cooperative in every phase.
(viii) Besides these the cooperative have also received technical assistance from Xavier
Institute of Management, Bhubaneswar in form of training programmes for its
members and providing of personal computers for the maintenance of records of
cooperative.
As a result of these the total capital base of the cooperative during 200708 was found to be
Rs 13,66,221.50 while total outstanding loan was found to be Rs 12,06,250. Thus it works
out to be average loan per member to be around Rs 510 which is a very small amount.
SocioEconomic Impact Upon Members:
As the result of operation of cooperative wide spread socioeconomic impact was observed on
the members of the cooperative:
(i) Almost every member were imparted the cooperative management training at the
cooperative. Many of them also went to other districts like Bolangir and other states
like AP for training purposes.
(ii) This training programmes as well as empowerment of members have led increased
participation of decision making process of the cooperative, greater participation in
GB and executive body meeting, etc.
(iii) The members also found to be engaged in wide range of economic activities like dry
fish business, dairy, poultry, etc. They are also engaged in various social works like
road building, digging of pond, well and tube wells in the area. Some of the SHG
groups have also obtained contract from the block office for running midday meal in
the local primary and middle schools. The empowerment of the members is also seen
in the form of their greater participation in local G.P and other local bodies and about
30 SHG members are also elected to their respective G.P.
(iv) As a result of these initiatives there is also widespread changes observed in the
income and lifestyles of the members. The importance of these members is also well
recognized by their husbands in the family matters and now they also play key
decision making role in their families.
(v) The influence of the local moneylenders has also reduced considerably as a result of
greater awareness and empowerment of members.
Thus, from the study it is found that there is positive impact of the cooperative in its area of
intervention leading to greater awareness and empowerment of the members in terms of
cooperative education, recognizing their right and duties towards cooperative and the society
to which they belong and opportunities available to them.
Financial Analysis of the Audited Report:
An attempt has been done to analyze the financial performance of the cooperative by
calculating the important financial ratios of from the last three years annual audited report
and hence comparing these ratios. The various ratios calculated is shown below:
Sr. No. Ratios 200506 200607 200708
1. Current ratio 0.97 0.98 0.99
2. Debt to equity ratio 0.68 0.68 0.67
3. Debt interest coverage
ratio
0.38 3.74 3.97
4. Return on capital
employed
13.59% 12.95% 13.92%
5. Return on equity 41.64% 52.61% 75.76%
6. Loan loss reserve ratio 0.94% 1.11% 1.34%
Thus from the above calculated financial ratios we find the cooperative to be in a very good
financial health. This has been evident from the very high value current ratio, interest
coverage ratio, and return on capital and equity over the period. Similarly, the debt to equity
ratio is less than 1 which shows that almost all the requirements of the society are meet by
the equity share capital. The loan loss provision is also low over the period which shows the
high repayment rate of the members and good quality of the loan portfolio designed taking
into consideration the actual needs and requirements of the members. Though there has been
marginal increase in the loan loss provision over the period but this may be due to increase in
risk associated with the increase in volume of loan portfolio of the society over the period.
Critical Remarks of the Study:
Thus, from the study visit of the Welcome Self Help Cooperative it was found that the
members were highly empowered and participative in the functioning of the cooperative,
which is what the cooperative movement actually aims about. As a result of the
empowerment and increase in awareness of the members positive changes were observed
among the members in terms of increase in income, change in lifestyle and behavior.
Moreover, the women members of the cooperative who were till date marginalized in their
family and society have suddenly acquired importance in their family and society to which
they belong. The level of empowerment can be gauged from the fact that during the visit one
of the members told apart from managing the cooperative in longer they also to focus on
income generating activities. These developments surely predict the all round development
of the society. Similarly the financial analysis of the last three years annual audited report
also depicts the greater efficiency and transparency in the financial management of the
cooperative. But still what the cooperative lack is government support and assistance. With
the passage of time the area and volume of operation of the cooperation will rise in future
and hence it will require the financial and technical assistances of the government and
various other agencies. But, the government till date is denying the assistance on the ground
that these selfhelp cooperative are entirely run and managed by members and thus
government has no stake in these cooperatives. This speaks of the dichotomy of the
government which one hand speaks of reviving the cooperative movement in the country and
on the other hand does not provide any assistance required by them. Thus, these types of
hurdles are required to be removed if in true sense the cooperative movement is to be revived
and process of reformation of the cooperative societies is to be spread across various regions
of the country so that all round development of various communities and society is possible.
Khandagiri Service Cooperative Society Limited (Mini Bank)
The Khandagiri Service Cooperative Society Ltd is one of the oldest primary cooperative society
operating in the Khurda district. It was registered as the cooperative society in the year 1956 and
began its operation in the same year and has the registration number of 13 PU/DT. The area of
operation is confined to Aiginia G.P consisting of villages Nayapalli, Baramunda, Jokalandi,
Jagamara, Dumuduma, Aiginia and Bharatpur. The society is affiliated to Khurda Central Coop.
Bank.
The reasons for selection of the cooperative for the study purpose are as follows:
i. Being the one of the oldest society it will provide good insight into working and
progress made by primary society over the period of 50 years.
ii. The society is also one of the successful primary society in the state which can be
gauged from the fact that the PACS grew and made considerable progress as a result
of which it has been converted into service society and at present it functions as a
mini bank.
iii. Also the location of the bank was found to convenient from the point of study
purpose.
Membership & Eligibility Criteria
At present the total membership of the society stands at about 731 members. The eligibility
criteria for the membership of the service cooperative society are:
(i) The member must belong to Aiginia G.P area.
(ii) The member must be economically active.
(iii) The member must be in the age group of 1860 years.
(iv) The member must deposit the membership fees of Rs 110 at the time of entry into
cooperative.
(v) The member must also possess the valid id proof in form of ration card, voter id card
and 3 photographs.
Aims and Objectives of the Society
(i) To collect funds and provide loans to members for utilization for agriculture and other
business purposes.
(ii) To collect agriculture produce from the member farmers and sell it in the market.
(iii)To provide improved seeds, implements and pesticides to farmers.
(iv)To provide milch cows, pigs, goats, sheeps, etc for rearing to members.
(v) To open consumer stores with due approval from ARCS.
(vi)To develop thrift, selfhelp and cooperation among the members.
(vii) To accept various types of deposits from the members.
(viii) To provide loans for selling of seasonal vegetables.
Organizational Structure of the Society
The organizational structure of the service society is shown below:
(i) General Body: The general body consists of all the 731 members and is the most powerful
body of the cooperative. All decisions regarding the policy of the cooperative are needed to be
passed and approved by the general body before their implementation. The meeting of the
general body takes place once in a year. The general body participates in the election process and
elects the members for the board of directors.
President/
Vice‐President
Board of Directors (15 members)
General Body
(731) members)
(ii) Board of Directors: The members of the general body elects 15 members out of them for
the post of board of directors. The caste composition of the board of directors is shown below:
Class Male Female Total
SC 1 1 2
ST 1 1 2
OBC 2 1 3
General 6 2 8
Total 10 5 15
Though the board of directors are elected from among the members but since no two candidates
stands for the same post so the board of directors are unanimously elected. The present board of
directors have been functioning for the last 45 years. The board of directors formulates all the
policies of the cooperatives and upon their approval from the general body implements them.
The board of directors can also give suggestions to the general body regarding policy matters of
the cooperative society. The board of directors further elects members for the post of president
and vicepresident from among themselves. The present president of the society is Mr.
Suryabansi Sundaray and the secretary of the society is Mr. Gangadhar Parida. The board of
directors meeting takes place normally once in every month but sometime due some unavoidable
reasons the meeting may not take place in a particular month.
Functions of the Cooperative
With regards to the financial services the Khandgiri Service Cooperative Society id found to be
engaged with the following services:
(i) Savings: The society running on the pattern of bank has the savings services attached to
it. The bank provides the interest rate of 3% on the savings deposit of the members. As
per the audited report of the year 200607 the total savings of the society stood at Rs
1,79,69,466. Beside the savings deposit services the society also has the provisions for
the fixed deposit services where it offers an annual interest rate of 9.25% to the members.
It also provide recurring deposit services to the members where it offers following
interest rates to members:
(a) 7.50% for the period of 2 years
(b) 8.50% for the period of 5 years
(c) 9.50%for the period of 7 years
(ii) Credit: The society provides the credit services to its members for both agriculture and non
agriculture purpose. For the purpose of providing adequate credit to members the society
borrows fund from the Khurda Central Cooperative Bank (KCCB). These are discussed below:
(a) In case of the agricultural loan the society obtains borrowed fund from KCCB at the
interest rate of 5.5% per annum while the society lends the amount to the members at the
interest rate of 7% per annum.
(b) In case of nonagricultural loan the society get the borrowed fund from the KCCB at the
interest rate of 10% per annum while it lends the fund to members at the interest rate of
12% per annum.
As per the annual audited report for the year 200607 total loans and advances made during
the year stood at Rs 38,41,887.
(iii) Insurance: The society does not provide any insurance service on its own but it has made
policies for its members through United India insurance Co. Ltd. & has deposited the premium
of Rs 304 per member.
Apart from the financial services the society also has the nonfinancial services in the form of:
(a) Procurement of agriculture of agricultural produce from the members at MSP and selling
it in markets.
(b) Providing agricultural implements, seeds, fertilizers, pesticides to members.
(c) To provide milch cattle, pigs, goats, etc for rearing to members.
(d) Providing consumer goods and other services to members by opening consumer stores.
Sources of Finance:
The following are the sources of finance for the society:
(i) Own Funds: The own funds of the society consist of the sources like membership
fees collected from members, saving deposits, share capital, etc. The membership fee
of Rs 110 is collected from every member. As per the audited report of 200607 the
total saving deposits and paid up share capital of the society stood at Rs 1,79,69,466
and Rs 3,37,520.75.
(ii) Borrowed Funds: As own funds is not sufficient to meet the requirements of the
members the society borrows funds from the KCCB. As per the audited report of
200607 total borrowed fund of the society stood at Rs 42, 18,767.
Overdues: A remarkable feature of the society is that it does not have mounting overdues of the
members which have become the regular features of the primary societies almost all over the
country. After the revitalization of the society and writing off all the bad debt in view of
implementation of the Vaidyanathan Committee report the society till date possess no overdues
of its members.
Assistance From the KCCB:
Being affiliated to the Khurda Central Cooperative Bank (KCCB) the society receives much
assistance from it. Some of these are:
(i) The provision of salary of the staff members of the society is provided by the KCCB.
(ii) The KCCB provides loan to the society to meet its credit requirements and other
credit requirements.
(iii) The KCCB provides refinancing facilities to the society as per the provisions of
OSCB and NABARD.
(iv) The KCCB also provides various training, cooperative education and capacity
building programmes to members of the society.
(v) The KCCB also guides and recommends the society on the various policy and
functions of the society.
SocioEconomic Impact Upon the Members:
As a result of operation of the cooperative considerable impact upon the members have been
observed. These are discussed below:
(i) The members have exposed to various cooperative training programmes as a result of
which a certain level of understanding of the cooperation principle and participation
in cooperative have been observed among the members.
(ii) It was also found as a result of increase in awareness there has been increase in level
of participation of members in general body meeting, and policy of the cooperative.
(iii) As a result of this association with the society considerable changes have also
observed in the members in terms of income, lifestyle and behavioral changes.
(iv) The role of the local moneylenders upon the local community has also considerably
marginalized. It was found that almost all the credit needs of the people were meet
by society, though sometimes they turn to moneylenders for their consumption
requirements.
Thus, from the study of the cooperative it was found that being one successful primary
societies in the state the cooperative has the positive impact upon the members which is not
the case with other primary societies which have completely failed on account of lack of
discipline among the members and the problem of mounting overdues. But being the
government controlled society it has its own many limitations. Even after being in operation
for more than 50 years the level of empowerment and awareness of the members were not up
to match of those members of self cooperatives who have a say in the functioning of the
cooperative. Thus, shortcomings are needed to be worked out so that members reap
maximum benefit out the cooperative societies.
Financial Analysis of the Audited Report:
An attempt has been done to analyze the financial performance of the cooperative by calculating
the important financial ratios of from the last three years annual audited report and hence
comparing these ratios. The various ratios calculated is shown below:
(i) The working capital ratios calculated over the period is tabulated below:
Sr. No. Ratios 200405 200506 200607
1. Share capital to w/c 1.13% 1.15% 1.16%
2. Borrowed capital to w/c 83.60% 80.79% 76.67%
3. Own capital to w/c 2.29% 2.34% 3.22%
4. Reserve and other funds to
w/c
1.16% 1.19% 2.05%
5. Govt. share capital to total
share capital
48.66% 46.54% 46.31%
6. Own capital to borrowed
capital
2.73% 2.89% 4.20%
Thus from the above calculated ratios we find that borrowed funds from KCCB constitutes the
greater proportion of the working capital while the own funds and the share capital of the society
constitutes less than 2% of the working capital of the society over the period. This shows the
greater dependence of the society on the government which leads to foundation of greater
interference of the government in the working of the society and this becomes reason for the
failure of the cooperative society over the period.
(ii) Besides these other useful ratios calculated from the audited reports are tabulated
below:
Sr. No. Ratios 200405 200506 200607
1. Current ratio 5.63 5.43 5.99
2. Debt to equity ratio 12.50 7.85 10.63
3. Debt interest coverage ratio 0.01 0.16 0.09
4. Return on capital employed 0.47% 5.48% 4.42%
5. Return on equity 5.69% 77.30% 52.78%
6. Loan loss reserve ratio 28.08% 36.91% 71.86%
Thus, from above calculated ratios we find that the value of the current ratio is very high over the
period due to greater funding from the government and KCCB. Similarly, the high value of debt
to equity ratios shows that majority of the financial requirement of the society are meet from the
government fund rather than the own equity share capital of the society. Since the society is
making profit so we find positive return on equity and capital employed over the period which
has been increasing continuously over the period. Similarly, as a result of huge borrowing from
the KCCB we find the interest coverage ratios values to be extremely low though there has been
marginal improvement in it over the period. Also, the provision of loan loss provision is
significantly high over the period which shows the high level of risk associated with loan
portfolio of the society. Though at present there are no overdues of the society after the write off
the previous bad debts and restructuring of society with the recommendations of Vaidyanathan
committee report on rural credit. But still in future no one can deny the possibility of default by
the members and increasing overdues of the society. This may be the reason to have greater
provision of the loan loss provisions.
Critical Remarks of the Study:
From the visit to the Khandgiri Service Cooperative Society it was found that though the
cooperative is functioning quite successfully, there are still certain issues which cannot be
ignored. Being heavily dependent upon the government and the KCCB for its financial
requirements which was also observed in the working capital composition of the society, there is
the question of sustainability of these societies in the longer run. As a result of this dependence
upon the government it was found that the policies and the functioning of the society is highly
influenced by the government rather than being member driven. Though at present there is no
problem of overdues but in future its possibility cannot be ignored when members are again
encouraged to do so in the event of faulty government policies and political interference. Also
the society has been working in the area for the last 50 years but still the desired level of
empowerment and socioeconomic changes among the members were not visible unlike the case
in Welcome Self Help Cooperative. But still the consoling point is that the society is functioning
better than numerous other primary societies which have defunct and nonfunctional. Thus, these
anomalies are needed to be addressed if the principle of cooperation in true sense is to be
promoted in the country. Thus, in light of these facts the importance of the self help cooperatives
has risen.
Analysis and Conclusion
Thus, from the field visit of the cooperatives under study and the various literature reviews on
cooperatives it was found that the self help cooperatives have tremendous potential to revive the
cooperative movement in the country in the light of the failure of the PACS to deliver to the
marginalized and oppressed sections of the society. This fact is very much evident in the state of
Andhra Pradesh which the first state in the country to implement the new cooperative act and
these self help cooperatives there are known as mutually aided cooperative societies (MACS). As
a result of this implementation of new act much of the cooperative movement there revived and
the state is pioneer in the cooperative movement of the country. But it was found that these new
form of cooperatives based on the principle of self help and mutual aid do not the government
support and assistance on the ground that the government do not have any stake in the
functioning of these cooperatives. Similarly, these cooperative also do not receive any assistance
and guidance from the local NGOs and other community based organizations again on the fact
that these organizations will not have any stake in these cooperatives. Thus, these NGOs are
found to be very much involved with the in the grooming and training of the SHGs where they
have greater stake while being indifferent to the self help cooperatives.
It was due to this greater involvement of government and bureaucrats that the cooperatives have
become defunct all over the country. So, in wake of these developments if the cooperative
movement is to be revived in the country then the government and other agencies must promote
and support the self help cooperatives which are highly people driven leading wide range of
socioeconomic changes and empowerment of the people.
Limitations
There were certain limitations in carrying out the project which are discussed below:
1. Due to time constraint the research project focused on only one SHG cooperative and a
primary society for the study purpose.
2. The cooperatives chosen for the study purposes were quite successful and hence this did
not give the opportunity to explore the exact nature of problem faced by other
cooperatives which have failed over the time.
3. Due to some unforeseen reasons like holidays & vacations, placement week process, etc
the momentum of the project was affected leading to the constraint of time in completion
of project.
4. A substantial portion of time was spent on carrying out literature work and understanding
of the project topic and framing of the research objective. This in turn lead to time
constraint in carrying out the field visit to study the cooperative.
Bibliography
1. Reddy Y.S., & Reddy A.R., Cooperatives And Rural Development, Amol Pub. Pvt. Ltd.,
1 st Ed., Chap. 2, pg. 2059.
2. Garg M.C. & Joshi N.N., Cooperative Credit And Banking Strategies For Development,
Deep & Deep Pub., Chap. 2, pg. 1124.
3. Garg M.C. & Joshi N.N., Cooperative Credit And Banking Strategies For Development,
Deep & Deep Pub., Chap. 5, pg. 5257.
4. Garg M.C. & Joshi N.N., Cooperative Credit And Banking Strategies For Development,
Deep & Deep Pub., Chap. 8, pg. 8087.
5. Garg M.C. & Joshi N.N., Cooperative Credit And Banking Strategies For Development,
Deep & Deep Pub., Chap. 9, pg. 8898.
6. Sahoo R.K., Cooperatives For Economic Development, Mohit Pub., 1 st Ed., Chap. 4, pg.
100111.
7. Singh R.P., NABARD (National Bank For Agriculture and Rural Development) –
Organization, Management and Role, Deep & Deep Pub., Chap. 7, pg. 188192.
8. Mohapatra A.K., The Orissa SelfHelp Cooperative Act, 2001, KLH Pub., pg. 57109.
9. Narayanaswamy R., Financial Accounting A Managerial Perspective, PHI Pub., 2 nd Ed.,
Chap 11, pg. 499550.
Appendix 1
Questionnaire (Self Help Cooperatives)
1. Name of the SHG cooperative……………………………………………………………...
2. Location…………………………………………………………………………………….
3. Membership………………………………………………………………………………...
4. Socioeconomic background of members (including office bearers)………………………
………………………………………………………………………………………………
5. Caste composition of members……………………………………………………………..
6. Eligibility criteria for membership of cooperative………………………………………….
………………………………………………………………………………………………
7. Structure of SHG cooperative:
(i) General body (number of members, roles & responsibilities, duration of
existence)…………………………………………………………………………………
…………………………………………………………………………………………….
(ii) Board of directors……………………………………………………………………...
(iii) Management…………………………………………………………………………..
8. Functions carried out by cooperative:
(i) Savings……………………..
(ii) Credit………………………
(iii) Insurance…………………..
(iv) Others……………………..
9. Activities carried out by cooperative (other than financial):
(i) Economic…………………..
(ii) Social……………………….
(iii) Political……………………..
10. Finances:
(i) Sources of finance (membership fees, savings, share, loan, fine, etc.)…………
…………………………………………………………………………………..
(ii) Alternative sources of finance in the absence of govt. aid…………………….
(iii) Capital base……………………………………………………………………...
(iv) Net income………………………………………………………………………
11. Assistance of local NGO or organization (technical and monetary)…………………....
…………………………………………………………………………………………..
12. Socioeconomic impact upon members:
(i) Cooperative education (training/exposure – duration, days, place)………………
…………………………………………………………………………………….
(ii) Participation of members (in decision making process, GB, executive committee,
membership, loan sanction, repayment, change in rules and regulations)…………
………………………………………………………………………………………
………………………………………………………………………………………
(iii) Income of members (any change)…………………………………………………..
(iv) Lifestyle (any change)………………………………………………………………
(v) Behavioral changes………………………………………………………………....
(vi) Role of moneylenders………………………………………………………………
(vii) Local development/community development………………………………………
………………………………………………………………………………………
13. Shortcomings (if any)………………………………………………………………………
……………………………………………………………………………………………...
14. Possible solutions…………………………………………………………………………...
………………………………………………………………………………………………
15. Remark on audited report (at least 3 years)………………………………………………...
………………………………………………………………………………………………
Appendix 2
Questionnaire (PACS)
1. Name of the PACS…………………………………………………….
2. Location…………………………………………………………………
3. Membership……………………………………………………………..
4. Socioeconomic background of members (including office bearers)………………………
………………………………………………………………………………………………
5. Caste composition of members……………………………………………………………..
6. Eligibility criteria for membership of PACS………………………………………….
………………………………………………………………………………………………
7. Structure of SHG cooperative:
(i) General body (number of members, roles & responsibilities, duration of
existence)…………………………………………………………………………………
…………………………………………………………………………………………….
(ii) Board of directors……………………………………………………………………...
(iii) Management…………………………………………………………………………..
8. Functions carried out by PACS:
(i) Savings……………………..
(ii) Credit………………………
(iii) Insurance…………………..
(iv) Others……………………..
9. Activities carried out by PACS (other than financial):
(iv) Economic…………………..
(v) Social……………………….
(vi) Political……………………..
10. Finances:
(i) Own funds (membership fees, savings, share, fine, etc.) ……………………….
…………………………………………………………………………………..
(ii) External sources (grants, loans, subsidy,etc)…………………….
(iii) Capital base……………………………………………………………………...
(iv) Net income………………………………………………………………………
11. Overdues:
(i) Level of overdues……………………………………………………………….
(ii) Reasons …………………………………………………………………………
12. Roles of District Central Cooperative Bank:
(i) Guidance…………………………………………………………………………
(ii) Support services…………………………………………………………………..
(iii) Influence/control………………………………………………………………….
13. Socioeconomic impact upon members:
(i) Cooperative education (training/exposure – duration, days, place)………………
…………………………………………………………………………………….
(ii) Participation of members (in decision making process, GB, executive committee,
membership, loan sanction, repayment, change in rules and regulations)…………
………………………………………………………………………………………
………………………………………………………………………………………
(iii) Income of members (any change)…………………………………………………..
(iv) Lifestyle (any change)………………………………………………………………
(v) Behavioral changes………………………………………………………………....
(vi) Role of moneylenders………………………………………………………………
(vii) Local development/community development………………………………………
………………………………………………………………………………………
14. Reasons for failures of PACS………………………………………………………….......
………………………………………………………………………………………………
………………………………………………………………………………………………
……………………………………………………………………………………………....
15. Possible measures for revival of PACS……………………………………………….........
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
16. Remark on audited report (at least 3 years)………………………………………………...
Appendix 3
Financial terms in Credit Cooperative Society
1. Sources of Funds
A credit cooperative society obtains its financial resources from following sources:
1. Share capital
2. Reserves and surplus
3. Longterm funds
4. Borrowings
5. Deposits
6. Other liabilities
These are discussed in details below:
1. Share capital: Share capital forms one of the major sources of cooperative credit society.
The society for this issues share to the concerned state government, higher cooperative
society, RBI, etc.
2. Reserves and surplus: Every cooperative credit society maintains its reserve and surplus
to meet its working capital requirement as well any unforeseen requirement in future. For
this the cooperative society transfers money from the profit and loss account, gifts,
donation and benefaction which the credit society receives.
3. Long term funds: As the funds raised by other sources may not be sufficient for the
operation of the longer term credit cooperative society, so long term funds are raised by
issuing debentures to LIC, commercial banks, NABARB, SBI and its subsidiaries, etc.
They play the major role in performing lending operations on a large scale.
4. Borrowings: The cooperative credit societies borrow funds for their working capital
from the concerned state government and various other sources. But again major
borrowings take place from NABARB.
5. Deposits: Deposits constitute a vital source in the resource structure of any financial
institutions. The cooperative credit societies raise the funds through the deposits from
both members as well as nonmembers.
6. Other liabilities: Other liabilities as a source of fund to cooperative credit society
include the various assistance, grants and development fund received from the concerned
state government and NABARD.
2. Financial Ratio Analysis
The ratio analysis is the universally used technique to analyze the financial performance of any
financial institution, whether it is a commercial bank or cooperative credit societies or private
banks, etc. Though a large number of ratios can be calculated from the financial statement of an
organization but the most commonly used ratios by an organization are profitability, liquidity,
activity and leverage. These have been discussed in the sections below:
I. Capital Structure Ratios
The capital structure ratios analyze the financial strength of a cooperative credit society. The
prominent capital structure ratios are:
A. Debt to Equity Ratio
B. Fixed Assets to Net Worth Ratio
C. Current Ratio
A. Debt to Equity Ratio
The analysis of the debt to equity ratio gives the composition of the capital structure. The term
debt is used to refer total indebtedness i.e. liabilities of the credit societies consisting of both long
term and short term obligations. The term equity refers to the society’s own fund represented by
net worth. So, net worth is the sum total of all the capital, reserve funds and other long term
funds. Thus, this ratio measures the relative interest of the owners and outsiders who contribute
to the fund of cooperative societies. From the outsiders’ point of view it measures the extent to
which their interest is protected by owner’s fund. Higher the coverage of the owned fund, the
lower will be the ratio and greater will be the protection to outsiders’ contribution against the
possible losses in case of liquidation of credit society. Mathematically debt to equity ratio is
expressed as:
Debt to equity ratio = (short term debt + long term debt)/ shareholders’ equity
B. Fixed Assets to Net Worth Ratio
This ratio is also called as capital fund ratio. Usually, the long term funds are primarily used to
acquire fixed assets. About twothird of the permanent funds must be utilized for acquiring fixed
assets and the remaining onethird should be used as working capital. But as the credit societies
are primarily meant to provide credit to the rural people for both business as well as consumption
purpose, so they invest less on acquiring the fixed assets and hence the value to the ratio is found
to be low in case of credit cooperative societies. Thus, the ratio can be mathematically expressed
as:
Fixed assets to net worth ratio = total fixed assets/shareholders’ equity
C. Current Ratio
Current ratio also called working capital ratio is the most important widely used analytical device
for judging the liquidity position. It matches the total current assets of the firm to its total current
liabilities. It is to be noted that the current assets are those assets which can be converted into
cash within the accounting period. The relationship between the current assets and the current
liabilities indicate the ability of the credit society to repay its present short term debts. In other
words, through current ratio one can judge the short term financial strength or liquidity position
of the firm. A credit society can be said to be solvent if it maintains the current ratio as 2:1.
Mathematically, the current ratio can be expressed as:
Current ratio = current assets/current liabilities
II. Profitability Ratios
The ability of a given investment to earn a return from its use is called profitability. The
efficiency of credit cooperative society can be measured by the amount of profit earned by it.
More specific the test of profit indicates that whether the resources are gainfully employed or not
or the credit cooperative society is operating competitively or not. For the purpose of
profitability analysis the following important ratios used are:
(A)Rate of return employed on the capital employed, total assets and shareholders’ equity
(B) Relative share of interest income
A. Rate of Return Ratio (ROR)
The rate of return is the commonly accepted measure for assessing the profitability of an
institution. The rate of return for the purpose of analysis is computed in three ways. These are
returns on capital employed (ROCE), return on total assets (ROTA) and return on shareholders’
equity (ROSE). The ROCE & ROTA highlights the efficiency on the deployment of financial
resources. The ROR on shareholders’ equity indicates the return on the funds provided by the
owners. The first two types of ROR are determined on the basis of pretax earnings before
interest (EBIT). The reason for inclusion of the interest in the first two RORs is that if the ROR
does not consider interest then it would give the under estimate value of the efficiency in
employing the total capital of the cooperative credit society. Thus, a better indicator of the
capital employed is the pretax profit inclusive of the interest. The third ratio i.e. ROTA is the
measure of the performance of operating efficiency of the credit society. These ratios are
mathematically expressed as:
1. Return on capital employed = earnings before tax (EBIT)/(capital + liabilities)
2. Return on assets = earnings before tax (EBIT)/ (fixed assets + current assets)
3. Return on shareholders’ equity = profit after tax (PAT)/shareholders’ equity
B. Interest Coverage Ratio
The interest coverage ratio also known as the debt service ratio measures the extent to which the
earnings can decline without the resultant financial embarrassment to the credit society because
of inability to meet the interest cost. In other words, it is the protection available to the creditors
for payment of interest charges by the credit society. It is always desirable to have the value of
interest coverage ratio greater than one. Mathematically, interest coverage ratio is calculated as:
Interest coverage ratio = profit before interest and tax (EBIT)/interest expense