When a cooperative’s capital comes from its members

If you know the seven internationally agreed Co-operative Principles, you’ll know that the third is the one about capital.  It’s titled ‘member economic participation’ and the first sentence begins “Members contribute equitably to, and democratically control, the capital of their co-operative”.

This is the Principle which seems most out of kilter with the way that the British cooperative movement (or at least the retail side) has chosen to operate in modern times. It’s true that we all chip in £1 to become a member of the Co-operative Group or one of the independent regional societies, but that hardly amounts to much of a contribution to the capital of these businesses.

Co-operatives UK’s Ed Mayo mentioned in the last issue of Co-operative News the case of the Japanese cooperative bank Norinchukin, which he says was rescued by its own members.  He goes on to say, in relation to the Co-op Bank, “this was not an option we had today and there is a lesson both about what membership means in co-operatives and where our capital comes from”.

As a matter of fact,  the Co-operative Group (the Bank’s current owner) already has the legal powers to issue transferable shares to its members in the form of what its rule book calls Member Investor Shares.  As I mentioned in a Guardian piece back in June, were the Group to pursue this idea, it would create a major new financial instrument for cooperatives.  (I accept, though, that now is not a good time to do it!).

From across the Atlantic, however, comes just such an initiative.  I’ve been hearing from senior staff at Canada’s Desjardins about the way that this cooperative bank and insurer has successfully raised over a billion Canadian dollars from its members in a capital share issue launched last year.  True to cooperative principles interest is limited, being set at no more than the average yield of Canadian government 5 year bonds (or 4.5%, if higher).

I’m hoping to get more details about this innovative way of raising cooperative capital shortly and will share what I find out.

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