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

1­6

1­2

2

2­3

3­4

4

4­5

5­6

7­16

7­8

8­13

13­15

15­16

17­18

17

17

17­18

19­27

19

19

19­20

20­21

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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24­25

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26­27

27

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41­42

43­46

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