Co-operatives need to be innovative with share capital

While posing great challenges to co-operatives around the world, the financial crisis has also given co-operatives the opportunity to show they are different and build a case for co-operative capital as an inspirational model.

With access to capital being a basic requirement for co-ops to be established, grow and flourish, the Blueprint for a Co-operative Decade, published by the International Co-operative Alliance, highlights the challenges faced by co-operatives when trying to raise capital.

Withdrawable share capital can no longer provide sufficient capital for the full range of co-operatives, according to Cliff Mills, one of the Blueprint authors and Senior Research Associate with the Oxford Centre for Mutual and Employee Owned Business.

He welcomes the announcement of the first reading of the Mutuals’ Redeemable Shares Bill which seeks to amend the capital regime, while safeguarding the purpose and integrity of mutuals. Mr Mills, who is a Principal Associate at Mutuo, the organisation behind the Bill, believes co-ops need a form of capital which works not only for small co-ops, but also for big businesses.

Mr Mills, who has written the constitution of a number of the UK’s leading co-operative retail societies, thinks co-ops should try to adapt withdrawable share capital to make it work for co-ops not only at the small-scale end, but also for big businesses.

He describes a form of funding for co-ops which “precisely retains the control of members, but provides them with a safe place for them to save their money and the opportunities for an exit in circumstances that don’t prejudice the business”.

He says: “We need capital, but not a form of capital which is simply on the hunt for profit,” adding capital should not undermine co-operative values and principles. In the context of the financial crisis, the emphasis should be placed on funding for businesses that can build a better world, thinks Mr Mills. “There is absolutely an opportunity for co-ops to make people aware of a different way of trading and saving,” he says.

Mr Mills also highlighted that in cases where the capital is secured through outside loan sources, it is essential to preserve the identity of that co-op. “We see these things as connected because people need to know that if you buy a financial instrument in a co-op you are supporting something that is there to trade for the benefit of the co-ops and its members and the wider community,” he says, referring to the relationship between co-operative capital and identity.

According to Mr Mills, identity needs to be consistent with the type of capital and the way in which the mutual is structured, maintaining it under members’ control, and not under the control of the providers of capital.

Legislation is another important aspect that needs to be taken into account when it comes to raising capital. “We need to look at different ideas that are working elsewhere around the world,” believes Mr Mills, adding that it can be difficult to cross jurisdictional boundaries. He adds: “We should be studying what other jurisdictions are doing and where instruments for raising capitals are successful working in one country and how they can be used and adapted in other countries.”

To explore new opportunities for raising capital, the Blueprint suggests undertaking research on changing attitudes and motivation for funding and new financial instruments while reviewing the risks and opportunities created by the use of subsidiary corporate entities.

• To read the Blueprint, visit: ica.coop/blueprint