International Journal of Research and Development - A Management Review (IJRDMR)

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Co-Operative Banks- A Helping Hand for Small and Medium

Abstract : The paper examined the contributions of today, was born as a peaceful reaction against the
cooperatives to small and medium scale enterprises (SME) mercantile economy and industrial revolution. Now the
development, identified the challenges and to suggested cooperation occupies a position of primary importance
ways of strengthening this role. The paper argued that as a form of business organization in almost all the
SMEs are the key to India’s prosperity, but that past
countries in the world.
efforts by the government to promote SMEs has not
yielded the desired objectives. Cooperative societies from The cooperation, which means living, thinking and
their antecedents have not only contributed to the working together to achieve a common goal through co-
development of small scale business but are in themselves operative principles, envisages a group of persons with
small scale businesses. Cooperatives have always promoted
small business development through entrepreneurial
one or more common economic needs, voluntarily
development, funding, provision of entrepreneurship, agreeing to pool their resources both human and
promotion of establishment of small scale industries, material and use them for mutual benefit, through an
promotion of small holder agriculture, etc. But in spite of enterprise / organization managed by the group itself in
these efforts, cooperative sector is still faced with several democratic lines. Subsequently, any organization formed
challenges, including lack of adequate funds, illiteracy by a group of persons to work together to accomplish
among its members, lack of training /educational the objectives for which it is formed through the co-
opportunities which make it difficult for cooperatives to operative principles is called a co-operative society.
contribute maximally in business promotion activities, etc.
The paper is of the opinion that more could be achieved if II. Co-operative Movement in the World
efforts are intensified to address these challenges. Reform
of the cooperative policy framework, including legal and Over the course of the industrial revolution in the mid of
regulatory procedures is desirable. Other areas needing 19th century, many farmers and small craft businesses
attention are capacity building to address the problems found themselves in financially desperate straits in
associated with management and leadership skills in the Germany. This development was closely linked to the
societies and the need to strengthen the cooperative negative effects of the introduction of free trade during
governance system.
that time. During the reform, new structures came about
I. Introduction which were supposed to make the division of property
more favourable to the ‘small’ people. The reality,
The concept of cooperation is as old as mankind and it however, was that the situation of farmers got noticeably
forms the basis for domestic and social life. The worse. They were burdened by having to pay off their
cooperation is nothing but group instinct in human former lords and were inexperienced in the independent
which enable one to live with others, work with others management of a business. They got into deeper and
and help each other in times of stress and strain. Without deeper debt and often lost their livelihood. In this
cooperation, the social and economic progress would not scenario, in 1847, Friedrich Wilhelm Raiffeisen created
be possible. It is impossible for any civilization to the first aid association in Weyerbusch (Westerwald) to
flourish unless the cooperation supplements the support the poverty-stricken rural population. Finally, in
competition in human society, if any. This is because 1864 he founded the “Heddesdorf Loan Society”, which
human beings have developed out of group life and is now seen as the first co-operative of the Raiffeisen
therefore naturally respond to group and social stimuli. tradition. In the decades that followed, the co-operative
So, the co-operative spirit is innate and intrinsic in idea spread throughout Germany and Europe. Numerous
human beings. households and businesses joined forces according to the
In the modern technical sense, the birth of co-operative principles of Raiffeisen. In order to provide greater
movement and its applications in the economic field was support for their members, the local primary co-
traced after the Industrial Revolution in England during operatives founded regional and national centres. These
the second half of the 18th and first half of 19th century. gave rise to today’s regional centres, national centres
The cooperation, understood as an economic system and special institutes. As early as the 1870s the co-
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operatives organised themselves into federations in order important role to play as the most suitable medium for
to offer the individual local co-operative more the democratization of economic planning.
professional advice and assistance.
IV. Co-operative Banks
The Co-operative Group formed gradually over 140
years from the merger of many independent retail A co-operative bank is a financial entity which belongs
societies, and their wholesale societies and federations. to its members, who are at the same time the owners and
In 1863, the North of England Co-operative Society was the customers of their bank. Co-operative banks are
launched by 300 individual co-ops across Yorkshire and often created by persons belonging to the same local or
Lancashire. By 1872, it had become known as the Co- professional community of sharing a common interest.
operative Wholesale Society (CWS). Through the 20th Co-operative banks generally provide their members
century, smaller societies merged with CWS, such as the with a wide range of banking and financial services
Scottish Co-operative Wholesale Society (1973) and the (loans, deposits, banking accounts, etc.). Co operative
South Suburban Co-operative Society (1984). banks differ from stockholders bank by their
organization, their goals, their values and their
Co-operative communities are now widespread with one governance. In most countries, they are supervised and
of the largest and most successful examples being the controlled by banking authorities and have to respect
Mondragón Co-operative Corporation in the Basque prudential banking regulations, which put them at a level
country of Spain. Co-operatives were also successful in playing field with stockholders banks. Depending on
Yugoslavia under Tito where Workers' Councils gained a countries, this control and supervision can be
significant role in management. In many European implemented directly by state entities or delegated to a
countries, co-operative institutions have a predominant co-operative federation or central body. All the co-
market share in the retail banking and insurance operative banks share common features as described
businesses. below.
III. Co-operative Movement in India V. Co-operative Banking in India
The co-operative movement in India is century old. The The co-operative banks in India have a history of almost
movement was started in India with a view to encourage 100 years. The co-operative banks are an important
and promote thrift and mutual help for the development constituent of the Indian Financial System, judging by
of persons of small means such as agriculturists, artisans their role assigned to them, the expectations they are
and other segments of the society. It was also aimed at supposed to fulfil, their number, and the number of
concentrating the efforts in releasing the exploited offices they operate. The co-operative movement was
classes out of the clutches of the money lenders. During originated in the west, but the important that such bank
British rule, based on the recommendations of Sir have assumed in India is rarely paralleled anywhere else
Frederick Nicholson (1899) and Sir Edward Law (1901), in the world. Their role in rural financing continues to be
the Co-operative Credit Societies Act was passed in important event today, and their business in urban areas
1904, paving the way for the establishment of co- also has increased phenomenally in recent years mainly
operative credit societies in rural and urban areas. Under due to the sharp increase in the number of primary co-
this Act, only primary credit societies were permitted to operative banks. Co-operative banks in India are
register and non-credit and federal organisations of registered under the Co-operative Societies Act. The co-
primary co-operative credit societies were left out. operative banks are also regulated by the Reserve Bank
The Co-operative Societies Act of 1912 recognized the of India (RBI) and governed by Banking Regulations
formation of non-credit societies and the central co- Act 1949 and Banking Laws (Co-operative Societies)
operative organizations / federations. This Act paved the Act, 1955.
way for the organisation of central co-operative banks VI. Establishment of Co-operative Banks in
throughout the country. But the provisions of 1912 Act
were inadequate to meet the requirements of those states India
where co-operative movement had made considerable The co-operative banks in India are well established
progress. Bombay, the pioneers in this regard passed a financial service organization. The first legislation on
new Act, viz., the Bombay Co-operative Societies Act, cooperation was passed in 1904. In 1914, the Maclagen
1925 for serving the many sided development of the Committee envisaged a three tier structure of co-
state. Later on, Madras, Bihar and Bengal passed their operative banking, viz., Primary Agricultural Credit
own Acts in 1932, 1935 and 1940 respectively. The state Services (PACs) at the grass root level, Central Co-
patronage to the co-operative movement continued even operative Banks at the district level and State Co-
after 1947, the year in which India attained freedom. operative Banks at State level or Apex level. The first
The independent India accepted the concept of planned urban co-operative bank in India was formed nearly 100
economy and co-operative organizations were assigned years back in Baroda.
an important role. The policy of the Government
towards the co-operative movement was guided by the The co-operative banks arrived in India in the beginning
recommendations of the Saraiya Committee (1948), of 20th Century as an official effort to create a new type
which stated that .the co-operative society has an of institution based on the principles of co-operative
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organization and management, suitable for problems operative credit structure in India. These Apex Banks or
peculiar to Indian conditions. These banks were State Co-operative Banks are formed by federating
conceived as substitutes for money lenders, to provide DCCBs in each state.
timely and adequate short-term and long-term
institutional credit at reasonable rates of interest. Conclusion
Co-operative banks in India finance rural areas under: The concept of cooperation and co-operative movement
is discussed in this chapter. The co-operative movements
Farming in the world and in India have grown well. It is clear
Cattle that, though the first documented consumer co-operative
was founded in 1769 in a barely furnished cottage in
Milk Fenwick, East Ayrshire, the co-operative movement in
Hatchery India is century old. Despite the Co-operative Credit
Societies Act was passed in 1904 based on the
Personal finance recommendations of Sir Frederick Nicholson (1899) and
Co-operative banks in India finance urban areas under: Sir Edward Law (1901), paving the way for the
establishment of co-operative credit societies in rural
Self-employment and urban areas, during British rule, the co-operatives in
India have made remarkable progress in the various
Industries
segments of Indian economy only after 1950s. In order
Small scale units to facilitate rural financing, the co-operative banks were
started in India during 1950s. These banks are until now
Home finance
regulated by Reserve Bank of India (RBI) and governed
Consumer finance by Banking Regulations Act 1949 and Banking Laws
(Co-operative Societies) Act, 1955.
Personal finance
In Pondicherry, the co-operative movements have taken
Types & Function of Co-operative Banks, India
deep roots in Union Territory of Pondicherry since 1953.
The co-operative banks are small-sized units which The Pondicherry State Co-operative Bank Ltd. Was
operate both in urban and non-urban centers. They registered as a Co-op. Society on 10th October1958 and
finance small borrowers in industrial and trade sectors started functioning on 30th October 1958. For helping
besides professional and salary classes. Regulated by the the agriculturalist to provide credit through these
Reserve Bank of India, they are governed by the Primary Agricultural Credit Societies were started.
Banking Regulations Act 1949 and banking laws (co- These societies operate at the village level and maintain
operative societies) act, 1965. The co-operative banking direct contact with farmers. They are now called as
structure in India is divided into following 5 categories: Primary Agricultural Co-operative banks. They mostly
give short term credit to farmers over the years. There
Primary Co-operative Credit Society are 27 PACBs in Pondicherry state. 24 PACBs are in
The primary co-operative credit society is an association Pondicherry region and 3 PACBs in Karaikal region.
of borrowers and non-borrowers residing in a particular There was a positive growth in co-operative societies in
locality. The funds of the society are derived from the Union Territory of Pondicherry during the period 10
share capital and deposits of members and loans from years from 2001-02 to 2010-11. A positive growth in
central co-operative banks. The borrowing powers of the membership and working capital of State Co-operative
members as well as of the society are fixed. The loans Banks, Central Land Development Banks, PACBs /
are given to members for the purchase of cattle, fodder, PACSs, Co-operative urban banks and Employee credit
fertilizers and pesticides. societies were visible during these years.
Central Co-operative Banks References
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