THE SOURCES AND USES OF FUNDS IN CO-OPERATIVE BUSINESS ENTERPRISES- THE NIGERIAN SITUATION
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
A cooperative society is a voluntary organization in which individuals, businessmen and traders with common interest pool their resources together to promote the economic and welfare interests of their members. Cooperative business enterprises are autonomous associations formed and democratically directed by people who come together to meet common economic, social, and cultural needs (Adeyeye, 2015). Founded on the principle of participatory governance, co-operatives are governed by those who use their services- their members. The history of cooperative movement cannot be complete without mentioning Robert Owen, 1771-1858. He established the first cooperative society at New Lonark, England. But the success of retail co-operative societies is dated back to the one started by Rochdale Pioneers in 1844. The history of cooperatives in Nigeria cannot be traced without linking it to the traditional cooperatives, which resulted in the cooperative society’s ordinance of 1935, which led to the subsequent establishment of cooperative societies of all types.
The cooperative model is as flexible as any organizational structure and may be tied to the social services sector, used to create shared infrastructure, as well as to pursue business ventures (Brown, 2016). Common types of cooperatives include: wholesale cooperatives, retail co-operatives, producer cooperatives, credit unions, consumer cooperatives, housing cooperatives, etc. A wholesale cooperative is formed by small scale wholesalers who purchase goods in bulk from the manufactures at a reasonable price and sell them in small quantities to retail cooperatives whose members are, more often than not, the very patrons of their establishment. They buy shares in the cooperatives as a prerequisite for participating in the dividend. Producer cooperatives are formed by producers of similar products who organize co-operative production and undertake joint marketing of the products on wholesale or retail basis; credit unions, whose members similarly invest in shares in the organization; consumer cooperatives are owned and operated by a group of ultimate consumers who pool their resources together to purchase goods and services in large quantities and distribute them primarily to its members; and housing cooperatives many times, spring up in areas where residential costs are high and offer a method for increasing living standards, one’s sense of community, and safety (Longe, 2017).
Cooperative business enterprises need “funds” for smooth operations. Fund in this context means, cash or credit used in financing business ventures. Since goods and services are expressed in monetary terms, i.e. fund, therefore you cannot run any other business without fund. It could be in form of credit facilities like bank credit, trade credits or discount (Anugwom, 2017). Fund could also be in the form of physical cash like Naira, Dollars, Pound Sterling, among others. Perhaps, one of the key questions that prospective co–operative entrepreneurs ask is how will this business be funded? Fund is at the heart of all business enterprises. Until co-operative business entrepreneurs identify the ways of raising funds for financing the new venture, or the money to keep the existing enterprise alive, their plans may best be described as wishful thinking or a dream (Nwachukwu, 2015). A most important factor that could make or break a business enterprise is fund. It is the money available to spend on business needs. Right from the moment an entrepreneur conceives a business idea, there needs to be cash. As the business grows there are, inevitably, greater calls for more money to finance expansion. The day-to-day running of the cooperative business enterprises need fund not only to get started, but also to grow, expand and meet competition and changing consumer and member needs and tastes (Jim, 2012). In Nigeria, getting the fund to start a cooperative business enterprise has never been easy (Nwachukwu, 2015).
Business enterprises, including cooperative societies, have a number of sources they can tap funds from. The sources from which they obtain funds will depend, to a large extent, on the manner in which the fund is intended to be used (Clifford, 2012). Businesses are generally faced with three types of financial needs-initial capital, working capital (while the firm is in operation), and capital for expansion. Initial capital is necessary to get the business started and enough to keep it on track until returns from operations provide sufficient funds to meet operating expenses; working capital is defined as the difference between current assets and current liabilities. Working capital determines the liquidity position of cooperative business enterprise. It is also known as “circulating capital or revolving capital” because funds invested in such assets are continuously recovered through realization of cash, which is reinvested in current assets (Pandey, 2013).
Capital is also needed for expansion as the business grows. During this stage, the business needs higher capacity and new technology to cut unit costs and keep up with competitors. Moreover, the greater the amount of funds/capital held by the cooperatives, the greater its ability to purchase more efficient technology, invest in members’ training and education and make other improvements to the running of the business. According to Bell (2004), funds for the operation and improvement of the cooperative business enterprises can come from three main sources: