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  • C Shambu Prasad and C S Reddy

The three Ss of Successful Cooperatives: What Indian cooperatives could learn from Germany

A nine member Indian delegation found that the secret of success of the German cooperative system is built on three simple cooperative values – Self-Help, Self-Responsibility and Self-Administration. As India deliberates its National Cooperation Policy, learning from Germany’s Sector Own Control (SOC) that has been continuously evolving over 175 years could help bring much needed vibrancy and business orientation in the cooperative sector.


As early as 1995, scholars like Tushaar Shah have pointed to the inability of the Indian State to trust cooperatives and their members, overriding their autonomy and resulting in ‘a vast and spineless cooperative movement’. The comprehensive task force report of the Vaidyanathan Committee for revival of cooperatives in the early part of the century pointed to irregular audits, poor governance, limited capacities and state interference that has continued to plague the cooperative sector. Despite cooperatives being an integral part of social and solidarity economy worldwide, a fact underscored by their resilience during the pandemic, Indian cooperatives have failed to attract much needed talent, ideas and interest.


The new National Ministry of Cooperation and the proposed National Cooperation Policy is a critical opportunity to reverse these trends and focus on Sector Own Control (SOC) towards greater autonomy and independence. Are there elements of governance and administration that India could learn from countries such as Germany with over 175 years of cooperative experience? This question was on our minds as part of a nine member Indian delegation of bankers, cooperators, Government officials and academicians to Germany for a week in late November 2022.


Indian delegation understanding the German banking supervision system at the Giessen Volksbank headquarters.

Pra gmatically Idealistic: The Three Ss of Success


Indian exposure to the German cooperative system has been limited due to the imperial legacy whose strength was more on consumer cooperatives. While there are interesting parallels to the Spanish workers’ Mondragon cooperative in the Uralungal labour cooperative, we have not seen significant interface between Indian cooperative credit system and Germany. Credit cooperatives in Germany have maintained strong members’ and customers’ relationship and have successfully competed with commercial and nationalized banks especially in rural areas. The resilience and member-centrality of the cooperative banks was evident during the pandemic with the cooperatives lending €30 billion from March - December 2020 to their 30 million customers (18.2 million being members) while their commercial counterparts, despite their higher asset size could lend only €8 billion . The bankers pride themselves on being less bureaucratic and focused on members needs to promote local economy without compromising on the entrepreneurial nature of cooperatives.


The German cooperative system emphasises three core principles -- Self-Help, Self-Responsibility and Self-Administration and has introduced regular audit of cooperatives since 1889. The cooperatives are treated as enterprises with the state neither providing any preferential treatment nor interfering in the inner organisation of cooperatives. Among factors attributed to the success of cooperatives in Germany are the understanding that each cooperative needs to be economically strong on its market, to grow (at least operate profitably) or merge with another cooperative bank. Enabling factors towards this goal include professional management, high member awareness, a strong cooperative organization that is decentralized with a supportive system of Federations that provide audit, rating, institutional protection, consultancy, lobbying and training. Our visit to the Raiffeisenbank Lorup, a cooperative bank located in the village Lorup, provided insights on the embeddedness of the bank in the economy of the region. The bank has been in operation since 1900 and has 4,463 customers (with 1672 members) and has high acceptance in the region providing loans and credit to support agriculture and forestry in the area. Apart from this the bank has a renewable energy section and supports photovoltaic systems and wind energy establishments.

The cooperative wind farm supported by the Raiffeisen Lorup bank

Audit and Training Ecosystem


Each of the five cooperative unions have their own training academy that is a service provider for seminars, trainings, coaching and individual offers for all member cooperatives. An academy could provide up to 20,000 training days per year and also offers a degree in collaboration with a university. The cooperative federation includes legal audit that is compulsory for member cooperatives and statutory aspects that include counselling and education that is optional. Promoting and safeguarding the economic performance of member cooperatives is paramount in all trainings. As per the German Cooperative law, all cooperatives have to be members of their own regional federation / association and can avail a package of services (training, audit, institutional protection, advisory & lobbying) for a fee. These Cooperative Associations are members of the Cooperative Confederation (DGRV) that provides oversight and guidance.

The Indian delegation being debriefed on the auditing process followed in German coops by cooperative auditor Mr Winfried Hemken

Beyond Credit: Agricultural Markets and Dairy


The Raiffeisen cooperative structure has over 1729 agricultural cooperatives with over 1500 Raiffeisen markets that provides rural Germans inexpensive agricultural inputs, home gardening and other daily needs. The cooperative has a big warehouse to service its members and also operates 950 petrol stations in Germany. Apart from agricultural cooperatives there are also livestock and meat, dairy, horticultural, wine and commodity industry cooperatives. Together cooperatives have a commanding share ranging from 60% in milk processing and 50% of the grain trade to 33% in wine harvest. Even as number of farmers are decreasing and farm sizes expanding the cooperatives in Germany too have not fought shy of merging cooperatives to enable greater ease of doing business and remaining viable. Cooperatives are integral to German culture with 98% of farmers and even 65% of accountants being members of cooperatives!



The Raiffeisen farmers market and modern warehouse in Filsum and Wiefelstede

Lessons for Indian cooperatives


While economic conditions, farm sizes between Germany and India are not comparable there are some lessons for Indian cooperatives that could benefit from a greater exchange with the German Cooperative system. These include:

  • A high focus on autonomy and member owned and driven collective business enterprises. This is a much-needed corrective in the Indian Cooperative system that is over dependent on and / or controlled by the State.

  • An enabling ecosystem that allows for professional inputs to members and their institutions through effective training and support. The strong enabling policy and regulatory framework in Germany with delegated supervision is worthy of emulation by cooperative banks in India.

  • High quality professional audit at lower costs, which is managed by their own association independent of the cooperative registrar / department, that is the backbone of effective functioning of cooperatives as business enterprises.

  • The focus on the entrepreneurial nature of cooperatives and the need to not lose sight of the business aspect (profit optimisation). German cooperative banks profitability ratios are low by international standards and maximize welfare of shareholders / members rather than profits and can be seen as social enterprises.


Not all elements of the German cooperative system would be applicable in India but a greater exchange of audit systems, academics involved in cooperatives and training structures can help India chart an alternate path of cooperative development with less interference from the state. Cooperatives in India must be seen as unique member-owned business enterprises that must have their own systems of training, audit, rating, institutional protection systems ensuring legal and statutory compliances independent of the State. We need to remind ourselves that Gandhi’s advice to Kamladevi Chattopadhyaya and LC Jain when they started the Indian Cooperative Union (ICU) in 1946-47 was to keep away from the state.


 

C Shambu Prasad is a Professor of Strategic Management and Social Sciences at the Insittute of Rural Management Anand and coordinates the LFI project


C S Reddy is the founder and CEO of Andhra Pradesh Mahila Abhivruddhi Society (APMAS).

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