International Cooperative Alliance Asia Pacific Research Conference Kobe, Japan November 26, 2012

1. International Cooperative Alliance Asia Pacific Research ConferenceKobe, Japan November 26, 2012 Bringing Co-operatives to Centre StageDr Shanta Raj Sharma Neupane Independent Consultant

2. What distinguishes co-operatives from business firms? • A South Asian perspective in measuring the efficiency of co-operative enterprises.

3. Background • Studied the co-operative movements of South Asia; Nepal, India, Bangladesh and Sri Lanka • Examined the trend and impact of co-operatives and identified the best cases in South Asia.

4. Background • Rapid globalization and recent failures of privately managed banks and financial institutions • Public and co-operative enterprises facing pressure from private enterprises

5. Purpose • To elaborate the role and efficiency of co-operative enterprises when competing with private enterprises • To demonstrate that it is important for coops and private enterprises to co-exist in the competitive market 

6. Issues • Public and government enterprises are being rapidly privatized globally • Privatization adversely affects the population • Private enterprises emphasize on profit sustainability and growth of the business benefitting few owners and senior executives

7. Issues • Privatization poses competition and a new challenge for co-operative enterprises • Co-operative enterprises would be the best alternative in this Public-Private tango with its restructured new face

8. Literature Review • Draperi (1997) shows the importance of cooperatives on the verge of de-regulated capitalism and a state managed regulatory system • The cooperative sector versus contemporary globalized capitalist multinational private sector

9. Data Sources and Analysis • Primary data from cooperatives and individuals • Secondary data from publications and international organizations database • Data analyzed in SPSS software

10. Data Envelopment Analysis (DEA) Model • DEA was originally proposed by Charnes et.al (1978) • a linear programming procedure for a frontier analysis of inputs and outputs. • assigns a score of 1 to a unit only when compared with other relevant units • assigns an efficiency score of less than 1 to relatively inefficient units for estimating the relative technical efficiency (TE) of production activities • DEA is commonly used to evaluate the efficiency of a number of products or services provided by an organization

11. Measuring Efficiency of the Cooperative Organizations • Data Envelopment Analysis is concerned with comparing the efficiency of Co-operative organizations at the local, district, and central levels. • If there was a single input and a single output, it would define a measure of efficiency. If every one could agree on a common set of weights that would end the story, however, people cannot agree.

12. Measuring Efficiency of the Cooperative Organizations • DEA allows units in the systems to choose their own weights in the way, which is most advantageous to them. • If the unit is inefficient, even with the set of weights which is most favorable to it, then there are serious grounds for investigating further.

13. Model Applicable to • Health care institutions • Education (schools, universities) • Financial Services (banks and co-operatives) • Manufacturing , Benchmarking, Management Evaluation, Fast Food Restaurants , Retail Stores

14. DEA Efficiency index • Fi(y,x | C,S) Gross Profit and Capital • Inputs: • X1=Total Share Capital • X2= Ratio of AM/TM • X3= Ratio of TS/TM • Output: • Y1= Total Profit • Fi(y,x | C,S) Per Capita Profit and Capital • Input: • X1= Per Capita Share Capital • X2= Ratio of AM/TM; • X3= Ratio of TS/TM and • Output: • Y1= Per Capita Profit

15. Results: Data Envelopment Analysis Gross Profit and capital Per Capita Profit and capital DEA Efficiency index 30 cooperatives under study

16. Number of efficient Coops • Using a threshold of 0.75 on DEA efficiency index . Out of 30 coops there were • 7 (23.34%) efficient cooperatives in terms of Gross Profit • 8 (26.67%) efficient cooperatives in terms of Per Capita Profit

17. Efficiency Results Analysis • In order to characterize the efficient and inefficient cooperatives, I used qualitative traits of the coops under observation

18. Traits of Efficient Coops • 27% (8) of theco-operatives were found efficient or nearer to efficiency in terms of per capita profit • minimal but qualified and professional staff, who is assigning optimum workloads. • higher and regular participation of board members • regular and pro-active participation of general members in day to day business, services and management • regular savings and credit mobilization program in different schemes of business • careful in using the balance or surplus money in their own co-operative’s business activities • very high business turnover and a limited number of members are retained to maximize per capita income.

19. Efficient Coops: Women members • encouragement to women members to remain active and participate regularly in cooperative activities • Selected women members are taken to observation tour of best practiced projects in different parts of the country • Women members are trained and motivated by the management staff to start small income generating activities like • goat raring • poultry • vegetable production • Sewing • knitting • petty trade • vegetable and fruit vendor

20. Efficient Coops: Member participation • Regular training provided to members • each member is running at least one income generating business activity • full understanding and maintenance of faith among board members, management staff and general members • Co-operatives are also involved in the social events or problems of their members’ community - marriages, deaths, emergencies

21. Efficient Coops: Business aspect • maintaining strict budgetary control and business planning: expenses are incurred either to make more income or to provide quality services to the members • wholesale business and services and promoting to member co-operatives only . • standard and uniform pricing policy and minimum-profit margins which increase the volume of business and maintain faithful understanding among the business members • presence of unions to advocate on behalf of the member societies • Faithful understanding and strict to contractual agreement with business parties (members, banks, producers, suppliers, non-member bulk buyers like government agencies)

22. Inefficient coops: Board members • Incapable and careless board members. • Some of the board members took portion of the working capital away • as an advance without paying any interest • without a time-bound document signed to settle the co-operative assets • sometimes even took away without proper accounting records • Overstaffing due to hiring of unskilled and unprofessional staff through a coercion-hiring attitude of the board members • non-active and non-participative board members • managers who are non-transparent towards the board and general assembly • political or personal bias when passing resolutions in the general assembly and in the board

23. Inefficient coops: Members • a severe lack of education, training, and motivation among the members • lack of communication between members resulting in an automatic loss of business • no budgetary control and no attempts are made to minimize unproductive expenses. It was also found, in our observations and discussions, that the members blame each other for the wrong doings • non-activeness and non-participative trend of the members in any business activities of the co-operatives • knowingly or unknowingly the results of their action (fraction of board members, members and staff) go wrong and cause failure of projects, which makes the members suffer economically

24. Differences between co-operative (members-owned), private sector (investor-owned), and public sector (government-owned) businesses

26. Conclusion • Co-operative enterprises are increasing moderately and have increasingly competitive role in the socio-economic sectors. • Public enterprises have decreased in numbers and have a diminishing role in the economy. • Private enterprises are increasing in numbers with higher coverage - technology of work and have an increasingly greater role in the economy

27. Conclusion • The co-operative will remain as a public-private partnership organization controlled by the public at large and its members and operate business in co-operative form and continue to grow in the future balancing the economy.

28. References • Review of International Cooperation, No 101, ICA, Geneva, 2005 •  Neupane, Shanta RS (2006), Co-operative Movement: Its role in the Economy of Nepal, An unpublished PhD Thesis, JamiaMilliaIslamia-Central University, New Delhi, India • Birchhal, W. (1994) Co-operatives A Members Business, Manchester University Press, Manchester, UK • World Development Report 2007, World Bank, Washington DC • Frontiers of Development Economics: The Future in Perspective Edited by Joseph E. Stiglitz, Gerald Meier, Published in April 2002, Oxford University Press for World Bank, Washington DC • Development, Trade, and the WTO: A Handbook, Edited by Bernard M. Hoekman, Philip English, AadityaMattoo, Published in June 2002, World Bank, Washington DC • Global Issues for Global Citizens: An Introduction to Key Development Challenges Edited by Vinay K. Bhargava, Published August 2006, World Bank, Washington DC • Tatyana P. Soubbotina (2004), Beyond Economic Growth: An Introduction to Sustainable Development, the World Bank, Washington D.C. • Jean-Francis Draperi, (1997) Co-operatives’ Role in Building Markets, Chief Editor of Co-op Journal ‘RECMA’, France 1997 • Muhammad Yunus, (2005) Grameen Bank at a Glance, Grameen Bank, Dhaka, Bangladesh

29. Thank you for your attention!