Credit Co-operative Societies in India

Introduction

First of all , let’s see what is a cooperative society?

When people come together to jointly serve their common interest, they form cooperative society i.e A cooperative society is a voluntary association of individuals who come together to achieve common economic, social, and cultural goals through a jointly owned and democratically controlled enterprise. We have different cooperative societies such as

• Consumer Cooperative Societies
• Producer  Cooperative Societies
• Marketing  Cooperative Societies
• Housing  Cooperative Societies
• Worker  Cooperative Societies
• Credit  Cooperative Societies etc

Coming to Credit Cooperative societies, they are a type of cooperative societies specifically focused on providing financial services to their members. 

For example, let’s take Primary Agricultural Credit Society (PACS) to understand how a credit cooperative society works in India.

Example: Primary Agricultural Credit Society (PACS)

Background

PACS are basic cooperative credit societies in India which are setup with the sole objective of providing financial assistance to rural people particularly farmers, at low rates of interests.

• Formation and Membership

1. Formation: In a village, farmers  decides to form a cooperative society to address their financial needs. They apply for registration under the respective State Cooperative Societies Act.
2. Membership: Membership is open to all farmers in the village. Each member buys shares in the society, contributing to its capital. Membership is voluntary and based on the principle of one member, one vote, ensuring democratic control.

• Operations

Saving Money: Members give their savings to PACS. This money is then put together to make a loan fund.

Loans: Members can ask for loans from PACs. They can use these loans to buy things like seeds, fertilizers, or farm gear, or for other farm work.

Interest Costs: The cost of borrowing money is usually less than what banks or loan sharks charge. This makes borrowing cheaper for members.

Paying Back: Members pay back their loans following the plan they agreed to. Paying back on time is pushed through different ways to make it appealing.

• Governance and Management

All members form the General Body, the top group in PACS. They gather once a year to talk over and okay key actions, like picking the management team, okaying the yearly budget, and sharing surplus.

The Management Committee, chosen by the General Body, looks after the daily work of PACS. They make sure the society runs well and puts its members first.

PACS must keep clear money records and check them often to show they are honest and responsible.

Pros

Loans at Fair Rates: PACS help people avoid costly loans from informal lenders.

Banking in Rural Areas: PACS bring bank services to places far from cities, helping more people manage their money.

Aid for Farming: By giving loans on time, PACS boost farm work and growth in country areas.

Helping the Community: Money made by PACS often goes back into local projects or is shared with members as extra cash.

Cons

Leadership Problems: It can be hard to run them well and keep things in order.

Staying Afloat: Keeping money matters healthy needs careful handling of funds.

Following Rules: It’s important to meet all the legal demands to keep running smoothly.

Real-Life Example: Primary Agricultural Credit Society in Maharashtra

PACS have been a vital part of the agricultural sector in Maharashtra. Exempli gratia, a PACS in a village may give crop loans to farmers with short term during the planting season. These loans are sought by the farmers, who are members of the PACS, for procuring seeds and fertilizers. Funds come from the deposit of members, government grants and higher-tier cooperative banks for a PACS.

Farmers pay of the loans with interests by the end of season. The PACS uses the interest received and any surplus generated to enhance their services, pay dividends to members or invest in community development projects such as constructing irrigation structures.

 It is important to follow the regulatory framework laid down by the concerned state or central government in registering a credit co operative society. Detailed steps to register a credit union are below here:

Steps to Register a Credit Cooperative Society in India

1. Preliminary Preparations

Identify Promoters- A group of persons who have a common objective and wants to form a credit cooperative society. These are the promoters.

Perform a Feasibility Study- A feasibility study is required to verify the requirement & feasibility of the society in the proposed area.

2. Writing  By-laws as Examples: 

From the office of the State Co-operative Department or the Central Registrar (for multi-state federations), one can have a check of the model by laws.We can  modify the model bylaws to suit  the necessary needs and goals of the community and the situation you propose to create. The bylaws should also set out the name of the association, its objectives, rules for membership, capital structure, business plan and business rules. 

3. Application for registration Documents: 

• Prepare required documentation , which may include the following: Application for registration (as prescribed) . 
• Proposed by-laws,List of promoter members with their details (name, address, occupation, etc.)
• Address proof for the society’s registered office
• Proof of identity and address for each promoter member
• Affidavits from promoter members declaring they are not members of any other similar cooperative society
• Capital Requirement: Ensure that the minimum required share capital, as specified by the cooperative department, is collected from the promoter members.

4. Submission to the Registrar

• Registrar’s Office: Submit the application and supporting documents to the Registrar of Cooperative Societies in the respective state. For multi-state cooperative societies, the application should be submitted to the Central Registrar of Cooperative Societies.
• Registration Fee: Pay the prescribed registration fee.

5. Verification and Approval

• Scrutiny: The Registrar of Cooperative Societies will scrutinize the application and documents. They may conduct an inquiry to verify the authenticity and viability of the proposed society.
• Compliance Check: The Registrar ensures that the society complies with all legal requirements and that the bye-laws are in conformity with the cooperative laws.

6.Issuance of certificate of registration Approval

If the Registrar is satisfied with the application, the registration will be approved. Certificate of Registration: The name of the Society shall be issued to the Society. Official Gazette: Registration information is published in the Official Gazette.

 Important requirements after registration 

1. Starting a business Opening Ceremony: Hold a general opening ceremony to kick things off in style. 

2.Executive Selection: Select Executive Committee/Board of Directors

Benefits of Credit Cooperative Societies in India

• Lower Interest Rates: Credit unions generally offer lower interest rates compared to traditional banks and informal lenders. This makes loans affordable for members. Customized loan products: These associations usually offer loan products to meet the specific needs of their members, such as agricultural loans, business loans and personal loans.
•  Access to banking services: Credit unions extend banking services to underserved rural areas where formal banking is limited. It promotes financial inclusion and economic growth.
•  Supporting marginalized groups: The focus is often on providing financial services to marginalized groups, including small farmers, rural artisans and low-income households 
• Democratic Governance: Members have a say in the governance and decision-making process of a country, where each member generally has one vote, regardless of the number of shares .
• Community Focus: Decisions are made based on community needs and aspirations, resulting in more appropriate and effective services.
• Savings incentives: Members are encouraged to make regular savings, which will help them achieve financial security and stability. The money raised is then used to make loans to members. 
• Savings products: Associations offer a range of savings products including fixed deposits, recurring deposits and savings accounts to meet various financial needs .
• Supporting local economies: By providing low-cost loans, credit unions enable members to invest in income-generating activities, such as agriculture, small businesses and handicrafts.
• Business: Access to credit helps members start and expand their businesses, create jobs and grow the environment

In India, cooperative societies are governed primarily by two sets of laws:

1. State Cooperative Societies Acts: Each state in India has its own Cooperative Societies Act, which governs the formation, regulation, and functioning of cooperative societies within the respective state. Examples include the Maharashtra Cooperative Societies Act, 1960, and the Tamil Nadu Cooperative Societies Act, 1983.
2. The Multi-State Cooperative Societies Act, 2002: This Act governs cooperative societies that operate in more than one state. It provides for the registration, management, and dissolution of multi-state cooperative societies.