Six Guiding Priniples of
Cooperative Financial Organizations

Voluntary membership: People can join a cooperative if they share its common bond (some cooperatives are specifically for the benefit of a certain community, group of workers or relegion). Members must agree to the minimal requirements for membership and must be willing to support the cooperative's goals. Also, members may cancel their membership as long as they have met their obligations to the cooperative (eg. repaid any loans).

Democratic Control: The Cooperative provides on vote to each member, regardless of the amount of savings. Also, a member's family may paricipate in the cooperative, but each family has only one vote. This democratic control helps make sure the cooperative works for the benefit of all members.

Political and religious neutrality: The cooperative accepts members regardless of politics, race or religion. The cooperative remains neutral on these issues and does not discuss or promote one belief ovber another. The cooperative respects the beliefs of others.

Limited Interest on Capital: The main purpose of cooperative is to serve its members, not to make a profit. Therefore, the interest charged on loans is kept to a minimum and is based on the cost of administration plus the interest paid to savers. The main goal is service, not profits.

Fair Distribution of Earnings: At the end of each year, after paying all expenses (eg. interest payments to savers, administrative costs, salaries for hired staff and contributions to the cooperative reserve fund), the cooperative will sometimes have surplus or extra income. This surplus income is not rpofit but is refunded equally to the members who paid interest on loans. The cooperative distributes this interest refund according to how much interest each borrower paid. This helps to reduce the cost of loans. The surplus can also be used to increase the interest paid to savers.

Cooperative Education: A cooperative will succeed only if its members know their rights and responsibilities and understand how the coopeative should work. This includes their role in working together to make the cooperative work as well.

UNCHS [Habitat] (1989) Community Credit Mechanisms. Nairobi: United nations Centre for Human Settlements, p. 2

Return to the Documents Section

Hari Srinivas -
Return to the Virtual Library on Microcredit