Limitations of a Credit Co-operative Society

For all their value, credit co-operative societies also suffer from real weaknesses, and an honest study must set these against their advantages. The main limitations are:

• Limited resources / shortage of capital — Since members are people of small means, the funds they can contribute are limited. Many societies therefore cannot meet the full credit needs of their members and depend heavily on higher co-operative banks and government help.
• Overdues and defaults — A serious and chronic problem. When members fail to repay loans on time, fresh lending dries up and the society's very survival is threatened. Political interference and loan-waiver expectations often make recovery harder.
• Untrained and honorary management — Committees are usually elected from among ordinary members who may lack the training, book-keeping skill and experience to run a financial body soundly. This can lead to poor decisions and, at times, mismanagement.
• Misuse and dishonesty — Loans are sometimes taken for productive purposes but spent on wasteful consumption, and a few societies have suffered from favouritism, nepotism or fraud by office-bearers.
• Excessive government interference and dependence — While state support is needed, too much official control and reliance on government funds can weaken the self-help spirit and the initiative of members.
• Restricted area and small size — Because a society's operations are confined to a small locality and a limited membership, it cannot enjoy the economies of a large institution and its capacity to lend stays small.
• Lack of awareness and involvement — In many places members join only to get a loan and take little interest in running the society or attending meetings, which weakens the democratic control that is the heart of co-operation.