Q.Explain the causes of financial weakness in co-operative societies.

A co-operative's capital comes mainly from members of small means, and several factors keep it thin and fragile.

Financial weakness — shortage of capital and poor financial health — is one of the most crippling challenges before the co-operative sector. Its main causes are:

1. Low share capital. Most members are people of small means who can subscribe only small amounts, so the society's share capital base is thin from the start.
2. Limited return on capital. By the principle of member economic participation, the return paid on member capital is deliberately limited. This is correct in spirit, but it makes it harder for a society to attract large investment.
3. Over-dependence on borrowings and government help. Many societies rely heavily on outside loans and government aid instead of building their own funds, which leaves them fragile and dependent on others.
4. Poor recovery of loans (mounting overdues). In credit societies especially, loans given out are not repaid on time. These growing overdues lock up the society's funds, so it cannot lend again or meet its own obligations — a very serious problem in the co-operative credit structure.
5. Losses and eroded reserves. Inefficient or corrupt working produces losses that eat into whatever reserves the society has built, weakening it further. …