COOPERATION AND RURAL DEVELOPMENT

MODULE-1: ORIGIN AND DEVELOPMENT OF COOPERATION

1. Meaning:
 Cooperation is derived from the Latin word “co-operari”. ‘Co’ means together
or with and ‘operari’ means to work. Thus, co-operation means to work
together with others for a common purpose.
 The primitive concept of cooperation was related to cultural, religious and
social aspects. Christianity saw cooperation as Christianity applied to
business, for it was considered the embodiment of unselfishness and service
to humanity.
 The modern concept of cooperation views it as a special method of doing
business.
 The sociologists view co-operation as an instrument for establishing social
harmony and social transformation through the removal of class struggles.
 The economic aspect denotes cooperation as a means of countering the
exploitation of weaker sections by conferring a better economic status upon
them.
 In a legal sense, cooperation means special privileges and concessions
conferred by law on its members.
2. Definition:
 CO-OPERATION- Cooperation is self-help and each for all. Self-help means
the pride of supplying one’s needs by one’s own resources, of being one’s
own merchant bank, money lender and employer. Each for all means to seek
liberation, not only for oneself but for and through others. - Charles Guide.
 Co-operation is a form of organisation in which people voluntarily associate
together on a basis of equality for the promotion of their economic interest. –
The Cooperative Planning Committee.
 CO-OPERATIVES- A cooperative is an autonomous association of persons
united voluntarily to meet their common economic, social and cultural/needs
and aspiration through a jointly owned and democratically controlled
enterprise. – International Co-operative Alliance, 1995
 Co-operative is a form of organisation wherein persons voluntarily associate
together as human beings on the basis of equality for the promotion of
economic interest of themselves. – H.C. Calvert.
3. Features:
 An Association of Persons: A co-operative society comes into existence
when a group of individuals comes together and form an association.
 An Enterprise or undertaking: A co-operative is basically an enterprise or
undertaking as it is run by members themselves at their own cost and their
own risk.
 Voluntary Association: An individual has the freedom to join the society as
well as exit from the same at his will and discretion.
 Commonality: There exists commonality among the members. They join the
association for common needs like economic, social, health or other areas.
 Service Objective or service oriented: The objective or motive of a co-
operative society is to serve its members. It is service oriented and not profit
oriented.
 Democratic management: Co-operatives follow the cardinal principle of
democracy, i.e. one man one vote. The members have the same equal voting
rights irrespective of their contribution to the capital.
 Equality: There is no discrimination or bias based on the religious faith,
gender, political ideology, educational qualifications or other factors of the
members. Everyone is treated equally irrespective of these factors.
 Based on proportionality or equality: In the instance of surplus, it is
distributed among the members based on the proportion of business
operation effected within the society and not the number of shares taken.
 Autonomy: Co-operatives are autonomous and independent organisations
controlled by their members. It is a self-help organisation free from external
control.
 Universal Movement: Cooperation is a general form of organisation and is
universal in nature. It is found all over the world and is open to all persons.
4. Importance:
 Resource Optimisation:
o Pooling resources: Co-operative societies facilitate the pooling of
diverse resources including financial, human and technical resources
which can be utilised to meet the needs of the members
o Overcoming resource constraints: By pooling resources, the co-
operatives offer resources for all members and thus, stakeholders can
overcome resource constraints that cannot be properly address by any
single entity.
 Synergy and Collective Impact:
o Combined efforts: Co-operatives is an association of persons with
different skillsets, efforts and expertise. The combined resources of
various stakeholders result in collective impact that is greater than that
of individual efforts.
o Comprehensive solutions: Co-operative initiatives can address
multiple challenges leading to more holistic and effective solutions.
 Community Empowerment:
o Participatory Decision making: Co-operative societies encourage all
the stakeholders and members to be involved in decision making, thus
empowering them to take ownership of development initiatives.
o Capacity building: Co-operative acts as the platform enabling the
enhancement of the skills, knowledge and self-reliance of its members
 Environmental sustainability:
o Promoting sustainable practices: Cooperative societies emphasise
on sustainable practices and consider the environmental impact of
their initiatives.
o Conservation efforts: Being sustainable and adapting eco-friendly
activities, collaborative efforts can be directed toward natural resource
contribution.
 Knowledge transfer and innovation:
o Knowledge transfer: Co-operatives facilitates the exchange of
information and expertise among the stakeholders leading to
innovation and adoption of best practices.
o Adaptation to changes: Co-operatives provide an opportunity for
learning new information and gaining knowledge on the latest
knowledge and trends helping to adapt to changes.
 Social cohesion and harmony:
o Building trust: Co-operative societies foster a sense of belonging,
trust and mutual understanding among the different stakeholders
promoting social cohesion.
o Conflict resolution: Co-operatives acts as a conflict resolution forum
and promote a sense of shared responsibility among the society.
 Rural-urban linkages: Cooperation can establish links between rural and
urban area facilitating resources and information, essential for balance
regional development.
5. Objectives: The objectives of Co-operative societies can be classified under
three heads:
1. Economic objectives:
a. There will be increase in the income of the members.
b. A more equitable distribution of wealth is facilitated.
c. There is increase in the purchasing power and real wages to
individuals
d. Employment is stabilised for the members
e. A break up of monopolistic wealth.
f. Facilitates resource pooling and overcome resource constraints.
2. Social objectives:
a. Aims at the development of the society as a whole
b. It provides a unique education in democracy, responsibility.
c. There is elimination of exploitation by middlemen.
d. It facilitates employment generation.
e. It increases the living standards.
f. Promotes social cohesion and harmony.
3. Cultural objectives:
a. It provides co-operative education.
b. It promotes ethical values.
c. It promotes mutual help and co-ordination.
d. It acts as a platform for knowledge transfer and innovation.
e. Acts a linkage between rural and urban communities
6. Co-operation and other economic systems:
 A system can be defined as comprehensive assemblage of facts,
principles, doctrines and the like in a particular field of knowledge or
thought.
 Economic system refers to the role or model of production and distribution
of goods and services and the allocation of resources in a society.
 It refers to the principles, policies and methods adopted by a nation for
utilizing the scares resources available for satisfying the unlimited wants
and needs of its people.
 The major economic systems are capitalism, socialism, communism and
mixed economy.
CAPITALISM AND CO-OPERATION:
 Capitalism is an economic system in which business and industry are
organised and carried out for profit by private individuals with minimum to
no interference of government authorities.
 It is a system wherein the entire process of production and distribution of
goods and services are vested in the hands of private individuals.
 The central problems of the economy, what to produce, how to produce
and for whom to produce is solved by the free working of the supply and
demand in the market economy.
 USA, UK and Europe are countries that adopted the capitalist form of
economic system.
 It is the offspring of feudalism.
 Features:
o Profit motive: no social commitments
o Private ownership: freedom to acquire, use and transfer property
with no moral, legal or social controls and restrictions
o Minimum interference by the government: no regulations and
controls over economic activities. The system is based on the
Lasieez principle.
o High competition: price reductions, better quality, product
diversifications.
o Freedom of choice by the consumers: the wants and needs of the
consumer determine the magnitude and pattern of production.
o Class struggle: capitalist and working-class conflict due to clashing
economic interest and inequality.
 Advantages:
o Reward is apportioned on merits
o Consumer needs are satisfied
o Advancement of the business is aimed
o Flexible to adapt to changing economic conditions
o Amendable to a certain amount of regulation by the State.
o High rate of capital formations
o Economic development and prosperity
o Optimum usage of resources
 Disadvantages:
o Exploitation by private individuals for personal gains
o Fosters individualistic approach and is profit motived
o Centralisation of power and accumulation of power in a few hands
o Unfair and unequal distribution of income and wealth
o Class division into working class and the capitalists
o Emergence of monopolies
o Misallocation of resources
 Similarities:
o Both systems give emphasis to capital
o Uses labour factors at the lowest price
o Depends on business efficiency
o Not favouring state interventions
 Differences:
o Capitalism: capital has pivotal role.
Co-operation: capital has secondary role.
o Capitalism: profit motive.
Co-operation: service motive.
o Capitalism: Union of capital
 Co-operation: Union of members or individuals
o Capitalism: share capital determines voting rights
Co-operation: one man one vote irrespective of share
o Capitalism: capital owns men
Co-operation: men own capital
o Capitalism: concentration of wealth in a few hands.
Co-operation: wealth is decentralised.
o Capitalism: there is cut throat competition.
Co-operation: no competition exists.
o Capitalism: evolution towards monopoly.
Co-operation: evolution towards decentralisation.
o Capitalism: relationship is impersonal
Co-operation: there exist a personal relationship between members
and organisations.
SOCIALISM:
 Socialism is an economic system in which the means of production are
owned by the State.
 It is a form of economic order or system which is formed on the concept of
the Welfare State. It means that the means of production is collectively
owned by the community and a democratic representative organ operates
it according to a general plan and the benefits of which is entitled to every
member.
 It is a socio-economic system in which material means of production are
owned by public authority or the community and operated for the service
of the community at large.
 It is a system of thought and government that holds the state should own,
operate and distribute all resources of community and restrict private
ownership to articles of consumption only.
 It is the corrective step for the severe damages caused by capitalism.
 A concept introduced by Karl Marx in his work, the communist manifesto.
 Cuba, China and North Korea are countries that follow socialist economic
system.
 Features:
o Collective ownership: all means of productions and resources are
the collective good of the community in control of the state. There is
a limit on the private property that can be held by an individual.
o Economic planning: the government appoints a central economic
planning authority to fix certain objectives and this authority takes
all decisions regarding the same.
o Welfare motive: The main motive is welfare of the community as a
whole and hence, all the resources are utilised to be of use to the
community as a whole.
o No class struggles: There is no class division like that in capitalism.
Every member has equal economic status.
o Price controls: The price is often set by the government and no
market forces influence the same. So, there is an affordable pricing
system.
 Advantages:
 o Minimal competition
o Rapid economic growth
o No exploitation by capitalist
o No labour and class struggles
o Proper resource allocation
 Disadvantages:
o Limited individual freedom
o No scope for innovation since hard work is favoured
o Centralised planning leads to inefficiency
o Scope for corruption, red-tapism and favouritism
o Creation of state monopoly
 Similarities:
o Both aim to abolish class struggle and profit economy
o Both maintain economic equality
o Both aim to eliminate competition
o Both is service oriented
o Both oppose individualism
o Both emphasise on distribution of wealth
o Both aim for elimination of the evil effects of capitalism
 Difference:
o Socialism: a system of government which changes the prevalent
economic order.
Co-operation: a system of thought compatible with all forms of
economic and political systems.
o Socialism: a political remedy for the economic evils
Co-operation: an economic remedy for economic maladjustments.
o Socialism: the state is the supreme authority.
Co-operation: the individual is the supreme authority.
o Socialism: there is state intervention to achieve the goals.
Co-operation: there is no interference of state but it is not an
outcast.
o Socialism: it has political backing
Co-operation: it is free from politics and is politically neutral.
o Socialism: associated with state ownership of property.
Co-operation: co-existence of state ownership and private
ownership of property.
o Socialism: the surplus goes to the state.
Co-operation: the surplus is distributed based on the member
actions and participation.
o Socialism: aims for the welfare of the society as a whole.
Co-operation: aims to serve the community and members.
COMMUNISM:
 Communism is a form of socialism wherein all means of production and
other forms of property are owned by the community as a whole.
 It aims to create a classless society.
 It aims to abolish capitalism and establish a society where the goods are
socially owned.
 Also known as scientific socialism since it is an advanced form.
  Features:
o There is collective ownership of all means of production.
o Economic decisions are made through central planning.
o There are no social classes.
o Goods are distributed based on need and not monetary
transactions.
o The common welfare of the society is the primary goal.
o It uses political and violent revolutionary methods to achieve the
aims
 Similarities:
o Both emphasize collective ownership.
o Both prioritize the welfare of the group over individual profit.
o Both encourage mutual aid and support
 Differences:
o Communism: a broad socio-economic system aiming for stateless,
classless society.
Cooperation: specific organisations operating within various
economic systems.
o Communism: it involves revolutionary changes, state intervention
and central planning.
Cooperation: formed voluntarily by individuals on mutual
agreement.
o Communism: no emphasis on individual financial incentives.
Cooperation: emphasis on collective ownership and democratic
management.
7. Co-operative principles:
 Principles means fundamental truth or proposition that serves as the
foundation for a system of belief or behaviour.
 It means governing the law of conduct and defining the basic and essential
characteristics of a particular system or type of organisation/enterprise.
 The principles of cooperation are the broad guidelines prescribing the way of
organising and conducting cooperative societies and their activities.
 The principles of cooperation are those principles essential for achieving the
cooperative movement’s purpose.
 The co-operative principles were developed through four different stages:
o Roach dale principles
o Reformulated principles by ICA
o Karve Committee on Co-operative principles
o Principles by ICA in 1995

Roach Dale principles- First stage:

The first cooperative came into existence in 1760 but did not succeed in
functioning. Various co-operatives came up during the 1760-1844 period but was
a failure. In 1844, a consumer co-operative society benefitting for the weavers’
community was established in Rochdale, England. They succeeded in their
venture and was run on some basic principles such as
1. Open membership: Membership was open to all those
who belonged to the area who need their service.
 There were no criteria to be fulfilled to be a member of
the society.
2. Democratic control: Management of the co-operative
societies is being done based on democratic principles.
3. Limited interest on share capital: There was a
restriction on the interest paid on share capital.
4. Patronage dividend: Dividend was distributed equally
irrespective of the amount of capital contributed.
5. Cash trading: Goods and services were sold only on
cash basis and not credit basis.
6. Political and religious neutrality: All religions and
politics were given equal importance.
7. Promotion of education: Education was considered to
of utmost importance for its development and hence
co-operative education was extended to all.
8. Selling of pure and unadulterated goods: the goods
sold were of good quality and at reasonable price.
Reformulated principles by ICA- Second stage:
ICA is an international body set up for the promotion of cooperative ideas and
spreading the principles of co-operation around the world. There were enormous
changes in the world economic, social and political fronts. So, a revision of these
principles was necessary and much needed. In 1934, ICA appointed a
subcommittee in 1934 to evaluate the Roach dale principles and submitted their
report in 1937. The Roach Dale principles were classified into two: essential and
non-essential principles.
1. The essential principles were: Open membership, democratic control,
limited interest on share capital and patronage dividend.
2. The non-essential principles were: Religious and political neutrality,
promotion of education, cash trading and selling of pure and
unadulterated goods.
Karve Committee on co-operative principles-Third stage:
In 1960, due to dynamic nature of the world, a modification of the co-operative
principles was essential and hence a committee was formed in 1964. The
commission was represented by five countries UK, USSR, India, USA and
Germany. Prof. D.G. Karve headed the commission, and hence, it was called the
Karve Committee.
The new principles recommended were:
1. Open and voluntary membership: Membership was open to all irrespective
of any grounds like creed, caste, gender, race or politics.
2. Democratic management
3. Limited interest on share capital: Interest on capital is restricted. For the
purpose of collecting funds, the society is bound to pay interest.
4. Equitable distribution of surplus: The surplus gained is disposed of as
following: provision is made for the development of the society, provision
is made for common services, distributed among members on equitable
basis.
 5. Co-operative education: Co-operative education includes education of the
members, education of office bearers and education of prospective
members.
6. Co-operation among co-operative principles: To best serve the interest of
members, all co-operatives’ organisations should actively co-operate in
every practical way with other co-operatives at local, national and
international levels.
Principles by ICA, 1995-Fourth Stage:
In ICA Tokyo Congress held in 1992, it was recommended to the ICA to initiate
steps to review the current principles to prevent erosion in values of co-
operation. ICA General Assembly 1995 held at New Century Hall Manchester,
adopted the new co-operative principles.
It included seven principles as follows:
1. Voluntary and Open membership
2. Democratic member control: Cooperatives are democratic organisations
controlled by their members, who actively participate in setting their
policies and making decisions.
3. Member economic participation: The key concept enshrined in a co-
operative should be capital is the servant and not the master of the
enterprise. Members contribute equitably to the capital of their co-
operatives. Co-operatives operate with capital as servant and not as
masters. Members get dividend based on the member participation as
economic benefit.
4. Autonomy and independence
5. Education, training and information
6. Co-operation among co-operatives and
7. Concern for community: Cooperatives work for the sustainable
development of their communities through policies approved by their
members. They have to ensure that the development of their communities
is sustained economically, socially and culturally.

8. Co-operative values:
Cooperative values serve as the guiding principles for cooperatives, helping
members create organizations that operate fairly, ethically, and sustainably.
The values can be classified into two: core cooperative values and ethical
cooperative values.
Core Cooperative Values
1. Self-Help: This value emphasizes that members come together to solve
shared challenges and meet their common needs. By pooling resources and
working together, they build an organization that provides mutual benefits.
Self-help encourages members to rely on each other and foster a culture of
resilience and independence.

2. Self-Responsibility: Cooperative members are accountable for their

decisions and actions within the cooperative. Self-responsibility promotes
taking ownership of one’s role, duties, and contributions to the organization.
Members work not only for personal gain but also for the betterment of the
cooperative as a whole.
 3. Democracy: Cooperatives are democratic organizations controlled by
their members. Each member typically has an equal vote in decision-making
processes, ensuring that everyone has a voice. This democratic structure
encourages transparency, inclusion, and collective decision-making.

4. Equality: Cooperatives operate on the principle of equal participation and

opportunity, regardless of one’s background, status, or position within the
organization. This value aims to eliminate discrimination and foster an
environment where everyone has the same rights, duties, and influence in the
cooperative.

5. Equity: Equity is about fairness and justice in the treatment of cooperative

members. Cooperatives aim to ensure that benefits, opportunities, and
resources are distributed fairly. Equity acknowledges that members may have
different needs, so support is provided as needed to achieve balanced
outcomes for all.

6. Solidarity: Cooperatives embrace a spirit of mutual support and

collective strength. Solidarity encourages members to work together for
the common good, often extending this commitment beyond the
cooperative to benefit the broader community. This fosters a sense of
unity and shared purpose.

Ethical Cooperative Values:

1.Honesty: Cooperatives strive to be truthful, transparent, and

straightforward in their operations and dealings with members, customers,
and the public. Honesty builds trust among members and creates a
foundation for strong, ethical practices.

2. Openness: This value reflects a commitment to transparency and

inclusivity. Cooperatives provide open access to information and encourage
open dialogue, enabling members to make informed decisions. Openness
fosters a culture of trust and accountability.

3. Social Responsibility: Cooperatives are not solely profit-driven; they aim

to positively impact society and contribute to sustainable development. This
value encourages cooperatives to prioritize social welfare, community
development, and environmental stewardship in their operations.

4. Caring for Others: Cooperatives value compassion and empathy. This

commitment to caring encourages cooperatives to support their members,
employees, and the community. By putting people before profits,
cooperatives foster a culture of mutual respect and support.

7. Co-operation, Partnership and Joint Stock Companies

In the field of business, there are different forms of business organisations such
as sole proprietor, partnership and joint stock company.
Sole proprietorship:
 Sole proprietorship is a business form in which the capital is introduced, the
business and profit/loss is managed and controlled by a single individual.
 The main motive is profit or personal gain.
 The difference between sole proprietorship and co-operation are:
o Sole: A form of business form in which a single individual owns and
carries out the business.
o Co-operation: A form of business in which members jointly owns and
carries out the business.
o Sole: The management, control and decision-making regarding
business policy is done by the sole trader himself.
o Co-operation: The management is vested with the Board of directors
elected by the members.
o Sole: Profit is shared or loss is suffered by the sole trader himself.
o Co-operation: Profit is shared among the members in an equitable
manner.
o Sole: The main aim of the business is profit or personal gain.
o Co-operation: The main aim is to render service or serve the members
o Sole: Capital cannot be raised by issuing shares.
o Co-operation: Capital can be raised by issuing shares.
o Sole: There exist no legal entity and the business can be closed any
time.
o Co-operation: There is legal entity and perpetual succession.
o Sole: There are no statutory privileges conferred by law.
o Co-operation: There are statutory privileges conferred by law.

Partnership firm:
 Partnership firm is a form of business in which two or more persons join
together and organise for business.
 It is formed as per the Partnership Act of 1932.
 The main differences between partnership and co-operation are:
o Partnership: There should be a minimum of 10 members in a trading
business and 20 in the case of banking business
o Co-operation: 25 persons drawn from different families
o Partnership: The registration is done as per the Partnership Act, 1932.
o Co-operation: The registration is done as per the Co-operative Societies
Act. 1969.
o Partnership: The capital is raised by different partners.
o Co-operation: The fund is raised from members and non-members.
o Partnership: Can be dissolved in certain situations like death,
insolvency.
o Co-operation: Enjoys continuity i.e. there is perpetual succession.
o Partnership: The management is done by partner or partners.
o Co-operation: The management is done by the BOARD OF DIRECTORS
o Partnership: The profit is shared as per the proportion to their profit-
sharing ratio.
o Co-operation: The profit is equally shared among the members.
Joint Stock Company:
 Joint stock company is a form of business organisation in which people
contribute money to a common stock for the sake of carrying on business on
a large scale and sharing profit under the certification of incorporation
granted by the government.
 The main differences between joint stock company and co-operation are:
o Joint Stock Company: It is an association of capitalists.
o Co-operation: An association of economically weaker population.
o Joint: Profit motived
o Co-operation: Service oriented
o Joint: The capital is of utmost importance.
o Co-operation: The members are of utmost importance.
o Joint: The principle of equality is not followed.
o Co-operation: The principle of equality is followed in distribution of
profit and voting rights.
o Joint: The management is done by the board of directors.
o Co-operation: The management is done by a committee of
management.
o Joint: It is purely individualistic in nature.
o Co-operation: It focuses on integration and combination of members.
o Joint: It eliminates competition and creates monopoly.
o Co-operation: It tries to eliminate power.
o Joint: The profit is shared based on the capital contribution.
o Co-operation: The profit is distributed based on the transaction made
by the members of the society.
o Joint: There is centralisation of power and wealth.
o Co-operation: There is decentralisation of power and wealth.
MODULE-2: CO-OPERATIVE CREDIT SOCIETIES
Co-operative societies:
A co-operative society is an autonomous, open and voluntary association of
persons of the weaker section of society to meet their common socio-economic
and cultural needs and aspirations through a jointly owned and democratically
controlled enterprise working in accordance with the cooperative values and
principles.
The history of cooperative societies in India can be classified into three eras: the
pre-independence era, the post-independence era and the modern era. The co-
operative movement in India is considered to have been started by the
enactment of the Co-operative Credit Societies Act, of 1904. This legislation was
later amended in 1912 to include non-credit societies as well. The post-
independence era saw the emergence of five-year plans and the National
Cooperative Development Corporation, as well as the green revolution, which
gave the societies a democratic backing. The New Economic Policy, which
catalysed the LPG movement, marked the beginning of the modern era. The
latest intervention was the 97th Constitutional Amendment that recognised
cooperatives as a fundamental right U/Art.19.
Types of co-operative societies:
The cooperative societies in India can be classified into two:
1. Cooperative Credit Society: These are co-operative societies set up with
the objective of providing credit facilities to their members. They provide
financial assistance in the form of loans.
Key Features:
a. Helps to create and pool funds for mutual financial aid.
b. The loans are provided at a lower rate than commercial banks.
c. The loans and financial assistance are limited to its members.
d. There is a democratic management in place wherein the members
have one vote each and elect a board of directors.
2. Cooperative Non-credit Society: These are co-operative societies engaged
in non-financial activities, i.e. activities other than providing credit. This
includes production, supply, marketing, housing, dairy, etc.
Key Features:
a. The activities are member-oriented, i.e., the collective efforts of each
group.
b. There is the pooling of resources such as labour, money, produce and
products.
c. The surplus or profit earned is reinvested in the society or distributed
among the members.
Types of Cooperative Credit Societies:
Cooperative credit societies can be classified into two:
1. Agricultural credit societies
2. Non-agricultural credit societies.
Agricultural credit societies can be classified into two:
1. Short-term/medium-term agricultural credit societies: This includes the
following:
a. State Cooperative Banks
b. Central Cooperative Banks
c. Primary Agricultural Credit Societies (PACS)
2. Long-term agricultural credit societies: This can be further classified into
two:
a. State Cooperative Agricultural and Rural Development Bank
b. Primary Cooperative Agricultural and Rural Development Bank
(PCARDB)
Non-agricultural credit societies can be classified into the following:
1. Employee Credit Societies
2. Housing Cooperative Societies
3. Urban Cooperative Banks
Agricultural Credit Societies:
Agricultural credit societies are cooperative societies that aim to provide
financial assistance to farmers and other persons involved in agricultural
activities. The primary objective of agricultural credit societies is to meet the
credit needs of farmers by providing loans at reasonable interest rates and, thus,
promoting rural development.
The main objectives of agricultural credit societies are:
a. It ensures the availability of timely and adequate credit for agricultural
and farming activities.
b. It helps to reduce the dependence of agriculturalists and farmers on
informal modes of credit like moneylenders.
c. It encourages the habit of savings among farmers providing financial
balance.
d. It facilitates the growth of rural development.
Cooperative credit societies were introduced in India in the early 20 th century.
The Cooperative Credit Societies Act of 1904 was a landmark in Indian
cooperative history.
The agricultural credit societies can be classified into two based on the duration
for which credit is provided.
1. Short-term/medium-term agricultural credit societies:
Short-term: provide credit for a duration of 6-12 months.
Medium-term: provide credit for a duration from 1 to 5 years.
Short-term: primarily used for financing seasonal agricultural operations
Medium-term: intended for capital investment needs, crop losses, and
infrastructural investments.
The structure of this is a three-tier system which includes the following:
1. Primary Agricultural Credit Societies (PACS) at the Primary level.
2. Central Cooperative Banks at the Central level/ district level.
3. State Cooperative Banks at the Apex/ State level.
PACS: They are the grassroots-level organisations in the three-tier structure for
short and medium-term agricultural credit in cooperative societies.
These societies were organised in the Raiffeisen model of Germany with
unlimited liability for its members. However, the present practice is to register
these societies with limited liability.
The objective of PACS is to provide short-term financial assistance to its
members and to provide cheap credit for the smooth conduct of agricultural
activities.
One of the main features of these societies was restricted areas of operation,
which enabled mutual understanding. However, these small-sized societies were
objected to by the 1946 Cooperative Committee as well as the All-India Rural
Credit Survey Committee. The small-scale societies were good for mutual
understanding and socio-ethical and moral aspects but did not help in the
business aspects and economic viability.
The existence and working of PACS depend on the liquid funds available in it. The
liquidity of funds depends on the capital available. The capital is raised through
different methods: collected from members in the form of capital,
government participation in share capital either directly or indirectly,
and schemes for mobilisation of deposits and borrowings.
PACS are financing short-term and medium-term requirements of farmers. All
India Rural Credit Survey Committee recommended that the loans granted by
PACS should be in the form of crop loans. This type of loan is known as CLS (Crop
Loan System) where the loan is granted for:
a. Only for production purposes.
b. On the security of crops.
c. The cost of cultivation is estimated, and the amount of the loan is fixed on
the basis of this estimated cost.
d. Loans should be recovered from the sales proceeds of the cooperative.
The loans given by PACS are refinanced by the NABARD (National Bank for
Agriculture and Rural Development) through State cooperative banks and Central
cooperative banks and finally to PACS at a concessional rate.
Central/District Cooperative Banks: The middle-tier in the three-tier system
of short-term/medium-term agricultural co-operative credit societies.
They are the cooperative societies operating at the district level in various parts
of India. The primary objective of the society is to raise funds to be lent to its
member societies and individuals. The members of the central cooperative banks
include primary cooperative credit societies and other types of primary societies
working under its jurisdiction.
The 1904 Cooperative Credit Societies Act did not contain a provision for the
establishment of central cooperative banks at the district level. This was included
in the New Amendment Act of 1912, which allowed the registration of central
cooperative banks.
The area of operation will be a revenue district. Thus, in Kerala, there are 14
central/district cooperative banks.
The important functions are:
a. To meet the credit requirements of its member societies
b. To act as a balancing centre for PACS by diverting the surplus funds of
some societies to those facing a shortage of funds.
c. To supervise and inspect the working of PACS
d. To provide proper guidance in management and investment.
e. To raise deposits from members and non-members
The source of funds for the district cooperative banks includes paid-up share
capital, reserve funds, deposits received from member societies and non-
members, borrowing from state cooperative banks, NABARD, etc.
State Cooperative Banks: the top tier in the three-tier structure of cooperative
societies of short-term and medium-term societies.
It is the federation of central cooperative banks and functions at the apex level.
It acts as the connecting link between cooperative movement and outside money
market and performs ordinary banking business.
The funds of this society are obtained from share capital, deposits, surplus from
central or district cooperative banks, issues of debentures and loans from
commercial banks.
Only district cooperative banks are admitted as members of the apex bank. The
state government can also be a member of the bank.
The general body is the supreme authority, while the management of the bank is
vested in the board of directors, subject to the general control of the general
body. There is also an executive committee for the Bank.
The objectives of the bank include:
a. To act as the apex cooperative bank
b. To promote the economic interest of its members.
c. To finance district cooperative banks
d. To raise funds from members and non-members like NABARD
e. To implement government schemes
f. To supervise the working of central cooperative banks.

2. Long-term agricultural credit societies: Credit societies provide farmers

and agricultural workers with credit and loans having longer repayment
periods, typically ranging from 5 years to 20 years or more.
These loans are used for long-term investments in agriculture such as
purchasing land, machinery and equipment, irrigation and infrastructural
development.
The structure of long-term credit societies is a two-tier system. They are:
1. State Cooperative Agricultural and Rural Development Bank (SCARDB)
at the state/apex level.
2. Primary Cooperative Agricultural and Rural Development Bank
(PCARDB) at the primary level.
PCARDB: It is a society whose area of operation is confined to a Taluk, and the
principal objective is to provide long-term credit for agricultural and rural
development activities.
The management of the bank is done by the Board of Directors and the
Executive Committee. The day-to-day administration is carried out by the
President and Secretary.
The membership of the bank is open to individual agriculturists who own land
within the Area of operation and who are competent to enter into contracts with
the Government.
Share capital of the Bank comprises of Four classes:
 A class shares of 50/-
 B class shares of 100/-
 C class shares of 1000/- and
 D class shares of 10/- each.

The sources of funds include share capital, entrance fee, reserve fund, loans and
advances from SCARDB and loans, grants or subsidies from the Government.
The following types of loans are advanced to customers:
1. Ordinary loans
2. Farm loans
3. Non-farm loans
4. Rural housing loans
5. Loans for small road transport operations
6. Integrated loan scheme
SCARDB: The bank is a state level agency issuing long-term credit to PCARDB. It
is an association of PCARDBs and they are the members of it.
The main objective is to raise long-term funds to finance primary land
development banks affiliated with them.
The main functions can be classified as:
1. To issue debentures on the security of assets of primary banks.
2. To grant loans to PCARDB or individuals through its branches
3. To establish branches and offices to facilitate its business
4. To inspect the working of PCARDB.
5. To ensure cooperation and savings among its members.
The sources of finance of the bank include share capital, debentures, loans from
SBI, admission fees, deposits, grants and subsidies.
Non-agricultural societies:
Non-agricultural credit societies are cooperative institutions that provide financial
services to members for non-agricultural purposes. These societies cater to the
credit needs of individuals and groups in urban or semi-urban areas for personal,
business or professional requirements.
They are formed to meet the financial requirements of non-agriculturists such as
small-scale and cottage industries, traders, labourers and workers.
The main objectives of non-agricultural credit cooperative societies are:
a. It primarily focuses on serving the members in urban and semi-urban
areas as opposed to agricultural regions.
b. Loans are granted for non-agricultural activities like education, housing
and personal loans.
c. Only members of the societies can apply for loans with credit offered
based on their contribution, financial history, savings, etc.
The types of non-agricultural credit societies are:
1. Employee Credit Societies
2. Housing Cooperative Societies
3. Urban Cooperative Banks
Employee Credit Societies: The non-agricultural credit societies formed by the
employees of the public and private sectors to meet the credit needs of the
salary income groups. Loans granted are refinanced by the district cooperative
bank, and the recovery is made by deducting the loan instalment from the salary
of the employees.
The features of this society include:
a. It is formed by the salaried employees.
b. The organisation of the society is voluntary.
c. Each member is entitled to purchase only one share.
d. Members usually reside in urban and semi-urban areas.
e. The societies advance two types of loans, such as long-term loans for a
period of up to 60 months and short-term loans not exceeding 5000/-
payable in 10 instalments.
The main resources or funds are share capital from members and the
government, own funds, loans from district cooperative banks and deposits from
members and non-members as borrowed funds.
The main object of such societies is to promote thrift and saving habits among
the employees.
Housing Cooperative Societies: Housing Societies are formed with the object
of increasing the housing facilities in the country. The housing cooperatives in
India have a two-tier structure with primary co-operatives at the lower level and
the Housing federation at the State level.
Types of housing cooperatives:
1. Cooperative building society: the society grants loans for the construction
of buildings on their own land.
2. Cooperative house-building society: the society acquires land and
constructs the buildings which are made available to members.
3. Cooperative house construction society: the society acquires land,
constructs a house and rents it out to the members under a higher
purchase system.
 4. Cooperative tenant housing society: the society purchases land and
constructs the houses in accordance with the plan, which is lent to
members on rent to solve the problem of residence.
5. Cooperative house mortgage society: those houses are already owned by
the members and require funds for renovation and re-modelling or
extension; the society lends money to them.
6. Cooperative township: the society acquires land in principal cities and
constructs a whole town by providing civic amenities.
The two-tier system of housing cooperatives in Kerala is:
1. Primary Cooperative Housing Societies: It is organised in urban, rural and
semi-urban to solve the problem of housing. The area of operation- one
municipal town or one panchayat. The sources of funds are share capital,
entrance fees, deposits, and loans.
2. HOUSEFED: It began functioning from 1970 onwards, with its headquarters
at Cochin. The area of operation is the entire state of Kerala. It is the apex
institution of housing cooperatives in the state. The membership is open
to all primary housing societies in the state and the state government. The
source of funds include share capital, entrance fees, debentures, deposits,
loans from LIC, housing board etc.
Urban Cooperative Banks: A cooperative society the principal object of which
is to undertake non-agricultural credit activities and to raise funds to be lent to
its members within its area of operation confined to a municipality or a
corporation.
The area of operation is a town, municipality or taluk.
Membership: Individuals residing within the area of operation and capable of
entering into a contract, employees in any establishment within the area of
operations, state government and local bodies.
Share capital ranges from 5/- lakhs to 50/-lakhs.
A class to the value of 25/- each
B class to the value of 100/- each or 1000/- intended for Government
C class to the value of 5/- each
The main resources include owned and borrowed funds- share capital, entrée fee,
reserves, deposits from members and non-members, borrowings from district
cooperative banks, RBI, etc.
The types of loans advanced include business loans, consumption loans, self-
employment loans, housing loans, and industrial loans.
The main functions of the urban cooperative banks are:
a. Accepting deposits from members and non-members.
b. Advance loans to members.
c. Provide all banking business to members and non-members.
MODULE-V
NABARD PROGRAMS:
1. Refinance Scheme for Agriculture and Rural Development: NABARD
provides refinance support to regional rural banks (RRBs), cooperative banks,
and other financial institutions, enabling them to lend to farmers and rural
entrepreneurs. This helps to increase credit flow in rural areas and aids in
agricultural and rural development activities.The refinance facility covers various
sectors such as crop production, farm mechanization, irrigation, animal
husbandry, and rural housing.
2. Rural Infrastructure Development Fund (RIDF): RIDF was created in
1995-96 to finance ongoing rural infrastructure projects. This fund enables state
governments to complete rural infrastructure projects like irrigation, roads,
bridges, healthcare, schools, and drinking water facilities. It is financed by
NABARD from the deposits made by commercial banks, particularly when they
fail to meet the priority sector lending targets.
3. Watershed Development Program: NABARD implements watershed
programs to conserve soil, water, and vegetation, focusing on drought-prone and
rain-fed areas. This helps to improve water availability, increase crop yield, and
ensure
4. Tribal Development Program: Through the Tribal Development Program,
NABARD supports livelihood development projects for tribal communities. These
projects focus on sustainable farming, skill development, health, and education,
aiming to uplift the socio-economic conditions of tribal populations.
5. Financial Inclusion Initiatives: NABARD promotes financial inclusion by
encouraging banks and other institutions to expand their presence in rural areas.
This is achieved through digital financial services, microfinance, self-help groups
(SHGs), and banking kiosks. Programs like Financial Literacy Awareness Programs
(FLAPs) and Financial Literacy Centers (FLCs) help to improve financial literacy
and access to banking services among rural people.
6. Self-Help Group (SHG) - Bank Linkage Program: NABARD pioneered the
SHG-Bank Linkage Program to promote financial inclusion for women and rural
households by linking SHGs with banks. Under this program, SHGs receive easy
access to credit, empowering women in rural areas to start small businesses,
improve their savings, and contribute to their household incomes.