Disadvantages of Cooperative Enterprises

Disadvantages of cooperative enterprises

The following are some of the disadvantages of Cooperative enterprises.

1. Limited funds: Co-operative societies have limited membership and are promoted by the weaker sections. The membership fees collected is low. Therefore the funds available with the co-operatives are limited. The principle of one-man one-vote and limited dividends also reduce the enthusiasm of members. They cannot expand their activities beyond a particular level because of the limited financial resources.

2. Over reliance on government funds: Co-operative societies are not able to raise their own resources. Their sources of financing are limited and they depend on government funds. The funding and the amount of funds that would be released by the government are uncertain. Therefore co-operatives are not able to plan their activities in the right manner.

3. Imposed by government: In the Western countries, co-operatives were voluntarily started by the weaker sections. The objective is to improve their economic status and protect themselves from exploitation by businessmen. But in India, the co-operative movement was initiated and established by the government. Wide participation of people is lacking. Therefore the benefit of the co-operatives has still not reached many poorer sections.

4. Benefit to rural rich: Co-operatives have benefited the rural rich and not the rural poor. The rich people elect themselves to the managing committee and manage the affairs of the co-operatives for their own benefit. The agricultural produce of the small farmers is just sufficient to fulfill the needs of their family. They do not have any surplus to market. The rich farmers with vast tracts of land, produce in surplus quantities and the services of co-operatives such as processing, grading, correct weighment and fair prices actually benefit them.

5. Inadequate rural credit: Co-operatives give loans only for productive purposes and not for personal or family expenses. Therefore the rural poor continue to depend on the money lenders for meeting expenses of marriage, medical care, social commitments etc. Co-operatives have not been successful in freeing the rural poor from the clutches of the money lenders.

6. Lack of managerial skills: Co-operative societies are managed by the managing committee elected by its members. The members of the managing committee may not have the required qualification, skill or experience. Since it has limited financial resources, its ability to compensate its employees is also limited. Therefore it cannot employ the best talent. Lack of managerial skills results in inefficient management, poor functioning and difficulty in achieving objectives.

7. Government regulation: Co-operatives are subject to excessive government regulation which affects their autonomy and flexibility. Adhering to various regulations takes up much of the management’s time and effort.

8. Misuse of funds: If the members of the managing committee are corrupt they can swindle the funds of the co-operative society. Many cooperative societies have faced financial troubles and closed down because of corruption and misuse of funds.

9. Inefficiencies leading to losses: Co-operatives operate with limited financial resources. Therefore they cannot recruit the best talent, acquire latest technology or adopt modern management practices. They operate in the traditional mould which may not be suitable in the modern business environment and therefore suffer losses.

10. Lack of secrecy: Maintenance of business secrets is the key for the competitiveness of any business organization. But business secrets cannot be maintained in cooperatives because all members are aware of the activities of the enterprise. Further, reports and accounts have to be submitted to the Registrar of Co-operative Societies. Therefore information relating to activities, revenues, members etc becomes public knowledge.

11. Conflicts among members: Cooperative enterprises are based on the principles of co-operation and therefore harmony among members is important. But in practice, there might be internal politics, differences of opinions, quarrels etc. among members which may lead to disputes. Such disputes affect the functioning of the co-operative enterprises.

12. Limited scope: Co-operative enterprises cannot be introduced in all industries. Their scope is limited to only certain areas of enterprise. Since the funds available are limited they cannot undertake large scale operations and is not suitable in industries requiring large investments. Lack of accountability: Since the management is taken care of by the managing committee, no individual can be made accountable for in efficient performance. There is a tendency to shift responsibility among the members of the managing committee.

13. Lack of motivation: Members lack motivation to put in their whole hearted efforts for the success of the enterprise. It is because there is very little link between effort and reward. Co-operative societies distribute their surplus equitably to all members and not based on the efforts of members. Further there are legal restrictions regarding dividend and bonus that can be distributed to members.

14. Low public confidence: Public confidence in the co-operatives is low. The reason is, in many of the co-operatives there is political interference and domination. The members of the ruling party dictate terms and therefore the purpose for which cooperatives are formed is lost.

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