Sudha kornginnaya

Achieving Business Success through Association Strategies inCooperative Banks in India Sudha KORNGINNAYA1

Introduction

In the past, cooperation was conceived “essentially as corrective to the excesses anddeficiencies of capitalism” (Puri, 1979: 62), and it is now all the more relevant in thepresent time. Though the financial crisis has devastated the market-driven corporateeconomy, cooperatives have shown their economic resilience by fulfilling common goalsof the association. “A cooperative is a symbiosis: a union of an association of people anda business, both of which have to keep healthy for the organism to thrive” (Fairbairn,1995: 284). Hence social achievements are vital for business success, while economicstrength is imperative to yield social aims. However, the financial cooperatives that havereplicated corporate banking behaviour have now embraced a renewed socialistimperative alongside their economic performance goals. There is a growing realisationamong financial cooperatives that their effectiveness is based on the reconciliationbetween economic efficiency and adherence to social values.

Objectives of the Study

To analyse the successful performance of financial cooperatives achievedthrough loyalty and patronage of service

To elucidate upon how the social orientation within the cooperative businessmodel helps make membership meaningful

To suggest measures for the implementation of effective cooperative strategies

Methodology Used

This study is descriptive and exploratory in nature and is based on an empirical surveyconducted during 2007-2011(April). Both primary and secondary sources of data areused in the study. Methods of data analysis and interpretation include descriptivestatistics such as percentages, averages, and deterministic statistical tools (statisticalinferences) of correlation, regression analysis and non-parametric statistics. The study

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is confined to the financial cooperatives functioning in Dakshina Kannada District in theKarnataka State and in the State of Maharashtra in India. Multi-stage stratified randomsampling was used for selection of areas, sectors and units.

Need for Striking a Healthy Balance between Business andAssociation Objectives in Financial Cooperatives

The financial cooperatives are an integral component of the Indian financial system,judging by: their number, membership, number of operating branches, the financial rolesthey play, the extent of their geographical coverage and the number of people they serve.However, they face several challenges in terms of acute corporate competition, problemsof mobilizing resources due to declining state assistance, legal constraints, lack of a levelplaying field and a poor public image (Ghosh, 1999). The ripple effects of the financialcrisis also pose problems for the cooperative banks, particularly with respect to theirfinancial operations.

In these evolving circumstances, financial cooperatives have a distinctive role to play incontrast to corporate culture. As both the enterprise and association components ofcooperatives are intertwined, it is imperative for cooperatives to revive their commitmentto nurturing members and the cooperative ideology, which is integral to strengthen theirexistence. Both the management and the members should build economic resistance oftheir cooperatives through their loyalty and patronage of services (Hodgkin, 1969). Havingsocial objectives oriented toward the community makes a cooperative relevant andunique within an aggressive and competitive market. “If co-ops neglect their associationalneeds, the consuming public can no longer distinguish a co-op from any other business”(Craig, 1995). Hence social goals should be prioritised to retain their identity and publicconfidence. This will not only empower the members, but also help them improve servicesand business viability.

Shri Mahila SEWA Sahakari Bank in the state of Gujarat and the Bhagini Nivedita SahakariBank in the state of Maharashtra in India are the best examples for the success ofcooperatives achieved through social objectives. The former has empowered self-employed women through credit access, insurance, and asset creation and the latter hasuplifted thousands of households by inculcating financial discipline and by extendingfinancial assistance on easy terms. SEWA Bank – in addition to the usual bankingfunctions – extends technical and management assistance in production, storage,procuring, designing and selling goods and services. It has gained the distinction ofproviding health insurance and retirement benefits to thousands of women workers.SEWA aims at providing an integrated set of banking services, which makes it a multi-service organisation that has deviated from the general pattern of cooperative banks. Itserves the poor through both urban and rural activities as well as doorstep banking.

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The Bank provides employment to 10,500 women and paid wages worth nearlyRs.19.7 million. It provides loans to self-employed women working in 111 trades. Withthe help of the SEWA Bank, 60,000 poor women could create assets worth Rs.200 million(6.6 million US $) (UNESCO, 2003). The Transformation Initiative undertaken by SEWAhas successfully improved the lives of over 30,000 slum dwellers over the last four years.As of September 30, 2010, SEWA provided loans to 25,000 borrowers and mobilizeddeposits from 348,000 members.

Analysis of Performance of Surveyed Financial Cooperatives Achievedthrough Loyalty and Patronage of Service

Backdrop

Financial cooperatives in India started functioning almost 100 years ago. They areregistered under the Co-operative Societies Act. The cooperative banks are also regulatedby the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws(Co-operative Societies) Act, 1965. They may be broadly classified into urban creditcooperatives – or Urban Cooperative Banks – and rural credit cooperatives. There areabout 2,090 urban credit cooperatives and these societies together constitute about 10percent of aggregate banking business. The rural credit cooperatives may be furtherdivided into short-term credit cooperatives and long-term credit cooperatives. Withregard to short-term credit cooperatives at the grassroots level, there are around 92,000Primary Agricultural Credit Societies (PACS) dealing directly with the individualborrowers.

Analysis of the Surveyed Units

The sample consists of ten Financial Cooperatives that include Urban Cooperative Banks(scheduled Banks), District Cooperative Banks and urban and rural credit cooperativesfunctioning in the states of Karnataka and Maharashtra. This study focuses on theperformance of financial cooperatives that fulfill social objectives along with economicgoals, such as: the South Canara District Central Co-operative Bank Ltd., MangaloreCatholic Cooperative Banks Ltd. functioning in the Dakshina Kannada District ofKarnataka State and Saraswat Cooperative Banks in the Maharashtra and KarnatakaState.

A) South Canara District Central Co-operative Bank Ltd. (SCDCC Bank) The bank was registered in 1913 and started functioning formally in 1914. The bank has54 branches including service branches spreading over the undivided District of SouthCanara. The bank has given top priority to financing the agricultural sector since itsinception by taking into consideration various credit needs of farmers. It is striving toprovide timely and adequate finance through Agriculture Societies at the ground level.



The bank has been awarded as the best DCC Bank from the Karnataka State CooperativeApex Bank for the last 13 years. SCDCC Bank is the only cooperative bank, which hasbeen given permission by the Apex Bank of India (i.e. Reserve Bank of India) to operateat the state level.

B) Saraswat Co-operative Bank Ltd The bank was founded in 1918 in Maharashtra as a Co-operative Banking Society andwas converted into a full-fledged Urban Co-operative Bank in 1933. In 1988, the bankwas conferred with “scheduled” status by the Reserve Bank of India. It is the firstcooperative bank to provide merchant banking services. The bank got a permanentlicense to deal in foreign exchange in 1978. Presently, the bank has correspondentrelationships in 45 countries covering 9 currencies with over 125 banks. As of November1, 2010, the bank had surpassed 250 billion (approximately 5.5 billion US$). The bankhas a network of 207 fully computerised branches covering six states: Maharashtra,Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi; and provides 24-hour servicesthrough ATM units at 103 locations. In 2010, the bank opened four branches inMangalore in Dakshina Kannada District, within the Karnataka State.

C) Bhagini Nivedita BankThe bank was established on March 24, 1974, by Shri Vivek Dadhe, an eminent Char -tered Accountant, and his enterprising wife, Mrs. Meenakshi Dadhe. They realized theinherent qualities of caution, perseverance and financial prudence for women anddecided to tap into this potential by establishing the bank with the phrase, “Managedby Women for All.”

The bank is named after Bhagini Nivedita, a disciple of Swami Vivekananda – originallyan Irish woman, Margaret Noble – who came to India and devoted her life in the serviceof humanity. The bank ignited the entrepreneurial spirit among women and hastransformed many into successful entrepreneurs. Since its inception, the bank has doneexemplary work of relieving poor people from the clutches of private moneylenders byoffering loans at affordable interest rates. Deposits have grown to over Rs.3.91 billionwith the net non-performing asset (NPA) level of zero percent, securing them A auditclass of RBI. The banking model developed by women leaders is based on continued trustof shareholder members and customers. This model has served the cooperative well andattracted bankers from across the country and abroad.

D) The Mangalore Catholic Co-operative Bank LtdThe Mangalore Catholic Co-operative Bank was established in 1912. The visionary,philanthropic founders were motivated by the needs of the Catholic community in theirtimes. Agriculture was the major occupation then. The bank continued to grow with thegrowth of its customers. The Bank played a major role in the economic prosperity of the



Canara Catholic Community. For nine decades, the bank withstood all its challengesbased on the strength it gained by serving its surrounding society. It currently has 18,000shareholders and operates in 16 branches throughout the undivided South Canara. LikeSCDCC Bank, MCC Bank is also a scheduled cooperative bank and caters to the bankingneeds and aspirations of all people, irrespective of their religion and caste. The statisticalhighlights of their performance are outlined in the tables of Appendix 1.

Analysis of the Social Orientation of the Cooperative Business Model

All of the above cooperative Banks have established fields of activities corresponding tothe needs of their members and have created venues for such activities. These activitiesare mainly established to accomplish on one hand, the vision and mission of thecooperatives, and on the other hand, strengthen the relationship with the localcommunity and local societies. Provision of good services to members and customers isseen as an ethical imperative of the organizations. This has allowed them to increasetheir competitiveness, flexibility and ability to face the challenges of globalisation andthe financial crisis. All of them have strategically planned to render additional servicesto their members, which they deemed as a “value addition” required to enhance theircooperative identity.

The SCDCC Bank Ltd is actively participating in government-sponsored schemes such asthe S.G.S.Y Swarojgar Credit Card Scheme. The bank has issued 68,088 Mangala KissanCredit Cards to members of the Primary Agriculture Credit Societies, out of which 57,278members have been covered under personal accident insurance schemes. A sum ofRs.4.36 billion has been advanced under this scheme during financial year 2009-10. Theborrower under the bank’s crop loans service is also covered by a crop insurance schemesponsored by the government. With a view to diversify its activities, the bank has alsofinanced Rs.3.601 billion to the non-farm sector. The bank has provided financial supportto the sugar sector under a consortium arrangement, advancing Rs.270 million to sevensugar factories in various districts of the state.

The bank is actively participating in promoting and financing Self Help Groups (SHG) andhas promoted 34,259 SHG groups under the supervision of the Navodaya Grama VikasaCharitable Trust (R), Mangalore. Through this trust, 26,000 SHGs were formed consistingof 270,000 members spread across different districts in the Karnataka State. Thisprogram is achieving success in an incredibly difficult field: providing financial and socialsecurity assistance to below-poverty-line families. With the motto “from dependenceto self-dependence,” Navodaya Self Help Groups have taken a bold step and havewitnessed the improvement of poor people’s living standards. While developing self-confidence within poor segments of society, the SHGs have also been fostering



leadership qualities among the poor. The program has been providing required trainingto unemployed people to help them with employment, business development and otheractivities.

The bank has received the State Level Award for best performance of SHGs fromNABARD for the past 10 years. These groups have mobilized Rs.540.09 million in savingsand 23,111 groups are credit linked with Rs.914.90 million in advances.

The bank has not lagged behind in customer service. It has computerized all its branchesand introduced several innovative service activities, including the Single Window System,Any Branch Banking, ATM facilities and 12 hour banking from 8 a.m. to 8 p.m. at its headoffice in Kodialbail.

Banking on wheels was also introduced by the SCDCC Bank to facilitate financialinclusion and market coverage. It is a unique introduction of a mobile bank to facilitatebanking services to rural communities where there is no banking facility. A customer canengage in all banking transactions including deposits, withdrawals and obtaining loans.This bank is interconnected with all branches of the bank through its Any Branch Bankingfacility.

The Mangalore Catholic Cooperative Bank Ltd., though it initially incurred losses, iscurrently on a growth trajectory that could win widespread allegiance of members andunremitting support of its employees. The bank plans to introduce its “Swanth” scheme,which is aimed at encouraging youth to take up self-employment. This is mainly plannedto prevent youth from the region migrating to Gulf countries in search of jobs. Besidesdeveloping professionalism and technology within the banking sector, the MCC Bank hasalso placed emphasis upon helping women take on entrepreneurial roles. In the financialyear 2009-2010, deposits went up to Rs.1.33 billion and advances reached up to Rs.900million.

Starting with the mission of “emerging as one of the premier and most preferred banksin the country by adopting highest standards of professionalism and excellence in all theareas of working,” Saraswat Cooperative Bank Ltd. has grown in stature, progressed inits social and economic objectives and produced an image of what an ideal bank shouldbe. Through sustained and assiduous efforts over 75 years, the bank has gained a strongfoundation in terms of its membership, resources, assets and profits.

Provision of service to members and customers is a central mantra for the bank. Toaccomplish this objective, customer service surveys are undertaken with the help of in-house staff members and walk-in customer feedback. Customer satisfaction and loyaltysurveys are also planned through an international agency, M/s Synovate India Pvt. Ltd.The survey provides excellent insights into the improvements required in their customer



focus. The bank also provides easy payment method facilities to customers in terms ofgas, electricity and telephone bills, with no service charges in particular branches. AMember Welfare Fund was also established and there are currently Rs.59.8 millionavailable in the fund. During the year 2009-2010, 1,150 members utilized the medicalreimbursement and medical check-up facilities, and 56 awards were granted to themeritorious children of the members. Rs.5 million was also made available for charitableand cooperative purposes. The bank has supported numerous social, educational,medical and creative causes by way of sponsorship during the year. The bank has alsointroduced the Flood Disaster Relief programme and Phyan Cyclone Relief Programmein order to provide respite to the victims of rains, floods and cyclones. It provided loanassistance to the tune of Rs.3.8 million to 144 beneficiaries in the Sindhudurg District.

Saraswat Cooperative Bank has also ventured into microfinance in Western Maharashtraand also in Sindhudurgh District. It extends credit to self-help groups that are involvedin activities like selling fruits, vegetables, milk and fish, making brooms, basket weavingand other bamboo products and any other activities like plumbing, hairdressing, electricalwork, flower and vegetable growing and spice making. Under this microfinance scheme,the bank has extended financial assistance of around Rs.20 million to 1,600 beneficiaries.The bank has realised that banking for the poor is a sound practice, as default loansrecovery were very rare. The Saraswat Cooperative Bank has thus proved that when boththe enterprise and association side of the cooperative organisation are given equal focus,they can reach a pinnacle of success.

Bhagini Nivedita Sahakari Bank Ltd. in the State of Maharashtra is run solely by womenand has been the pioneer in conducting entrepreneurship development activities forfemale members, which makes this a very unique cooperative bank. The bank organizesexhibitions to showcase the products of their entrepreneur-members. The bank also hasinnumerable schemes for women empowerment. Some members provide homemademeals, some run catering institutes; others run computer institutes or handle milk supplycontracts, and some run small and medium scale enterprises. Financial prudence is thehallmark of the bank; sustained all-round growth has brought many awards and honoursto the bank.

Comparative Analysis of the Relationship Between Business Performanceand Association Strategies

The financial performance of cooperative banks was analyzed vis-à-vis their socialachievements. Three parameters were selected to assess the performance of theorganizations: percentage growth in membership, total capital, and profit. These criteriawere applied to societies with good social initiatives and to those with poor socialinitiatives (Group 1 is comprised of three financial cooperatives and Group 2 is comprised



of seven financial cooperatives). An analysis was conducted examining the median,standard deviation and the Mann-Whitney U-Test (non-parametric). The results of thisanalysis are presented in Table 5.

The data in the Table 5 depict that the financial cooperatives with good social initiativesfor the members and the community have shown growth in terms of membership,capital, and profit, which is reflected in their overall strength relative to cooperativeswith less social activities.

Suggestions

The financial cooperatives should synergize its association culture with its resources,technologies and organizational behaviour so as to increase the return to members.Management should never consider social initiatives as extraneous activities andwasteful expenditures. Investments in these initiatives will surely pay dividends whenthe long-term value of a member is considered.

Association strategies should be treated as an integral part of the business practice. Thestructure, systems and processes of the cooperatives should be reengineered toimplement these strategies effectively. They should adopt a need-based product mix (i.e.,constantly trying to find more products, services and activities for the member customerswhose needs they know). The four Ps of a marketing mix – product, place, price andpromotion – should be devised with the needs of people and members.

� In some states, restrictive provisions in the State Cooperative Laws hinder theimplementation of social initiatives, impairing the autonomy of cooperatives. In thisrespect, the government should intervene and take necessary steps to amend existinganomalies. Intervention should be more supportive and advisory rather than dictatingand suppressive.

� Investment in social initiatives should be ratified as an essential investment andintegrated support from the government and the Cooperative Department. It is theresponsibility of the state to provide a level playing field to the cooperatives at parwith other sectors of the economy.



Conclusion

Integrating strategies that respond to the association needs of the members with market-driven business plans is a vital Customer Relationship Management (CRM) practice thatsuccessful cooperatives have found for winning the allegiance of its member-clients.Members – as customers – are becoming increasingly scarcer than capital; they are hardto get and it is difficult to establish loyalty. As Fairbairn has stated, “businesses usuallysucceed by having ongoing relationships of trust” (1994: 3). Hence, cooperatives shouldbe responsive and responsible to fulfill their associational needs so that they get as muchvalue as they can from every single customer-member. Association strategies thusenhance a member’s sense of identification with the firm; make them more loyal andincrease the likelihood that they will refer others to the cooperative, leading to themaximisation of return. The concept of “association” is not new to the cooperatives,but it has been relegated to the background. Its restoration is imperative in the currentmarket context, as it will help the community to distinguish a cooperative from othereconomic players. This will indeed help the financial cooperatives to make membershipmeaningful and achieve sustainability, effectively proving cooperatives economicallyand socially relevant organisations in the social economy. If practiced in letter and spirit,cooperatives can win the unflinching patronage of the sizeable market of nearly200 million members and the world’s largest cooperative network can become theworld’s strongest movement.


Appendix 1: Statistical highlights performances tables

Table 1: Mangalore Catholic Co-operative Bank LTD (MCC Bank)

in Lakhs 1 Lakh = 100 Thousands 10 Lakhs = 1 Million

Source: Survey Data



Table 2:

SCD

CC

Ban

k Lt

d(A

mt.

in L

akhs

1

Lakh

= 1

00 T

hous

ands

10

Lak

hs =

1 M

illio

n

Sour

ce: S

urve

y D

ata



Table 3:

Sara

swat

Co-

oper

ativ

e Ba

nk L

td(A

mt.

in L

akhs

1

Lakh

= 1

00 T

hous

ands

10

Lak

hs =

1 M

illio

n

Sour

ce: A

nnua

l Rep

ort



Table 4: Bhagini Nivedita Bank Ltd

(Amt. in Crores 100 crores = 1 Million

Table 5: Strength of the Cooperatives – A Comparative Analysis

Source: Survey Data

Note: Group 1 represents financial cooperatives with good social activities.Group 2 represents financial cooperatives with poor social activities.


Note1 Ph.D. Associate Professor, Department of Commerce, Besant Women’s College, MangaloreUniversity, M.G. Road, Mangalore 575 003, Karnataka, India, [email protected], Ph.0091-824-2492206 (College)

Bibliography

CRAIG, J. G. (1995). International Joint Project on Cooperative Democracy, Making Membership Meaningful,Participatory democracy in cooperatives, Saskatchewan, Centre for the study of cooperatives,University of Saskatchewan.

FAIRBAIRN, B. (1995). “Constructing Alternative Languages for Co-operative Growth: An Ecological Metaphor”,in International Joint Project on Cooperative Democracy, Making Membership Meaningful: Participatorydemocracy in cooperatives, Center for Study of Cooperatives, University of Saskatchewan, p. 284-285.

GHOSH, G. N. (1999). “Sustaining India’s cooperatives”, Cooperative Perspective, No. 34 (1), p. 8-14.

HODGKIN, C. (1969). Education in cooperatives, Illinois, Cooperative League of U.S.A.

PURI, S. S. (1979). Ends and Means of Cooperative Development, New Delhi, NCUI.

UNESCO (2003). Best Practices - A Women Self-Help Organization for Poverty Alleviation in India, SEWA Indiawww.unesco.org/most/bphome.htm



Summary

This paper elucidates how the social orientation in business model helps the financial cooperativesto achieve business success through the perpetual loyalty and patronage of service, thereby makingmembership meaningful. The sample consists of ten Financial Cooperatives functioning in the Stateof Karnataka and Maharashtra in India. They include Bhagini Nivedita Bank, Saraswat CooperativeBank, South Canara District Central Co-operative Bank Ltd.,and Mangalore Catholic Cooperative BankLtd. The analysis depicts that financial cooperatives/ Banks having good social initiatives for themembers and the community, have shown growth in terms of membership, share capital and profitdue to increased response rate of member customers, reflecting in their overall strength and socio-economic relevance than those financial cooperatives having less social activities. Besides, it hasimproved their competitiveness and ability to brace the challenges of financial crisis.

Resumen

Este trabajo dilucida de qué manera la orientación social del modelo empresarial contribuye a quelas cooperativas financieras logren su éxito a través de la lealtad continua y el patrocinio del servicio,lo que le da sentido a la afiliación. La muestra incluye diez cooperativas financieras que funcionan enlos estados de Karnataka y Maharashtra en la India. Entre estas se encuentran: el banco BhaginiNivedita, el banco cooperativo Saraswat, el banco cooperativo limitado South Canara District Centraly el banco cooperativo limitado Mangalore Catholic. El análisis indica que las cooperativas financierasy los bancos que ofrecen interesantes iniciativas sociales a sus asociados y a la comunidad han logradoun crecimiento en términos de cantidad de asociados, capital social y ganancias gracias al aumentode respuesta por parte de los clientes afiliados, lo cual se refleja en su fortaleza y relevanciasocioeconómica global en comparación con aquellas cooperativas financieras que ofrecen menosactividades sociales. Además, también ha mejorado su competitividad y su capacidad para enfrentarlos desafíos de la crisis financiera.

Résumé

Cet article explique comment le volet social d'un modèle d'affaires peut aider les coopérativesfinancières à réussir, en suscitant une loyauté indéfectible de la part de leurs membres. Il étudie lecas de dix coopératives financières actives dans les États du Karnakata et du Maharashtra, en Inde,dont la Bhaghini Nivedita Bank, la Saraswat Cooperative Bank, la South Canara District CentralCo-operative Bank Ltd. et la Mangalore Catholic Cooperative Bank Ltd. L'analyse montre que lescoopératives financières et les banques qui ont mis en place des initiatives sociales intéressantes àl'intention de leurs membres et de la communauté ont observé une croissance quant au nombre demembres, au capital social et aux excédents en suscitant un taux de réponse plus élevé de la part deleurs clients membres. Elles en retirent une force et une pertinence socio-économique qui les favorisepar rapport aux coopératives financières qui proposent moins d'activités sociales. Leur compétitivités'en trouve accrue, de même que leur capacité de relever les défis liés à la crise financière.



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Sudha kornginnaya