Raising Finance

Co-operatives have played a key role in many Australian communities for more than one hundred years. Their popularity began in rural communities when agricultural producers combined their efforts to process and market their products economically. Co-operatives presented a legally recognised and democratically governed option for people to join together and invest in building a strong business foundation for their local communities. Today, co-operatives exist in all sectors of the Australian economy contributing 7% to the country’s GDP (including superannuation funds) and an immeasurable amount of social and economic benefit to the not-for-profit sector and the communities they serve.

The United Nations declared 2012 to be the International Year of Co-operatives. This declaration has increased global awareness about the co-operative business model as a robust and sustainable means of enterprise that can deliver more to communities and economies than other corporate forms.

In Australia, 2012 was also a key milestone in the development of a uniform legislative regime for co-operatives called the Co-operatives National Law (CNL). In this same year co-operative and mutual enterprises combined to form a national peak body called the Business Council of Co-operatives and Mutuals (BCCM). The BCCM’s purpose is to raise awareness of the co-operative model and develop resources to help the sector grow and realise its potential in today’s legislative and economic environment.

Access to capital has always been a hurdle for the growth of the co-operative sector, partly as a result of what is seen as a ‘traditional financial operating method’ and because co-operatives tend to sit outside financial markets. Co-operative shares are not tradeable on financial markets, and other securities are generally not used for financing.

The Report of the Australian Senate inquiry into cooperatives, mutuals and member-owned firms found, “There are currently limited options for co-operatives and mutuals to raise capital that avoid the debt to equity ratio problem1.” The Senate even made a recommendation that government support small and medium co-ops to raise capital in flexible ways. Recommendation 15 asks that Commonwealth and State Governments “support the formalisation of some of (sic) innovative market-based approaches to raising capital for small and medium sized co-operative and mutual enterprises, in the form of advice and information, as they become available.”

This handbook has been developed to introduce communities and existing co-operatives to methods of financing for co-operatives and to demonstrate that co-operative shares, despite their unique characteristics, are flexible capital instruments, ideally suited to community enterprises. The Handbook will give co-operatives information to increase their ‘financial literacy’ and familiarity with co-operative financing methods under the CNL, and provide some guidance for communities wishing to start up co-operatives that are suited to community investment.

The 2009 launch of the Community Shares Unit by Co-operatives UK and Locality in the United Kingdom provides a modern day example of the vibrancy and potential of community investment through co-operatives to build self-sustaining community enterprises. This Handbook owes much to resources produced by the Community Shares Unit with the kind permission of that organisation.

 

 

1. The Senate, Economics References Committee, Commonwealth of Australia, March 2016, “Cooperative, mutual and member-owned firms”, Page 22

Looks at the concept and potential of community investment as a fundraising model, and examines the potential of crowdfunding and its availability as a tool for the promotion of community investment.

Examines the different types of co-operative under Australian law and identifies factors in each type that may influence a community’s journey to decide the design of an appropriate business model. Part 2 will also deal briefly with the process of forming a co-operative, but more particularly with the Australian regulatory requirements for active membership.

Explains the characteristics, restrictions and flexibility of different types of co-operative securities and their classification as either equity or debt.

Provides a guide to the disclosure requirements for co-operative securities under the Co-operatives National Law.

Contains some examples and additional resources.