International of Cooperative Journal

The PRSP and Decent Work in Asia

The Role of

Co-operatives in Poverty Reduction

By: Robby Tulus

Abstract

A wide ranging review of both the depth of cooperative penetration and development and the developing institutional and policy framework concerning the reduction of poverty and the provision of ILO decent work policy in the Asia Pacific region.

The paper argues that co-operative success in the past as a development model lays the ground for an even greater relevance and larger role in the latest evolution of globalisation and transition to the free market paradigm. The need to safeguard co-operative independence and ensure legislation is kept under constant review is emphasised in a wide range review of the change process as it impacts upon the government co-operative relationship in the area of cooperative legislation were the trend is becoming more favourable to co-operative bottom up solutions in the recent past. Co-operatives however remain weak and relatively small businesses throughout the region, although there are many exceptions. The best approach is for co-operatives to enter partnerships for development with governments, development agencies and organisations like trade unions to maximize their impact.

Introduction

Co-operatives have a long history of helping the urban and rural poor to uplift their social and economic conditions. The hallmark of co-operative enterprises have been its integrative and transformational qualities among the marginalized and poor communities, not just because of their ability to raise physical capital based on self-help, but also because of their ability to build human and social capital through their emphasis on education and training.

With the surge of globalization co-operatives have once again proven their ability to adapt and respond to the fast changing environment around them. The widely publicized vehicles of development known as micro-finance and micro-enterprises are actually not a recent phenomenon, but a recurrence and modernized version of past traditions of the founding fathers of co-operatives. It reinforces the continuing historical relevance of co-operatives in their efforts to mainstream the otherwise marginal communities by linking them to the wider marketplace and society, using time-tested methods and mechanisms.

The initiative of ILO to stage the current Regional Workshop on the role of co-operatives in poverty reduction is therefore very timely and indispensable, because it allows co-operative stakeholders to identify measures to effect changes in the Poverty Reduction Strategy Paper (1999) (PRSP) countries in the context of Decent Work. To do so, co-operatives must also transcend traditional sector boundaries and reach out to other civil society organizations and governments. Co-operatives, especially in the PRSP process, must therefore rise up to these challenges bringing the voices and the needs of their members, especially the poor, to the table of public policy reform as their most representative organization.

Overview of the co-operative movement in the Asia Pacific Region

The most recent ICA Statistics demonstrate that the weight and diversity of co-operatives in Asia-Pacific region. There are 64 affiliated co-operative federations from 28 countries with 480,648 primary co-operatives and individual membership of 447 million people. The proportion in the ICA membership has increased from 10% in 1935 to 57% in 1998 (See Figure 1). Among them, India and China have the largest membership, 83 and 160 million respectively.

Geographically, these co-operatives are distributed throughout the region from East, Southeast, South, West, and Central parts of the Asian continent into a vast sphere of the Oceania region. Co-operatives are strongest in the agricultural sector, although the trend shows increasing strength in the consumer and worker sectors as well. Co-operatives also proliferate in the banking and insurance sectors in many countries, with credit unions and micro insurance gaining prominence as a sound network in the region. From solely a statistical perspective, cooperatives in the Asia pacific have made significant inroads into the advancement of the global cooperative movement, with Japan leading the pack in many ways, especially the Agricultural and Consumer sectors.

However, India, Sri Lanka and the Philippines have earned their distinction as movements from developing nations that have their best practices well documented, especially in offering productive

employment for the enterprising poor in rural areas. Lessons learned from these countries are expected to create the impetus for growth and development of cooperative in many other developing countries in Asia and the Pacific as well. In a number of developing countries in Asia, cooperative business activity is beginning to show a similar pattern to that in the developed countries. The difference rests primarily on the extent of government’s involvement within, and in some cases control over, the co-operative movement itself. European and North American Co-operatives have a strong market presence supplying agricultural inputs (including credit) and consumer goods, processing and marketing agricultural products, and providing financial services, and so do co-operatives in Asia.

 With its 452,657 primary societies, a membership of close to 200 million, and working capital of $ 57,9 billion, the co-operative sector in India is one of the largest in the world. Co-operatives are found in 99% of the villages, where 2 out of 3 households hold memberships. Total co-op assets amount to $ 48.6

billion, with member savings deposits of $ 22.1 billion. More than 60% of rural credit is managed through the co-operative structures.

Although only about 8.5% of the Philippine population is served through co-op membership, cooperatives have a significant presence among low income earners, agricultural and informal sector workers. Asia’s 24,500 primary financial co-operatives boast of more than 160 million members, hold US$ 653 billion in savings deposits. Their US$ 789 billion in assets (including a US$ 278 billion loan portfolio) make up 7.7% of the total assets of the largest banking institutions in the world. The largest are represented by the Agricultural Cooperative Banks in Japan and Korea, whereas credit union in the developing countries in Asia are relatively small but have shown enormous resilience against external shocks. Credit Unions are also known to be more autonomous and independent.

Co-operative policy environment

There cannot be any doubt that the ILO and ICA are the two key players pursuing enabling legislation and policy development for co-operatives worldwide, especially in the developing nations. The achievements so far have been mixed, though mostly positive, while some opportunities were evidently missed. However, it is important at the outset to recognize some of the fundamental milestones created by both the ILO and ICA, which have contributed towards the achievement of a more conducive environment for the development of co-operatives in the Asia Pacific region.

One only needs to look back at the previous generation of ICA Co-operative Principles of 1966, which was clearly empowered by the ILO Re-commendation 127 adopted at its 50th ILO Session in the same year. Both happened during the cold war period where planned, rather than market-driven, economy prevailed in former communist countries as well as developing ones. The end of communism, and the coming of the new Century, garnered the collective intelligence of co-operative leaders, leading towards the adoption of the ICA Co-operative Identity Statement in 1995, followed by a similarly crucial milestone led by the ILO. The latter was the revision of standards contained in Recommendation 127 of 1966 with the most recently adopted Recommendation 193 in 2002.

Decaying state-sponsored co-operative enterprises following the era of planned economy, coupled with the fast pace of market-led private sector development in the succeeding era of globalization, pushed cooperatives more and more towards the periphery. The situation offers a tremendous challenge to scrutinize and improve the quality of legislation to better serve members as well as communities impacted by cooperatives. For these reasons, the initiative of ICAROAP to hold ministerial level conferences on cooperative policy and legislation since 1991 is seen as

a creditable move.

Consistent efforts in scrutinizing policy and legislation since 1991 led to a major breakthrough during the fifth Co-operative Ministers Conference held in Beijing in 1999. A declaration, evolved through a dynamic process of dialogue since 1991, summarized the need for a new approach to cooperative development in the Asia Pacific region. It focused on two imperatives. First, it focuses on the need to create and sustain an enabling policy and legal environment conducive to cooperative development. Secondly, it emphasizes the need to establish new forms of cooperation between government and cooperatives.

The momentum created by this Fifth Ministers Conference was not merely due to its large attendance and organizational accomplishments. More than anything it is because of the rare consensus reached between governments and movements in adopting key standards and approaches required to create a sustained and enabling policy and legal environment that is conducive to cooperative development.

It further set the common agenda towards the establishment of new forms of co-operation between governments and cooperatives. All seven Resolutions reached are still considered practical and doable, especially for transitional economies and PRSP-related Countries.

Nonetheless, political factors within any given country – with the cooperative ministry or authority being only one segment of the political make up and socio economic framework in that country – could potentially delay or hamper the implementation of these recommendations. A critical study was launched to scrutinize the implementation of the consensus in six distinct areas, namely in the autonomy and independence, legal existence, recognition of the distinct character of co-ops by law, fair playing field with other enterprises, self regulation, capitalization, and official development assistance.

ILO Recommendation 193 has advanced the thinking even further by advocating the need for governments to recognize the global importance of cooperatives in both economic and social development, encourage international cooperation, while at the same time reaffirming the cooperative identity based on values and principles. It underscores the equal treatment of cooperatives vis-a-vis other types of enterprises and social organizations, and define the government’s role in creating a supportive policy and legal framework, and in facilitating access to support services and finance, without undue interference.

In Cambodia, for example, there is no co-operative legislation. As well, Co-operative has a bad name due to past failures. Rural people are still allergic to co-ops, and are thus not inclined to support the formation of any official form of a co-operative organization. The Banking Law, the Prakas (regulations) on MFI, is about the most actively utilized regulatory instrument for PRSP in rural areas. The government, i.e. National Bank of Cambodia (NBC), is responsible for maintaining the integrity of this micro credit program in the rural communities for poverty reduction, and while NGOs are mostly active as delivery mechanisms of Micro Finance, it now opens the doors for cooperative activists to organize saving groups that will eventually lead towards the formation of credit cooperatives.

In India, 27 cooperative laws are in force in different states and union territories. In addition, five states have enacted parallel cooperative laws. Apart from all these cooperative laws, a central cooperative law, specifically the new Multi State Cooperative Societies Act has been enacted in 2002, with positive features that reflect the spirit of the Beijing Declaration. Thus India has about 33 pieces of cooperative legislation in place. In addition, India is the first country in Asia that has enacted a new Co-operative Policy in 2002, approximating the concept introduced by ILO in many developing countries in Africa.

The policy is considered very progressive, advocating the necessary support, encouragement and assistance from the government to ensure that cooperatives work as autonomous, self-reliant and democratically managed institutions, accountable to their members. It outlines the role of co-operatives in the national economy, particularly in areas where people's participation and community efforts are required. It also recognizes that the "Cooperatives alone" approach is less viable. Instead, the policy maintains that Cooperatives will be a preferred instrument in the execution of Public Policy, especially in rural areas and in sectors where co-operatives operate as an effective delivery system.

Co-operatives in Indonesia are poised to break free from dependencies on subsidies from the central government as the impact of the dimensional monetary crisis and the move towards regional autonomies has weakened central control over cooperatives. Independent institutions such as the Institute for Co-operative Studies (LSP2-I) initiated a process to pass a new co-operative law that was aimed at breaking the ground for such a change. It concluded a yearlong participatory exercise - beginning with primary members at the grass roots - to arrive at various amendments to the existing co-operative law. Meanwhile, DEKOPIN, the apex cooperative of Indonesia, has also undertaken an internal review of the changes to be made in the existing cooperative legislation and have placed their recommendations before the appropriate body in Parliament.

A third draft version was finally launched by the government in late October 2003 and duly tabled for discussions in the Indonesian Parliament. Although there is nothing fundamentally deficient with Cooperative Law 25/1992, the participatory process initiated by LSP2-I has created greater awareness among stakeholders from all over Indonesia on the need of incorporating the ICA Co-operative Identity

Statement, as well as the substance contained in the draft ILO Recommendation (193), in the draft legislation. Unfortunately, the dilution of the latter into a third version may have been prompted by political expediency.

In contrast to the Indonesian case, the Philippines have instituted movement-led processes in the passage of the Co-operative Code in 1991, as well as the more recent Policy on prudential standards for credit co-operatives called COOP PESOS in 2003. The Policy contains a unique organizational dimension that distinguishes similar standards from private financial companies, and the CDA has led the process by way of constituting a technical committee composed of relevant credit co-operative organizations and the CDA itself. The COOP PESOS is an excellent instrument for credit co-operatives to empower the enterprising poor, because financial discipline helps to mobilize and secure meager savings of poor members as well as the Micro Finance clients they are reaching out to.

Landlocked Nepal is caught up in a vicious cycle of poverty and economic stagnation, and the political disorder is making the situation even worse. The government’s Tenth Plan to reduce poverty from 38% to 30% of the population is quite ambitious, given the rugged mountain terrain of a large part of the country. Co-operatives, mostly rural, have been struggling to survive in spite of the co-operative law that is considered as the most liberal and progressive one in Asia. Unlike the Tenth Plan that was constructed through a bottom-up process with extensive consultations in the field, co-operative legislation exhibited a top-down nature throughout the lawmaking process. As a result, there is but little understanding among the poor co-op members in rural areas as to the value of the Nepal Cooperative Act of 1992. The Co-operative values and principles are well enshrined in the law of 1992 and through government policies the Identity Statement was promulgated in 1995. Interestingly, the positive fundamentals of autonomy and independence granted to Nepal’s cooperatives by the government based on the co-operative law, especially to financial cooperatives, have led to a problem of a different kind. Private businesses misused the cooperative form of enterprise and businessmen reap benefits that are meant to support genuine cooperatives among the have-nots.

Sri Lanka has seen the up and downs of cooperative development. In the early seventies the government carried out large-scale mergers of Multi-purpose co-ops, and nominated officials to the board of directors, resulting in considerable political interference in cooperatives. Members’ involvement in the co-operative affairs was marginal, in spite of the fact that co-operatives had a large market share in the consumer trade until the economic liberalization in 1977. When economic liberalization began to mould the marketplace, cooperatives were forced to manage their own affairs, and the government amended the cooperative law in 1992. The powers of the Registrar were substantially reduced. This amendment also resulted in preventing members of Parliament, provinces, municipal and urban councils or pradeshiya sabhas from being eligible for election as a member of the committee of a cooperative society.

In Vietnam, the enactment of the Law on Cooperatives took place in 1996, following a series of technical assistance provided by the ICA and ILO. The Law on Enterprises was promulgated for the registration and regulation of limited liability companies soon thereafter. It is generally conceded that the Law on Cooperatives is over-prescriptive and more complicated, in comparison to the law on enterprises.

The Vietnam Co-operative Alliance, an active member of ICA, was an active participant in the construction of Decree NO. 15/ND-CP, relating to polices encouraging cooperative development in the aspects of land use, taxes, credits, training, investment projects etc. It also participated in setting up of Decree No. 16/CP, on the transformation and registration of cooperatives and Unions of Cooperatives under the new Law. In addition, the VCA has played an important role in the development of model by-laws under the Laws and is actively involved in the transformation process of a number of old model cooperatives.

The VCA will have an important function to play in future modernization of the Law on Cooperatives to bring it into line with the current business law for the establishment of companies. Provisions with regard to the registration of co-operatives under the current Law are seen as being too cumbersome and overly complicated. Moreover, the transition requirements under Decree 16/CP appear to add to the complication by prescribing a number of preliminary steps, such as the identification and valuation of assets, before registration documents can be submitted and registration obtained.

Put simply, the inclination towards reforms and the redirection of energies towards good governance on the part of governments and the co-operative movements in Asian developing countries will open windows of opportunity for an enabling environment for co-operatives. However, this cannot be left to chance. It must be implemented and constantly reviewed. Governments could either “abandon” cooperatives or launch an entirely new approach that is more member-driven and participatory. On the one hand, they will need encouragement; on the other, they will need direction. On the part of co-operatives, the preoccupation with growth could give way to inward-looking co-operative movements in the region. Where learning from others could be useful, this internal preoccupation could downplay every opportunity for coherent growth of co-operatives as a sector, and for systemic growth of co-operatives as a whole. The risk of failure of co-operatives as a system is real enough for this not to be left to chance.

Hence the need for constant review of existing legislation and policy cannot be emphasized enough, because legislation must enable and “empower” cooperatives to self-regulate following a mutual scrutiny of the appropriate standards to be adopted. The government role should primarily be to supervise and regulate by applying effective operational performance standards for co-operatives.

Major strengths and weaknesses of the co-operative sector in the Asia Pacific Region

While focusing on PRSP-related Countries, we also need to assess the influence co-operatives from developed countries have had on many PRSP-related Countries. The co-operative realities existing in ICA’s PRSP member countries are by and large patterned after successful models seen in countries such as Japan and Korea, not to mention those in Europe and North America, especially in the Financial and Agricultural cooperative sectors. The replication of successful models from “North to South” is laudable, but the overall tendency to seek instant results has been the greatest flaw.

Individual self-discipline of members have not been instilled by proper adaptation and training, and with heavy subsidization by governments of PSRP countries in the past who want to gain quick results, the stop-gap and fast track measures have contributed to serious failures in many co-operatives. The latter is particularly true among many agricultural co-operatives receiving financial support from their respective governments without the capacity building and proper democratic control measures within the co-operatives.

The multi-purpose agricultural co-operatives (MPAC)(1) are often seen to be a typical Asian model although these co-operatives also exist in other regions. The MPAC conduct multiple functions such as marketing, supply, finance, guidance and other services within the same organization. Governments in PRSP related countries have often championed the desirability of multi-purpose versus single-purpose cooperatives. They do so primarily upon witnessing the successful agri-coop (MPAC) model in Japan and/or Korea, and on the belief that having co-operatives as effective vehicles to uplift the socio economic conditions of poor rural peasants.

In Japan and Korea, the success of the MPAC was indeed the result of effective institutionalization by the State, in close collaboration with the Agricultural Cooperative Sector itself. Governments have been strongly involved as a major player for implementing national agricultural policies. They employ various legal/administrative measures and subsidies/loans, ranging from the macro policies such as the price maintenance scheme covering a bulk of farm products, the selective expansion/reduction of production, the staple food control system for price and distribution, the financial stabilization scheme, the structural reform of farmland etc. to micro policies such as modernization of farm facilities. Co-operatives have often been designated as the sole agent to implement the promotional measures. They have also acted as subcontractors to channel the public money to farmers. There exist measures with direct impact on agricultural co-operatives, i.e. laws for rehabilitating ailing co-operatives, creating federations or promoting mergers etc. Thus they have been ‘institutionally’ ensured to benefit from these promotional measures and subsidies.

In most PRSP-related Countries, however, the process of institutionalization has been fraught with bad governance, and poor human resource capacity in terms of lack of training and ineffective use of funds at farm-gate level have led to massive failures of the MPAC in these developing countries such as can be seen in Indonesia, Sri Lanka, Nepal, Philippines, Laos and Cambodia.

In contrast, the credit union movement in Asia albeit still small, emerged and evolved from local communities and low-paid workers that combined financial services with a social mission. Credit unions grew in PRSP-related countries without government support, and are currently redirecting their efforts to provide micro-finance services to the poor.

The rationalization of micro-finance through credit unions is grounded on a rediscovery of the power of savings, and designed to catalyze entrepreneurship among the poorest of the economically active people in the community. Combined with their democratic ownership structure, credit unions could well be strategically positioned in the marketplace to serve the poor in rural areas. Through the formation of microfinance self-help groups, the SHG will eventually be part of the ownership structure of credit unions.

Worker and Shared Services co-operatives are also on the rise, and the recent experiments in the Philippines with the Kaakbay model have shown encouraging signs of success. These “new age” cooperatives are clear examples of bringing displaced and/or poor workers into a common micro enterprise platform. ICA and ILO are the best placed institutions to replicate successful models with a pro-poor orientation and thrust.

In terms of other strengths and weaknesses of cooperatives in the region, the following highlights could be offered:

Strengths

Size and scope: Cooperatives are in all probability the most widespread form of popular organization in most of the Asian countries. All of these cooperatives subscribe to the international cooperative values and principles contained in the ICA Co-operative Identity Statement. The latent social and economic capital in the cooperative sector is phenomenal if governance and human resources and management can be improved

Economic performance: The cooperative sector’s contribution to the total national output of their country, with the exception of strong ones like Japan, Korea, New Zealand and India, has been modest but in most countries it is increasing.

Market segment: Cooperatives are strongest in mobilizing savings from the lower income and poor groups and in catering to their needs for financial and other relevant services. The most successful cooperatives are of the savings and credit types, although the Asian consumers and agricultural sectors are still being consolidated (or rehabilitated) to reemerge with new strength (The Australian and New

Zealand Agricultural Co-ops remain strong). Credit cooperatives have a proven track record as effective conduits for servicing the poor.

Co-op Resilience: The resilience of financial cooperatives (including insurance co-ops) was demonstrated during the financial crisis in Asia. Whereas banks were faced with the rush of withdrawals from their clients, financial co-operatives in hard-hit countries like Thailand, Korea and Indonesia continued to generate savings from members since 1998 in an unprecedented way.

Existence of federations and unions:

Cooperatives have vertical and horizontal structures for expanding their economic linkages and cooperation with one another and as sources of support services and information. Here again human resource development is a key for the future realization of potential.

Weaknesses

While the aggregate number of co-operatives show an impressive size and scope, most co-operatives in developing countries tend to remain small and underperforming: With the exception of a few in countries like Japan, Korea, India, Australia, New Zealand and Singapore, most cooperatives remain small and are not able to reach the critical mass to realize economies of scale. The challenge of capitalization is always present. While the most logical way is to encourage viable mergers and consolidation as a way to achieve fewer but better cooperatives, the cultural trait among leaders in rural communities remains a major barrier. The recent experiment by people-based co-operatives at SANASA in Sri Lanka and NATCCO in the Philippines is an interesting case in point.

In addition to that, the proliferation of state sponsored cooperatives is due in large part to the intervention of politicians and other agencies that regard cooperatives as vehicles for their own programs or projects. In addition, improper infusion of external assistance has in numerous cases, led to opportunism and loss of self-reliance among coop members.

The situation is further compounded by the petty rivalries and lack of cooperation among cooperatives, both at the local communities all the way to the national federations.

Weak and fragmented federations and unions aside from their unstable membership base, are often unable to deliver support services and integrate the economic activities of their members. This leaves primary cooperatives at the base with limited support services in terms of education and training and management consulting.

One critical weakness is in the area of provision of cooperative management development, education and training for common cooperative members andstaff. Common members undergo pre-membership education training, which in many coops is a requirement for membership. There are no systematic and continuing education programs for common members to develop a strong sense of ownership in the cooperative.

Generally, there is a lack of strong leadership across the system and structures that has the capability to promote and implement effective integration among sectors and advocacy to governments.

There are insufficient policies, procedures and professionalism within many co-operative structures to manage risks, and conduct effective marketing and distribution, auditing, management, consulting services, and education and training.

Resource mobilization: The poor can save! Many cooperatives in developing countries are still not able to maximize the allocation of available resources within the cooperative movement itself. Co-operatives catering for the poor can actually maximize the use of Self-Help Groups and provide Micro Finance to the enterprising poor by setting up a facility to do so. Only credit unions have the centralized system and mechanism to manage liquidity across cooperatives, and reach out to the very poor through Micro Finance.

Employment creation and social benefit nets.

While official statistical information on the number of jobs created through co-operatives in the PSRP countries in the region is not readily available, it is safe to assume that a significant portion of co-operative members are employed by way of two categories of employment: paid laborers or micro entrepreneurs.

The latter is being more actively promoted by workers co-operatives and financial co-operatives (credit unions). Loan products are designed for short turnaround time, and the regulation of loan cycles – combined with regular savings – make this service brand and market asset a breeding ground for repeat business by members. This creates member loyalty to the loan products of the co-operative and stores up social capital as a result. The real challenge is to replicate and multiply pro-poor models of training and lending that has proved very successful in some countries.

At the institutional level, Fig 3 shown below is the actual membership base and target group among the poor as publicized by the Asian Confederation of Credit Unions. It shows their membership and associates in the region, with its segregated data for the target group among the poor (especially Women).

At the individual level, the following case of Sri Mulyani is quite revealing, as it shows how her co-operative offered her the opportunity to become self-reliant, taught her leadership skills and qualities, and exemplified the concept of Decent Work:

Sri Mulyani is a mother of three kids. Her husband’s income as a daily laborer cannot meet their household expenses. In 1998, she ventured in selling fried sweet potatoes to increase their family income. She started with a capital of Rp. 25,000.—(US $ 2.40). The business helped earned additional income to meet family expenses. The business did not prosper because of lack of management skills and financial discipline. In 1999, she changed her business to a small food shop with a working capital of Rp. 40,000 (US $ 4.25). To her surprise, she ended realizing that her working capital had been consumed by unnecessary expenses.

She joined the Micro Finance program of Sumber Daya Credit Co-operative and became a group leader. Sri Mulyani learned family budgeting based on credit union thrift principles, as well as enriching her skills in managing her small business. At present she is maintaining a simple cash flow of her business to ensure that she is not using the capital for personal expenses. She is now setting aside a minimum of Rp 1000 (US $ 0.11) for savings and amortization for the working capital loan she received from her credit co-operative. She has realized the importance of savings and a discipline to do it. She also learned group skills as a group leader, and understands co-operative values from her practical experience.

Her husband is earning Rp. 300,000 (US $ 35) a month for doing hard labour and Sri Mulyani is earning Rp. 2,100,000 (US $ 247) per month, which is more than enough to take care of the family expenses of around Rp. 460,000 (US $ 54).

Of late, the minimalist approach of financial services is being greatly enhanced by a more integrated approach through financial co-operatives. This has generated more enterprise development activities that are implemented in conjunction with social service related activities and women empowerment activities. As a result, it opens employment opportunities providing decent jobs to co-operative members and other SHG clienteles.

Co-operatives in developing countries are still considered micro players in the marketplace, although the integrative nature of co-ops through their vertical and horizontal structures has allowed them to create the critical mass necessary to become sustainable and viable institutions. The Amul Dairy and the Fertilizers

Co-operatives in India, the SANASA and MPCS in Sri Lanka, the NATCCO network in the Philippines, are just a few examples how the poor and vulnerable groups in rural communities are strengthened in their micro enterprise undertakings.

The multiplication of jobs created by co-operatives is a source of strength for rural communities, because their being integrated in an institution that protects their decent work will build resilience from the pressures of the dual economic markets created by globalization.(2)

In other words, rapid growth does not necessarily guarantee rapid poverty reduction from this micro perspective. There is empirical evidence that capital rich institutions capture the convergence of capital brought about by globalization. The poor have little access to such capital until such time that debt-based financing was created and made available to this poor segment of societies, especially landless women. Micro Finance Institutions are indeed trying to fill this gap, but more recently have been active in promoting and mobilizing savings from MFI clients. Co-operatives are therefore ideal to add value to micro finance by rediscovering the power of savings to the debt-based approach. Credit must be taken together with savings as an intimately intertwined system.

Labor-intensive methods of production are indeed creating employment in many PRSP-related Countries providing abundant labor force among the poor. But at the same time this well-tested model does not guarantee that the meager income of small employees are well managed at the individual level to sustain their livelihood in the long term. Co-operative is essentially the most effective extension to this model that integrates these under-employed and low-paid workers into a member-based, more sustainable, institution. It is a social safety net for both the co-operative members as well as the SHG clientele being promoted by NGOs and a number of MFI development banks.

Co-operatives and civil dialogue

Co-operatives have a natural affinity for the desire to retain the “civil” qualities of our traditional societies and hence create new meaning to community in the globalizing world. But with contemporary civil society organizations increasingly moving into non-traditional domains criticism, militarism, violence, and the degradation of the environment, co-operatives often find it difficult to enter the fray due to their neutral stance in politics. However, such party neutrality may help make their contribution more effective. Cooperatives have much to offer because they continue to support members with quality socio-economic services based on ethical and moral considerations, all critical ingredients for civil society. This approach corresponds to a common vision of civil society organizations that within a diverse society must be bound by a set of core values.(3) Individual members, and not the co-operative enterprise itself, are therefore being encouraged to play their part in political life to help mitigate the ill effects of the dual economic markets being created by globalization.

Perhaps the most powerful partner of co-operatives in civil dialogue would be the trade unions. As membership organizations, co-operatives and trade unions share a common history. They both originated from the struggle of workers to confront social inequities and to improve living conditions through collective action. Close collaboration between them have largely transpired within local and national boundaries in just a few countries, the latest being in Nepal and Vietnam, but efforts are on-going to bring such cooperation and dialogue at the international level as well.

However, unlike trade unions, co-operatives as legitimate institutions in civil society are often less heard or seen by global players and networks outside their own system. Not by design or intent, but by the sheer fact of the intensity of building a member focused enterprise based on economic democracy tend to drive co-operatives to look more inward rather than outward. The participatory process in democratic governance, and hence slower process in decision making, is a strength and weakness at the same time when it comes to reaching outward to civil society. That said, it has been proven that the life expectancy of cooperatives – as also trade unions – tend to be much longer compared to their non-governmental counterparts or private competitors.

To enter the public policy domain, therefore, the Cooperative sector interacts actively with trade unions and various UN agencies.

The latter has been well advanced through the Committee for the Promotion and Advancement of Cooperatives (COPAC), an inter-agency committee established in 1971, which currently includes three United Nations agencies and three international NGOs, including the International Co-operative Alliance. The advocacy role played by COPAC in promoting the autonomy and independence of co-operatives is deemed critical, because UN agencies as close allies of the ICA and their member governments, can help mitigate the dominance of state intervention, and support cooperatives as institutions that organize self-help, promote solidarity and mobilize their own resources. However, ICA collaboration with the ILO has a special meaning of its own and has been particularly intensive.

As mentioned earlier in this paper ILO at its convention in 1966 ratified Recommendation 127, recognizing the important role played by co-operatives and also provided guidance to governments, workers and employers to help create an enabling environment for co-operatives to grow and play its role in civil society. The focus was on developing countries. The new ILO Recommendation 193 approved in June 2002, is being focused not just on developing countries, but has a more universal mandate, spelling out the universal character of co-operatives, and the flexibility in applying co-operative organizations in all sectors of activity and to focus on ensuring that enabling conditions exist for co-operatives to function and thrive. The important issue of autonomy, the special characteristics of co-operatives - its values and internationally recognized principles - were discussed and have led to a clearer understanding of the cooperative enterprise.

Apart from working closely with the ILO, ICA members also collaborate with International Financial Institutions and NGOs in optimizing delivery of the fashionable Micro Finance programs to the poorer segments of society in developing countries. The successful case of policymaking in India is a prime example of how co-operative members and other partners are empowered to dialogue with all government ministries to create a more enabling policy for co-operative development. The design of future dialogue with governments as led by ICA ROAP would hopefully empower co-operatives in other countries to embrace a similar bottom-up approach.

In both philosophy and practice, the co-operative sector is becoming stronger as a proponent of open public policy discourse, especially after the ongoing dialogue with governments through ICA ROAP Co-op Ministers Conferences, espousing the value of participatory democracy, and the strength of cooperation and partnerships. These principles and the practical applications of the co-operative model are an integral part of the declaration at the last Ministers’ Conference in Nepal. An important expression of cooperatives’ compatibility with, and value for, ICA partnership with the ILO, is their strong partnership with respective governments in Asia for the promotion and strengthening of co-operatives in developing countries.

Strong co-operative systems, as demonstrated by successful ones in India, Sri Lanka, Philippines and Thailand, are important triggers to support sustainable development, reduce poverty and contribute to more participation in policy making.

Co-operatives as change agents

The slow pace and cyclical pattern of economic growth in many PRSP-related countries in Asia has contributed to the cyclical poverty in these countries.

The paradox and irony of what we call poverty is that it is always present in the midst of plenty – with excessive inequalities as a result. With an estimated 800 million people in Asia still living in dire poverty, it further reflects the unbalanced and erratic economic growth. While the poverty incidence declined in the aggregate in most developing countries, the absolute number of poor people increased. Governments in Asia have to grapple with their weak fiscal position and consequently cut spending for social services, making it harder to stimulate economic growth and expansion. They need partners such as the co-operative institutions for their outreach to the poor in rural areas.

But as described earlier, co-operatives as micro players cannot by themselves advocate their strength as change agents in poverty reduction programs unless they work hand in hand with developing partners such as trade unions, NGOs, bilateral and various UN agencies. Take the case in East Timor. Hanai Malu Foundation is a secondary institution for the credit cooperative movement in East Timor, set up by way of popular participation by primary credit co-operatives in1994 and subsequently incorporated on 24 April 1996 under Indonesian Cooperative Law, hence named as Pusat Koperasi Kredit Hanai Malu (PUSKOPDIT HANAI MALU).

It was therefore, legally recognized. It had a focused program for entire community throughout East Timor. In August 1999, just before the destruction, Hanai Malu managed to set up 27 primary co-operatives, covering 12 districts of East Timor, with a membership of 5,917 and member’s saving/deposit has reached Rp.1.7 Billion, and total assets of Rp.2.25 Billion. In addition, 15 primary co-ops became part of the Mutual Benefit Program and 20 primaries as members of the Central Liquidity Fund of the national Credit Co-operative Federation of Indonesia (CUCO Indonesia).

Following their independence in 1999 the number of the poor in Timor Leste increased, whereas any previous links with CUCO Indonesia severed. The influx of NGOs, bilateral and multilateral agencies offering to help the poor communities in Timor Leste did little to respond to past successes of Hanai Malu, but offered different development programs to help their plight through micro finance and other welfare schemes. Instead of rehabilitating past success, fresh but conflicting agendas of development agencies have done little to revive a poor but vibrant community that already believed in self-help and in a savings-based enterprise.

This case study is disappointing, because without having to reinvent wheels ICA and ILO could have captured the opportunity to work together with other development partners and the local government to rebuild poor local communities in Timor Leste through a proven model of SHG, labor organization and Cooperatives.

Collaboration at the grassroots level is as important as collaboration between international development agencies addressing macro issues. Reducing poverty requires the creation of growth and dynamism at the level of the poor people themselves, where they can take their own initiative and improving their own situation. Poverty reduction is not merely a one-way support from economic growth to disadvantaged people, but also an important factor that lays down a relatively level playing field for development, provides additional abundant labor force, and ensure the stability in the “take-off ” period.

ICA ROAP and ILO are natural partners to convince governments and other multilateral agencies about the imperative of the bottom up approach. But governments must create the enabling policy environment for co-operatives to be able to do so. In some cases, such as in Indonesia, additional benchmarks must be created to ensure legal compliance and enforcement for co-op officials and leaders. Organizations such as ICA and ILO could be change agents to ensure that external support is only supplementary and that these funds actually reach the poor beneficiaries.

Conclusions and recommendations.

1.    The weight and diversity of co-operatives in Asia and the Pacific, especially in PRSP-related Countries, provides a meaningful guide to the international development partners that the co operative sector is indeed a force to reckon with. They act as agents for empowerment, and through ICAROAP and its members enhance the capacity of poor people to influence state institutions that affect their lives. Together with partners such as the ILO, ICAROAP and its members are “agents of change”, strengthening member participation in socio-economic and socio-political processes, as well as local decision-making;

2.    The existing policy environment is increasingly more favorable for co-operative development, especially in countries like the Philippines, Nepal, India and Malaysia. However, while positive trends of reform are happening in many Asian countries, the ongoing process of reform should not be left to chance. Review and reality checks need to be undertaken in the field through technical assistance provided by ICA ROAP and ILO, and supported by international development agencies;

3.    While co-operatives can take pride in their strength in numbers, and provide an integrated structure that contributes to economic performance of the poor, some weaknesses are also quite apparent: a. Most coops in PRSP-related Countries are small and weak, lacking adequate capital; b. Political intervention by governments and politicians is still present, albeit subtle; c. Lack of horizontal integration is crucial and must be addressed; d. Federated structures remain weak and must be empowered by more resources from members, not solely from external sources; e. The need for more training and education of managers and leaders is crucial.

4.    Jobs created through micro lending and micro insurance should not be undermined. The enterprising poor have been captured by MFIs, but credit co-operatives and credit unions as integrative institutions provide ample scope for sustaining the target clienteles of MFIs. ICAROAP, ILO and MF Banks such as BRI, Land Bank, etc., and the Asian Development Bank must engage in a collaborative effort to conduct research-based development targets where co-operatives can add value. The experience of the Asian Confederation of Credit Unions could be tapped here.

5.    There is a great need to enhance the collaboration between co-operatives and trade unions; it is recommended that a policy framework be created or enhanced between ICAROAP and ICFTU, with the support of ILO:

a)    To research and document employment creation through co-operatives among the poor;

b)    To identify the potential, and survey the availability of decent jobs for unemployed or underemployed women and youth;

c)     To develop measures to prevent vulnerable groups within their respective organizations from falling back into poverty.

A special program, with multiple projects, on the creation of social safety nets by co-operatives and trade unions among the poor is required. A strategy should be crafted to transform survival-based micro enterprises among members to growth-based enterprises.

6.    An important expression of ICA partnership with ILO is the recognition being given by governments and trade unions in their quest for mainstreaming co-operatives to the otherwise marginalized communities in the wider marketplace and society. This should be advanced through the empowerment of co-operative CEOS, lay leaders/members to embark on a greater dialogue with civil society organizations, thereby involving more people in policy making on Decent Work and the PRSP process.

7.    ICA and ILO are natural partners that should convince international agencies from reinventing wheels when it comes to rebuilding poor communities through Decent Work in micro finance and micro enterprises. The case in Timor Leste is as relevant as in Cambodia, Laos, Vietnam and other transitional economies where cooperatives could become change agents for development – despite failed attempts in Cambodia and Laos in the past due to excessive government interference

In conclusion, support to co-operative development is a long-term proposition, and should be undertaken with a view to building sustainable, economically viable and socially responsible organizations. Co-operatives can play a significant role in development strategies if they are allowed to focus on providing economic and social benefits to their members, rather than serving as mere instruments for implementing national development strategies. In other words, co-operatives are vital change agents for sustained poverty alleviation, a significant testimonial for the PRSP process.

Bibliography:

International Monetary Fund and World Bank (IDA), Poverty Reduction Strategy Papers: Operational Issues, December 1999 Washington D.C.

Micro Finance Innovation in Credit Unions, a publication of the Asian Confederation of Credit Unions, 2002. 2nd Critical Study on Co-operative Policy and Legislation, a report by Gary Cronan and Ravi Shankar, International Cooperative Alliance, Regional Office for Asia and the Pacific, 2002.

Report V(1), Promotion of Co-operatives, ILO Geneva, 2000 Poverty Reduction Strategy Papers (PRSP), Interim PRSP, IMF Country Report Series 03.