Raising capital by issuing transferable membership in a consumer cooperative

Abstract

Purpose

It is generally recognized that consumer cooperatives are at a disadvantage when raising capital as compared to conventional capitalist firms. The purpose of this paper is to explore a method for consumer cooperatives to issue transferable membership shares as financial securities and raise non-redeemable equity. The author examines if such a method can strengthen the financial viability of consumer cooperatives in the market economy.

Design/methodology/approach

The author first explain the mechanism by using diagrams of the circular flow of factors of production and the product. The author then developed a simple formal model and compare the amount of equity capital raised by a capitalist firm and a consumer cooperative.

Findings

The author found that the amount of equity that a consumer cooperative can raise by issuing shares of membership is greater than the amount of equity that a capitalist firm can raise by issuing shares of stock.

Research limitations/implications

More research effort is required to apply the theory discussed in this paper for practical use.

Social implications

Consumer cooperatives have many good features that conventional capitalist firms do not have. However, the scale and scope of consumer cooperatives have been quite limited partly because of the problem of finance. The method presented in this paper is expected to improve the financial viability of consumer cooperatives and promotes their activities in the market economy.

Originality/value

This paper regards the membership of a consumer cooperative as a kind of financial security and as a tool for procuring capital for investment. As far as the author knows, the present paper is the first one that presents such a concept.

Citation

Mikami, K. (2015), "Raising capital by issuing transferable membership in a consumer cooperative", International Journal of Social Economics, Vol. 42 No. 2, pp. 132-142. https://doi.org/10.1108/IJSE-05-2013-0116