April 5, 2010

Financing the Co-operative Movement

For better or for worse?

by Amanda Wilson

The Dominion - http://www.dominionpaper.ca

Organic Underground, a Belleville, ON, co-operative cafe, is one of many Canadian co-ops facing the tension between keeping their mandate and meeting the expectations of funding agencies. Photo: Organic Underground

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OTTAWA—Securing financing is a challenge for any new business, but if you happen to be a co-operative it’s particularly difficult, says Lynne Markell, Government Affairs Policy Advisor with the Canadian Co-operative Association (CCA). “Traditional lenders don’t understand co-ops and there is a large dependence on members to provide the initial capital.”

Faced with banks and agencies that expect profits to override other concerns, the co-operative movement is beginning to look within for solutions, but challenges remain.

Traditional lending institutions seek applicants that are low-risk, high return. Formally or informally, lenders impose a set of conditions upon those seeking financing to ensure they are a “desirable” investment. By requiring a particular kind of business plan, management structure, or certain profit margins, lenders can influence co-operatives seeking financing to conform with traditional notions of how businesses are run. What is desirable from the perspective of the lender may not be desirable for the co-operative members, or the values they are trying to maintain.

Co-operatives seeking to build an organization that redistributes resources and decision-making to their members or their community are faced with the awkward situation of seeking funds from institutions that will steer them towards values opposed to their own.

While co-operatives are eligible for many Federal Government financing programs, few co-operatives are successful in securing loans. In the past five years, the Canada Small Business Financing Program (CSBFP) has made only 65 loans worth a total of $5.5 million to co-operative businesses (on average the CSBFP disperses 10,000 loans worth $1 billion per year). In addition, the agriculture financing program, the Canadian Agricultural Loans Act (CALA), did not make a single loan to agriculture co-operatives in 2009.

Sometimes it’s a case of not understanding the co-operative model. In response to a question about eligibility for a loan, one private funding program responded that co-operatives were eligible, so long as the individual applying for the loan held at least 50 per cent ownership in the business. This effectively eliminates all co-operatives since the basis of their model is collective ownership amongst all members.

One member of a worker co-operative in Montreal compared the relationship between co-operatives and mainstream funders as “jamming a round peg into a square hole.”

Sandra Mark and Frank Moreland, organizers of the Vancouver Food Co-op, vent their frustrations at the financing options for new co-operatives, in the latest issue of Making Waves. They lament that co-ops face a myriad of catch-22s and barriers to accessing capital and conclude that “social enterprises themselves and our friends in the general public need to enter the capitalization arena. If we wish to scale-up community economies we need to be ready with our own dollars to start the flow of capital.”

These concerns have been voiced for years within the co-operative movement. In response, the CCA and the Conseil Canadien de la Cooperation et de la Mutualite are lobbying the Federal Government for the creation of a Co-operative Investment Strategy. The two-part proposal consists of a Co-operative Investment Plan and a Co-operative Development Fund, both of which aim to provide increased financing options for co-operatives in Canada. The idea behind the proposals is to generate investment from within the co-operative movement itself—from members, employers and supporters.

Under the CIP, members and employees of worker or agriculture co-operatives would receive a tax credit for investing in their co-operative. The CCA estimates the CIP could generate upwards of $125 million in new investment, while costing the government only $17 to $20 million in lost tax revenue.

The proposed Co-operative Development Fund would operate as a loan fund, providing a source of low-interest loans to co-operatives. After an initial cash injection of $70 million from the Federal Government, the Fund would be self-sustaining. A similar program in Quebec, the Regime d’Investissement Cooperatif (RIC) has generated nearly $500 million since its inception in 1985, according to the Canadian Co-operative Association.

Several smaller co-op-led financing programs are already in existence. One, the Tenacity Works Fund, created and managed by the Canadian Worker Co-operative Federation (CWCF), provides an investment of $15-50,000 to worker co-operatives.

According to Hazel Corcoran, Executive Director of CWCF, the Tenacity Works fund is too small to meet the full range of needs of worker co-operatives, which is why, she argues, the movement needs the Investment Strategy put forth by the CCA.

Despite widespread support for the program (including an endorsement from the House of Commons Finance Committee), the CIP was not included in the Federal Government's latest budget, tabled March 4.

Even if the programs are adopted in the future, challenges remain. The CIP rests on the assumption that members and employees of co-operatives have money to invest in their co-op. In addition, for a Co-operative Development Fund to be successful, there needs to be buy-in not only from the Federal Government but also from the co-operative sector as a whole. So far, the co-operative movement has not been able to come together to form a national development fund, putting the principles of co-operatives supporting co-operatives into practice.

As co-operatives struggle to secure the necessary financing, are they falling into the trap of conforming to the capitalist business model and capitalist financial institutions? Even financing programs from within the co-operative movement bring a particular understanding of a “successful” co-operative, and tend to guide co-operatives towards conventional business standards and practices.

Some insight might be drawn from the experience of the non-profit sector. INCITE! Women of Color Against Violence, the editorial collective behind The Revolution Will not be Funded (published 2007), sharply criticized the non-profit movement for having become obsessed with the financial sustainability of their organizations, arguing that it has fundamentally weakened the movements it supposedly supports. They book quotes Ella Baker who argues, “We're getting praise from places that worry me," meaning perhaps it should be a concern that NGOs are perfectly in line with the priorities of funders.

Samuel Kuhn, one of the founding members of the Organic Underground, a co-op cafe in downtown Belleville, Ontario, said the tension between needing money to run the cafe and not wanting to conform to the requirements of financing institutions is constant. “We’ve faced so many funding crises in our three years that it seems unbelievable that we are still around...but we are!”

Perhaps that’s one of the strengths of the co-operative model: Organic Underground’s progressive politics and commitment to sustaining a community-run space has resulted in a loyal membership base. The Cafe, said Kuhn, manages to stay afloat despite the odds, “…surviving on spontaneous community donations or latte sales.”

For more information, visit the Cooperative Investment Strategy, and the Principles of Cooperation, developed by the International Co-operative Alliance.

Amanda Wilson is a writer and researcher in Ottawa. She currently works within the co-operative sector.

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