Is Your Cooperative Society a Ponzi Scheme?
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| A Cooperative Society or a Ponzi Scheme? |
Are
you a member of a cooperative society or a Ponzi scheme?
This
is a question you must repeatedly ask yourself to ensure you’re not swindled.
If you're already a member of a cooperative—or you’re considering joining
one—this question is especially critical. You don’t want to risk losing your
hard-earned savings in what might appear to be a cooperative society but is, in
reality, a fraudulent scheme.
The Ubiquity of
Cooperative Societies
Cooperative societies are everywhere today. If you’re a salaried employee, there’s likely a staff cooperative society in your workplace. Churches, businesses, and even market associations often have their own cooperatives, each designed to cater to the unique needs of their members.
It’s not uncommon for individuals to
belong to multiple cooperatives simultaneously—for instance, a staff
cooperative at work, a church cooperative, and a housing cooperative in their
community.
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Nigeria's Tax Identification Number (TIN)
The Benefits of
Cooperative Societies
Cooperative societies offer numerous benefits, making them an attractive option for many.
They provide a safe platform for members to save for retirement, especially in organizations that lack gratuity policies. They also offer access to affordable loans with lower interest rates compared to traditional financial institutions.
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Members can finance the purchase of household items like TVs, washing machines,
and generators at reduced rates, often through partnerships with reputable
distributors.
Additionally,
some cooperatives operate commodity stores where members can buy household
essentials at discounted prices, sometimes even on credit. By pooling
resources, these societies can purchase goods in bulk directly from
manufacturers, passing the savings on to members. This arrangement has been a
lifeline for many low-income households.
Cooperative
societies also provide emergency loans, helping members navigate financial
crises, fund education, or even finance housing projects. For many, these
societies are a reliable source of financial support in times of need.
The Ponzi Scheme
Allegory
Despite
these benefits, there’s a growing concern that some cooperative societies are
devolving into Ponzi schemes.
A
Ponzi scheme, as defined by Investopedia, is a fraudulent investment scam that
promises high returns with little risk, using funds from new investors to pay
earlier participants.
While
cooperatives are meant to be voluntary associations aimed at fulfilling
members’ economic, social, and cultural needs; poor management and dishonest
leadership can turn them into financial traps for unwary members. And if
drastic steps are not taken members’ funds may be lost.
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The Risks of Poor
Management
The
success of a cooperative society hinges on effective management, financial
prudence, transparency, accountability, and honesty of those in charge of managing
it usually referred to as ‘Excos’.
Key
factors for success include innovativeness, adaptability, skilled management, accountability,
integrity, and effective communication to the members. However, when these
elements are lacking, the cooperative risks bankruptcy, leaving members to lose
their hard-earned money and savings.
A cooperative must balance three financial objectives: liquidity (the ability to meet short-term obligations), solvency (the capacity to meet long-term obligations), and profitability (generating returns).
While profitability is
less critical for cooperatives, liquidity and solvency are paramount. Without
sufficient cash flow, a cooperative society cannot meet its members’ needs, rendering
it ineffective.
Read Also: What
Businesses/Suppliers Need to Know About Withholding Tax in Nigeria
Warning Signs of a
Failing Cooperative
Here
are some red flags that your cooperative might be heading toward collapse:
1.
Delayed Loan Disbursements: If you face long waits for loans despite meeting
all requirements, it could indicate liquidity issues.
2.
Empty Commodity Stores: A lack of stock in cooperative stores due to unpaid
suppliers suggests financial strain.
3.
Favouritism and Mismanagement: If the management grants themselves excessive
loans, suspends interest payments, or writes off their debts and those of their cronies without members’
approval; it’s a sign of corruption. It won't be long before insolvency manifest.
4.
Unapproved Allowances: Management awarding themselves unauthorized allowances
or honorariums is a clear misuse of funds.
5.
Lack of Transparency: If financial statements are unclear or unaudited, it’s a
major cause for concern.
What You Can Do
To
prevent your cooperative from collapsing, take the following steps:
1.
Stay Vigilant: Monitor the cooperative’s activities and ask questions about
financial decisions.
2.
Demand Transparency: Request detailed financial statements and bank records to
assess the cooperative’s health.
3.
Push for Audits: Advocate for an independent audit or forensic investigation if
you suspect mismanagement.
4.
Unite with Members: Collaborate with like-minded members to hold the management
accountable.
5.
Educate Yourself: If you’re financially savvy, analyze the cooperative’s
liquidity and solvency ratios to gauge its stability.
Conclusion
Cooperative
societies are meant to empower members, not exploit them.
However, without proper management and oversight, they can easily morph into
Ponzi schemes, putting your savings at risk.
Stay
alert, demand accountability, demand transparency, demand audit, and take action if you
notice any signs of mismanagement. Your financial security depends on it. Don’t
let your cooperative become another cautionary tale.
Save
your savings today!
Let
me know your experience in the comment section below. Shalom!
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