Cooperative: Meaning, types, advantages and disadvantages

Joining a cooperative society has been proven to have an untold financial turnaround in many people’s lives, and has helped alleviate their poverty.  But little is known about this time-tested and long-established business.  Unlike Ponzi schemes,  the cooperative society is a well-organized business structure,  backed by the government to help businesses and individuals accumulate wealth in a proven and well-defined system. There is no better time than now to consider joining one now, especially as a Nigerian. This brings us to the question of what a cooperative society is, how it is run, how you as an individual and or a business entity can benefit from it, the pros and cons, and more.

This article deals with what a cooperative is, the way the business operates, and  the pro and cons of joining the cooperative 

What is a cooperative?

A cooperative is an association of a group of people who come together to pool their resources together to improve the well-being and socio-economic interest of its members. 

This business model has been around for decades around the world and has been proven to help low-income individual to accumulate wealth in a steady but predictable manner. 

In a cooperative, members are required to have a monthly financial contribution, which can also be seen as savings. The money is then used by the cooperative to embark on profitable ventures, and the profits from these ventures are shared among members as dividends at the end of the year, during the annual General meetings. 

Another characteristic of a cooperative is the ability of a member to have access to a loan at a very minimal interest rate, and the loan can be three to five times the amount saved in the pool by such an individual. 

Types of cooperative society

There are three Major categories of cooperative society.

1. Agricultural cooperative society

This is Also known as a Farmers’ Cooperative. This is Meant basically for farmers. The money from the pool of contributions is used to advance the welfare of the members,  especially in acquiring farm machines. With this, they lend these machines among themselves at a very low and subsidized rate, and also to the public at a higher rate.

They also buy fertilizers in commercial quantities, at a low rate and share among members.  While they benefit so much from these projects, they still have the luxury of having to share dividends at the end of the year.

2. Savings and credit cooperative society

 This type of cooperative is set up solely to provide low-interest loans to its members. In the business model, the members contribute to the pool, and the money is lent to members at a very minimal interest, and also to the public at a higher interest rate. It is also called the microfinance cooperative.

3. Multi-purpose cooperative society 

 The multi-purpose cooperative society is the most common in Nigeria,  and is quite more flexible, from lending money to its members at low-interest rates, providing land and real estate solutions to its members, and so on, and also indulging in all types of ventures and businesses for profit. 

Advantages of joining a cooperative society

Joining a cooperative as stated above has a whole lot of benefits to you as an individual and as a business entity. Below are some of the most relevant of them that may sway your interest in a positive direction. 

  1. Savings  culture: It’s an established and proven fact that one of the ways to create long and lasting wealth is to have a saving culture. Joining a cooperative will enhance your saving culture, as you will be mandated as a member to have a certain amount contributed monthly. This is at your discretion, though there is a minimum amount, there is no cap to how much you can contribute. These contributions become your savings and can be withdrawn at any time you deem fit, but subject to the rules binding on the cooperative.
  2. Low interest on loans: In this age where getting a loan is cumbersome not to talk about the high-interest rates that come with it, it becomes reasonable to see joining a cooperative as the best option as the loans to its members are of a low interest rate. 
  3. No collateral on loans: It is quite amazing to know that as a member of any cooperative society, you need not have collateral before you can have access to a loan. You only needed a guarantor, which is also a member to have get stand vouch for you.
  4. Low-cost housing and real estate solutions: Cooperative societies pool funds together and help provide real Estate and housing solutions to their members at a very low cost. And also, the payment for these solutions is quite flexible and is spread within a year or two, with little or no interest
  5. Stability and predictability: The cooperative business is stable, because of the laws that back it up, and also because it is well backed up by the government.  As such, there is no fear of losing one’s money to market volatility, unlike other types of investment.
  6. Dividends: As a member, you get to share the profit from the businesses of the cooperative at the end of the year.

Disadvantages of a joining cooperative society

Does joining a cooperative have its disadvantages? Yes. It’s done, and we will not be shy to talk about them. Notwithstanding,  it’s intended to show you some of the pitfalls and how you can avoid them, and not to discourage you.

Below are some of the prevalent demerits of joining a cooperative society.

  1. Bad and corrupt leadership: When the officials at the helm of leadership become corrupt, they may connive with one another to exploit other members, inflates or deflate figures to their advantage and also misuse funds.
  2. Misuse of funds and assets: The different committee members may also be corrupt and this may lead to misuse of funds and the cooperative assets. 
  3. Conflicts and factions among members within the cooperative: Over time, cooperative like any other business organization has witnessed conflict of interest, and members having their different faction. These conflicts lead to ineffective decision making, when not resolved amicably may result in a loss in profits and cooperative assets 
  4. Lack of motivation: In a cooperative, the surplus or dividend is shared equally, based on your total savings. However, the demerit inherent in this principle is that it does not encourage hard work and competition among members. Since the profits are equally shared, members do not feel the need to put in more of their God-given human mental resources. 


The cooperative is a business model that has proven to be so successful in alleviating people from poverty and also helps to protect individuals from the monopoly or strength of the rich. This they do by pulling not only funds but ideas and other human resources together to advance the financial welfare and economic interest of their members.

While there may be some bottlenecks in every system, it is safe to say that with good management,  the cooperative society can become a game changer, especially in this present era of inflation and economic uncertainty. Hence, before joining a cooperative,  one must do a thorough investigation of the type of people involved in the business, their educational background and religious orientations as well as doctrine and dogmas enshrined in the foundation of the business.  Also, one must carefully understand his or her need, to know which of the categories of society will be beneficial to them.

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Paul Umukoro

Paul Umukoro

Paul Umukoro is an astute content writer with He writes mostly on hot, contested, and valuable topics in business, finance, and technology. He majored in computer science.

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