Credit Co-operative Society

Multi State Credit Cooperative Society Registration

The continuous increase in the need for credit in every section of society has led to the formation and development of various credit institutions. Amidst the trend, it has led to the growth of various credit co-operative societies. The Banking Regulation Act, 1949, primarily identifies three types of institutions in this regard which is listed below:

• Primary Multi-state Credit Societies – having net worth of less than 1 lac rupees and whose functions are similar to banks, but they do not form part of the payment and settlement system;
• Primary Cooperative Banks—also known as urban cooperative banks, whose net-worth is 1 lac rupees or more. These are considered as similar to banks and are also the part of payment systems and enjoy the facility of deposit insurance.

And the last but not the least is the Credit Cooperative society, about which we are going to discuss in detail in this article.

Overview on Credit Co-operative Societies

The credit co-operative societies confine the scope of their activities to only their members and also do not perform any banking functions. These types of institutions are basically the thrift societies developed for inculcating the habit of savings among its members. In the absence of such credit societies, people of low-income groups, who are unable to get a loan from a bank because of the risk, would resort to taking loans from financiers at a high rate of interest. These societies provide a wide range of other banking and financial services like loans, F.D, R.D, saving, insurance, etc. For the credit co-operative society, its members only are the owners as well as the customers.

Registration Procedure of Credit Co-operative Societies

 The credit cooperative societies are registered under the district registrar office of state with the Registrar of Co-op Society.

Once the society gets registered, two important points are to be attained, which are as follows:

• Appointment of agents for the collection of deposits;
• Purchase of the software for the society.

The foremost benefits for the members of the credit cooperative societies are that they give high returns on deposit schemes and give a loan at a lower rate of interest. The reason for this is its lower running costs. That’s why they declare dividends every year for their members.

Requirements for Registration of Multi State Credit Co-operative Society

The following are required for its registration:

• Model bye laws;
• List of promoter members;
• Intensive inquiry letters for NOC;
• Proposed name;
• A certificate from the bank mentioning credit balance in favour of the proposed MSCS;

A plan providing how it will be beneficial for social and economic needs of its members and community.

Difference between Multi-State Credit Co-operative Society Registration and Finance Companies

Credit Co-operative Societies are the financial institutions that are being registered under the Multi-State Cooperative Societies Act 2002 of the Central Government and the Rules made thereunder. Therefore, it is compulsory by law for these societies to adhere to the rules and regulations. The ownership of these societies doesn’t lie with any particular individual, but all the members have ownership rights.

The governing body of the society is elected by its members in a democratic way, which is responsible for performing the operations of the society. The governing body also decides the policy matters in general with full transparency. Moreover, the operations of the co-operative societies are invigilated by the Cooperative Department.

On the other hand, individuals are the owners of the finance companies and the policies are formed accordingly. The general public and customers do not interfere with the procedures and operations of these companies. Therefore, the amount of transparency is very low as compared to the credit co-operative societies. As a result of this, the customers do not have sufficient knowledge about the workings of the finance companies.

Difference between Multi-State Credit Co-operative Society Registration and Banks

1. Banks operate under the framework of rules and regulations prescribed by Reserve Bank of India; while, the credit cooperative societies work as per the Multi State Cooperative Societies Act^[1].
2. The audits of banks are generally conducted by Chartered Accountants, or in special cases, by the Reserve Bank of India. However, in the case of the credit societies, auditors are appointed by the registrar office.
3. Banks have a clearinghouse license, which is not in the case of credit societies, therefore, unlike banks, credit societies cannot issue cheque books.
4. In the case of availing loans from the credit cooperative societies, one has to become its member as well as purchase its shares. However, one can take loans and advances from banks without purchasing its shares.

Advantages of Multi-State Credit Co-operative Society Registration

Let’s take a look at the advantages offered by the multi-state credit co-operative society Registration in the present arena:

• Ease of formation- The hassle in the formation of credit co-op societies is very less as they deal only with the funds of their members. This is the reason that the RBI has reported them to the least compliance as there is no public interface and the interests of the general public are not at risk.
• Ease of membership- There are no restrictions or conditions associated with the membership of these societies. Any legal person/individual can become a member of the credit co-op. There isn’t any obstacle with respect to membership unless denied categorically.
• Limited liability- In credit co-op societies, individuals are the owners of this entity, but their liability is limited to the amount of capital contribution made by them.
• Democratic management– The management of the societies is appointed by democratic voting by all the members of the society.
• Continuous Existence- The members may come and go, but the existence of the credit co-op society goes on forever.
• Limited expenses– The recurring, as well as non-recurring expenditures, are very less as the cost of operation is very limited.

Conclusion

Therefore, in this arena of global competition, the rise of financial and credit lending institutions is on the positive verge. The supply is trying to meet the demand. Equal opportunity for all is the motto. In the same vein, the credit co-op societies are fulfilling their purpose by catering to the financial needs of the underserved sections of the society.

Read our article: Requirements For Forming a State Co-Operative Society