The reserve fund: Is it a necessary anchor for a successful cooperative?

Abstract

A significant number of cooperatives in the world have a reserve fund. Among cooperative members and leaders as well as researchers, a reserve fund is considered as an indispensable tool for the maintenance and success of the organisation. This article analyses the essence of reserve funds and their operation. It is demonstrated that the existence of this specific fund constitutes a deterioration in the quality of service provided by the cooperative to its members. It is suggested that the absence of reserve funds in a cooperative leads to an increase in the quality of service provided to members. Two case studies of rural primary cooperatives (moshavim) and one of secondary cooperatives (regional purchasing organizations) in Israel are presented. These associations have been operating successfully for a number decades without profit or deficit and do not maintain reserve funds. The cooperatives are founded by and for members who want to pay the lowest possible cost of participation, and the case studies demonstrate that they can operate efficiently and stably over time without relying on reserve funds.