What is the role of cooperatives in rural development?

Cooperative Society is an organisation formed to provide financial assistance to its members. The members are responsible for raising capital to help those in need. It mainly protects the weaker sections within rural communities from exploitation by wealthy individuals and companies. Our rural economy needs faster and more sustainable development to cater to the needs of its population. The Cooperative Societies have a responsibility to play a constructive role in this area.

Features of Cooperative Societies:

The main features of Cooperative societies are as follows:

  • Voluntary and Open Membership – Cooperatives are accessible to every member of the rural society. They can join or leave the organisation as per their choice. If a member wants to exit the cooperative, they have to give notice before leaving. It does not discriminate against anyone based on religion, caste, gender, creed or language.
  • Registration – Cooperatives need to follow a registration process as per law to become a legal entity. They can enter into contracts or acquire property only after the registration of their society.
  • Limited Liability – The liability of members is limited to the extent of capital invested by them. It also helps protect their financial interests.
  • Government Supervision – State governments regularly monitor cooperative societies and their activities. They do this to ensure that the financial interests of its members are protected. The organisation has to maintain proper accounts at all times. Independent auditors check their accounts regularly to ensure that no financial malpractice is taking place.
  • Democratic Principles – Any Cooperative Society has to ensure voting rights for its members. The members elect a managing committee that makes important decisions related to running the organisation.

Cooperative societies and their contribution to the rural economy

The role of cooperatives in rural development can be very significant and beneficial for the rural economy. We will discuss their role in the below paragraphs:

  • Provide credit facilities – Cooperative societies can help their members – individuals or small businesses – in rural areas with financial assistance. Credit Cooperative societies are involved in disbursing loans at low rates of interest and flexible repayment terms. The role of cooperatives in rural development is crucial as they protect their members from private moneylenders who give loans at very high-interest rates. Credit cooperatives rarely raise large amounts of capital due to the limited financial resources of their members. However, they play a vital role in sustaining the viability of both agrarian and non-agrarian occupations in a rural economy.
  • Housing facilities for lower-income groups – Housing cooperative societies in rural areas assist their members in getting a place to live. They are primarily involved in helping people from lower-income groups get housing facilities at affordable rates.
  • Help consumers get affordable products – Several Consumer Cooperative Societies help rural households get products at relatively cheaper rates. They purchase products directly from the manufacturer and sell them to their members below market price, thus removing the involvement of intermediaries. Anyone who wants to buy a product at these rates becomes a member of Consumer Cooperative Societies.
  • Assist small businesses to stay profitable – Cooperative Societies help small scale entrepreneurs procure raw materials at cheaper rates to reduce their cost of production. They also provide producers with a platform to sell their products directly to consumers. Removing intermediaries helps to cut down the selling price and ensure higher sales and profits for producers.
  • Share Profits among members – Cooperatives were established to serve the economically weaker sections of rural communities. They distribute profits from the operations among their members as a dividend. These earnings are vital for the sustenance of rural households.


The role of cooperatives in rural development is much more important than we think. They enable individuals and businesses to become financially independent, and they also help run small and medium enterprises that are the backbone of a nation’s economy.

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