Business Case Study: Credit Union Central of Indonesia (CUCO)

Business Case Study: Credit Union Central of Indonesia (CUCO)

Description of the Coop

Jakarta is a firm based in Indonesia’s that operates as a national-level secondary credit cooperative. It is commonly known as Credit Union Central of Indonesia (CUCO). Founded on the premise that Credit Union is a means of facilitating human development, the company strives to impact socio-economic empowerment of members (“History”). As a cooperative, its purpose is to develop a vibrant credit union that can influence the collaborative business network through robust, durable, and reliable relationships.

CUCO offers various financial services to the public with the aim of influencing economic growth. It serves the Credit Union Center across Indonesia. The firm works with businesses in the primary, secondary, and national regions. As a national cooperative movement with 2,731,242 members and assets worth $1,766,678,326.74, it provides financial services with the goal of facilitating and strengthening institutional service provision (“History”). It offers cross-national lending, auditing, and education, as well as training programs.

CUCO has rapidly grown since its formation in 1970. Its organizational structure has witnessed various changes over the years. Management of horizontal growth falls under the responsibilities of various department heads. Some of these include leaders of divisions such as the Human Resource Department, Accounting, Information Technology, and different personnel managers (“History”). The individuals are responsible for administration and coordination of service delivery across the organization.

CUCO has had a long term target of registering 10 million individual members. It also plans to attain assets worth 100 trillion by 2020 (“History”). Thus, it has embraced vertical integration to improve service delivery. Some of the strategies used include enhancing the quality of human and material resources. For instance, it follows and encompasses the use of the latest technology in the financial services industry as an approach aimed at increasing its market share.

Primary Themes and Issues

CUCO is located at the capital city of Indonesia, Jakarta. It was formed through the efforts of a few individuals who had a desire to care for the marginalized in the community. The founders believed that they could impact society through the credit union. The cooperative started as a consultancy bureau for the credit unions. Over time, it evolved with the growth of Indonesian Credit Movement (“History”). It works under the coordination of Inkopdit as the parent credit union. Thus, like other cooperatives in the nation, it operates under its guidelines and exists to serve the people.

Almost all cooperatives in Indonesia have a savings and loan unit. That is, these cooperatives carry out financial transactions that are very risky as it directly affects cooperative liquidity. Many factors have the potential to harm organizations from an economic point of view. For example, when a member dies, loan payment becomes a problem.  The solution is to procure credit or credit insurance risk funds to ensure the situation does not overburden the relatives. It is essential for entities to retain the ability to purchase or sell assets quickly without experiencing adverse changes in value. Businesses rely on credit insurance risk funds to shield themselves against losses that arise when borrowers default payments or die. Unfortunately, not all cooperatives have credit risk fund or the ability to claim it to a particular insurance company. Therefore, firms remain exposed to losses that occur in such situations.

Loan debts incurred by members are a cause for concern since recovery is a challenge. Family members and relatives of the deceased may fail to cover debts left behind. Some of the reasons that limit their ability to repay include inadequacy of financial resources and a lack of understanding. Such conditions call for institutions to seek alternative cushion avenues that will reduce losses. Given the high rate of premiums charged by insurance companies, the management can opt for credit risk fund or embrace the use of member protection funds.

Cooperatives rely on various sources to obtain operating capital such as membership fees and reserve funds. In most cases, the charge is useful in paying claims while the reserve helps when contribution amounts are low. In scenarios where the capital is adequate, cooperatives can direct the finances to minimal risk investments with high returns. A good example is investing in government bonds.

Economic Conditions Affecting the Cooperative

Some sections of the population lacked access to traditional types of financing. Transformation of the financial system facilitated the development of rural-based financial institutions. Thus, the cooperative emerged as an alternative financial service in rural areas of Indonesia. It adopted a unique mode of operation due to the country’s geographical condition. CUCO has a different organizational structure compared to other credit union services in the region (Fathin). Thus, its classification entails the provision of primary, center, and secondary credit services depending on the area of operation.

The cooperative has experienced challenges since inception. Some of these arise due to lack of socialization, education, and awareness about the cooperation program. Thus, there is relatively low participation from the public. Besides, unprofessional management that plagues the co-op at the official level of administration is a barrier to development. The firm also fails to adopt the modern era of technology. For example, it follows the same structure that was in use 30 years ago. The format does not apply to the contemporary generation given the vast development of technology and the current economy (Putra). Hence, it is yet to benefit from the advantages of technology.

While the nation’s rate of economic growth is 5.07%, a vast section of the population lives in poverty with 27.77 million underprivileged people. There are efforts aimed at the revitalization of the economy. With a capital injection of 59.2 trillion rupiahs, there is hope that economic development will occur. There is also a likelihood that regulations and economic policies will change due to the upcoming general elections. Therefore, the changes may affect the Credit Union and the economy in general.

Economic Rationale

The concept refers to the reasons or thought processes that impact or influence financial decisions. One of the primary determiners in the credit and service industry is the interest rate. Rates charged by the cooperative support its existence and role in the market. The amounts levied to loans taken by members are relatively low compared to other primary financial institutions. As a vital component of a nation’s monetary policy, interest rates guide the existence and operation of lender organizations. Thus, CUCO is an essential part of the Indonesian community as it imposes a fair percentage of principal amounts taken by members.

The allocative efficiency of services offered by the cooperative reflects its value on the economy. Organizations should strive to enhance the standards of living in the community (Wright 8). They can achieve this by improving the quality of life through services and goods availed to people. The responsibility and actions of the entity can contribute to the welfare of society. Credit unions have the potential to influence human development by empowering communities. Hence, financial services provided by CUCO support its presence. Over time, it will manage to impact more lives as evolutions take place and the leadership adopts more strategic methods of operation.

The establishment of the cooperative increased the public’s access to essential financial services. It brought services closer to the people as it was a much-needed alternative to geographical locations that lacked access to state-owned banks. Lack of credit and savings institutions in the rural areas had hindered economic progress. The unfavorable business environment restricted investment in such regions. However, the entry of the organization into the industry made the market more appealing. It provides opportunities for individual and business growth. Thus, it is a relevant entity in the finance sector.

Contemporary Cooperative Principles

The principle of voluntary and open membership is evident in this case. Cooperatives operate on the premise that registration is free to all interested people. Therefore, the entities do not prevent persons who can use and benefit from CUCO from joining the organization. The framework of the policy dictates that these groups should not discriminate against prospective participants by gender, race, political, or religious affiliation. The cooperative adheres to this principle by seeking to achieve a broad client base as it does not categorize its members with prejudice. Thus, it upholds openness to all.

The leadership of cooperatives exercises their authority through democratic member control. Unlike privately owned entities, CUCO is under management of the members. The policy identifies members as individuals who must participate in the administration of the cooperative. By engaging in policy formulation, implementation, and decision making, the people retain a primary role in charting the way forward. Their actions, decisions, and leadership choices influence the firm’s success. Thus, the leaders are accountable to the stakeholders. Besides democratic control over the organization, the entity encourages equal member involvement in all essential undertakings initiated by CUCO.

Defined as self-help organizations that strive for welfare improvement, cooperatives are autonomous institutions. The principle dictates that leaders have to ensure that the firm does not lose control of other organizations. When they conduct business with other companies, they must retain their independence. By upholding democratic control by the members, CUCO has remained free of the influence of financial firms such as lenders. Also, the cooperative fulfills its mandate by providing education and training services to the public. It meets its obligation of disseminating information to society as required by the cooperative principles.

Adverse Impacts of Cooperative Structure on the Cooperative’s Business Performance

The firm’s corporate structure has impacted the cooperative’s business performance. There is a likelihood that a significant number of changes will occur due to the difference in the nation’s leadership regime. Given that the presidential election in Indonesia is only one month left, chances are that the new administration will initiate reforms and policies that impact performance. CUCO does business with a variety of other financial institutions. Its organizational structure allows for borrowing, lending, and investing with different organizations. With new national leaders and varied political ideologies, the success rate may vary. Therefore, it is not immune to transformations that affect players in the finance, credit and lending industry.

Various regulations define Indonesia’s finance sector. The nation has implemented some regulatory changes across the industry. For non-bank financial institutions, the modifications affect aspects of risk management. A circular letter released by the Financial Services Authority (OJK) provides guidelines on implementation of risk management measures and conducting of self-assessments. The purpose of the changes is to steer organizations towards better risk management practices. Firms ought to investigate with the goal of increasing the ability to spot and mitigate threats that lead to dismal economic performance. Part of the guidelines term is essential for groups such as CUCO to issue reports to OJK. Undertaking all activities required to meet the standards and strategies outlined by the control body would necessitate changes to the organizational structure. Failure to comply would thus affect general performance and outcomes.

Cooperatives face numerous challenges. For instance, CUCO has to figure out how to keep their members engaged. The management also must ensure that the organization can compete favorably with other cooperatives in this era of globalization characterized by constant innovations. Some of the management strategies’ biggest challenges are an increase in delinquencies, loan losses and bankruptcy filings and the burden of dealing with unprecedented numbers of real estate loan modifications and foreclosures. Others include difficulties identifying the level of the risk and the potential losses in members’ loan portfolios and managing interest risks (Angus). Given these challenges, the cooperative has to develop a unique and strategic management plan.

Recommendations and Suggestions of Keys to Success

One of the challenges identified in this case that limit the development and massive use of the cooperative is the lack of information about its existence. CUCO operates on an outdated framework that has not fully embraced modern day structures used by other organizations. Factors such as lack of education and awareness on the role and importance of the entity’s activities denote a failure to exploit the benefits of technology. Leaders and the members should work towards increasing public knowledge about the firm. Thus, efforts that will contribute to long-term success should rely on building a large membership base.

One of the strategies of expanding the network created by CUCO is by using online platforms. There is a need for the organization to develop an easy-to-navigate website that will serve as a marketing avenue and a shortcut to comprehensive services. Thus, it can reach more people and engage others in the cooperative. Besides pursuing an online avenue, it can increase investments in promising start-ups. By supporting local entrepreneurship, the entity can build a reputation that will attract more members. Their commitment to the welfare and development of others in society can stimulate the participation and engagement of younger people. Thus, it is crucial to draw the interest of this group as it represents a significant element of the population.



Works Cited

Fathin, Khairunnisa. “Why Cooperation in India Is Difficultly Developed(English).” Word Press, 23 Oct. 2011, Accessed 6 Mar. 2019.

“History of the Development of Inkopdit (English).” Cucoindo, n.d., Accessed 6 Mar. 2019.

Putra, Firdaus. “Young Children, Cooperatives, and the Abundance Era (English).” Kompas, Accessed 6 March 2018, Accessed 6 Mar. 2019.


Wright, Vic. Economic Rationales for Government Intervention. Practice Change Research. Working Paper 03/09.2009. Victorian Government Department of Primary Industries Tatura.