Batik artisans dip their spouted tool, or canting, into wax which they use to draw batik patterns in Lasem, Central Java. (Antara Photo/Yusuf Nugroho)

Indonesia Cuts Founders Quorum for Cooperatives From Twenty to Three


FEBRUARY 13, 2020

Jakarta. Indonesia plans to cut the minimum requirement for the number of founding members in a cooperative from 20 people to three as the government moves ahead with its list of extensive reforms to improve ease of doing business in the country. 

The government includes the new stipulation in its new job creation bill, called Cipta Karya. It's one of the so-called omnibus bills the government has created to override hundreds of existing laws deemed too restrictive for investments. 

"A primary cooperative can be established by at least 3 [three] people," says the bill, according to a copy obtained by Investor Daily on Thursday. 

The current 1992 Law on Cooperatives stated that primary cooperatives, comprising individuals, must have at least 20 founding members. 


Secondary cooperatives, comprising primary cooperatives, must have at least three founding cooperatives. 

Indonesia's founding father Mohammad Hatta envisioned cooperatives as the country's main economic platform due to its democratic nature. To make decisions, cooperatives rely on the votes of its members who have equal rights to vote, unlike limited liability companies that base their decisions on the whim of their biggest shareholder.  

But cooperatives have barely caught on in the country as a viable form of business. At the moment, they comprise only a tiny portion of Indonesia's 59 million small-medium enterprises.

There were more than 123,000 cooperatives in Indonesia last year with 22.4 million active members across the archipelago, data from the Cooperatives and Small and Medium Enterprises Ministry showed.

They made total sales of Rp 154 trillion ($11.3 billion) for the entire year, according to the data, less than two-thirds of what Astra International, one of Indonesia's largest conglomerates, made in a quarter. 

Firdaus Putra, an executive committee member of the Indonesian Consortium for Cooperatives Innovation (ICCI), said cooperatives have failed to become a business entity of choice due to the government's top-down approach in managing them and regulations that make them too complicated to set up. 

"You only need two people to establish a limited liability company. But a cooperative has to find 20 people with similar interests. It's just too much hassle," Firdaus said.

"People who want to establish a cooperative also need to enroll in a government-sanctioned training first. They don't need to do that if they want to form a limited liability company," Firdaus said. 

Firdaus, who is also the chief operating officer of Purwakarta-based cooperative Koperasi Karya Utama Nusantara (Kopkun Group), has been advocating for cooperative reform for several years now.

He welcomes the government's latest plan to reduce the founders quorum. A smaller organization, especially for a business startup, allows for speedier decision-making and allows the business to be nimble, he said.

Also, it gets rid of free riders in the early stages of the cooperative's lifecycle and reduces the organizational cost in its early years.   

"I must clarify here, allowing three founding members does not mean cooperatives would be capped to that size for the rest of their life span. As they grow organically, more members can join," he said. 

Firdaus also hoped the government would take a sandbox approach in making regulations for cooperatives, allowing more room for the entity to experiment and innovate with new technology and business models.