A review input factors elasticity and return to scale of cooperative: a survey on Indonesian savings-loan cooperatives

Johnny Walker Situmorang

doi:10.14807/ijmp.v9i4.832

Abstract

This study aims to reveal the production function, return to scale, and production factors elasticity of cooperative by using Indonesia financial service cooperative (IFSC) which has a single business in the field of financial service as a sample of research. Using panel data, this study results both labour and capital factors have a significant influence IFSC production. The IFSC industry condition is increasing return to scale (IRS). Production elasticity of capital is higher than labour force so that IFSC business expansion is faster with increasing IFSC capital. The cooperative financial services industry condition is increasing return to scale that enables IFSC business expansion. Given the availability of IFSC resources and its operating environment, IFSC's business expansion strategy should be more labour-intensive than capital-intensive, employing more labour than capital. The government should provide support for improving human resource capacity

Highlights

As a business entity, the Indonesia cooperative operates as a non-cooperative entity, such as a limited company
This study aims to determine the production function of Indonesia financial service cooperative (IFSC) and its estimation reveals the elasticity of production and economics scale of financial services industry cooperative Indonesia
The use of FSC capital for production process is an average of IDR17,535.56 million (USD1.3 million) per annum with a minimum capital of IDR12.07 million (USD894,074.0) and a maximum of IDR267,822.63 million (USD1.3 million)

Summary

Introduction

The Indonesia cooperative operates as a non-cooperative entity, such as a limited company. The distinguish cooperatives with non-cooperative enterprises is the social content based on cooperative principles that show ownership of cooperatives with membership systems, and the dimensions of democracy in decision-making based on "one man one vote" in the Meeting of Members. The Indonesian cooperatives content a social dimension with principles in conducting business that aims to enhance their members’ welfare (SWASONO, 1988, 2015). Cooperatives are inclusive financial institutions because of their direct involvement in creating financial access of the poor and low-income people (MUBYARTO, 1988; MUNKER, 1997; NASUTION, 1990; RAHARJO, 2010a, 2010b; SITUMORANG, 1985, 2011a, 2014). IFSC has been massively operating in rural and urban areas involving millions of people both as members of the IFSC as well as the community so-called inclusive finance. Until 2015, the number of active cooperatives in the country reached 150,223 units with 37.78 million members or 252.49 members per cooperative and they created business transactions amounted to IDR266.13 trillion (USD19.71 billion) with total assets of IDR242.45 trillion (USD17.96 billion)

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Conclusion