Cooperatives and mutuals are the original social-enterprise, but they’ve always struggled with a legal structure that doesn’t allow access to outside investment from the likes of impact investors. 

This all changed in 2020, with the introduction of the Mutual Capital Instruments, and now the Business Council of Co-operatives and Mutuals (BCCM) is working to raise awareness of the huge impact potential of investing in co-ops and mutuals. 

Onimpact spoke with Melina Morrison, CEO of the BCCM, about the unique nature of co-ops, the progress of legislative changes, and the huge need for the sector to better recognise the part they play.

Impact at their core 

The BCCM is an advocate and a voice for all sorts of businesses. Co-operatives and mutuals cover everything from: fruit growers that comes together to sell their produce as a group. 

Banks (like Teacher’s Mutual or Bank Australia) which are owned by their customers and feed profits back into offering a better service. 

Or even infrastructure; an example being Hepburn Wind Farm, which was funded by the community that would benefit from clean, cheap power. 

It’s diverse, but they’re united by their commitment to impact. 

“They use money to do something and not the other way around. And, in one way or another, they’re member owned, not shareholder owned.” Melina Morrison says.

“What unites you is greater than what divides you.”

They may be in different sectors, but coops and mutuals are actually a distinct corporate model. They’re united by their distinct legal model that enshrines their values as the driver of their business. 

“There’s only two ways that you’re legislated in Australia, you’re either a cooperative under a state act called Cooperatives National Law, which has been harmonised nationally. Or you’re a ‘Mutual’ company under the corporations act.” Melina says.

But… can you Invest In a Mutual?

The assumption is often made that if the business is owned by the members, then outside shareholders can’t invest. While that’s part of the benefit of a co-op or mutual, it makes accessing growth capital very difficult.

When you start digging, you realise that co-ops and mutuals make excellent impact investments. The values alignment is clear, as is the governance structure that puts purpose as the bottom-line, rather than profit. 

As debate grows about stakeholder vs shareholder capitalism, it becomes clear that customers and the community are demanding more from business. 

“Cooperatives and mutuals have always used capital in this way. It was never about profit maximisation, it was always about making a surplus in order to maximise member value.” Melina says. 

“To create, protect and return benefit to members.”

The business-case needs to be competitive, and management needs to be nimble and efficient, but when your members are also your customers, and your shareholders, then the calculus of customer acquisition is very different. 

The challenge then becomes how to fund growth. 

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Mutual Capital Instrument

“That idea of recycling investment for a common purpose is what coops and mutuals have always done.” Melina says. 

“However, they’ve had limits on getting investment that’s external to members inside the organisation, to grow the business, without changing the corporate model.”

The good news is that legislation has been introduced to allow mutuals to attract outside investment. It’s called a Mutual Capital Instrument, or MCI. 

(Cooperatives had this available, through the Cooperative Capital Units structure for some time previously.)

Federal legislation now allows co-ops and mutuals to raise money, without having to rely on debt. 

“The benefit is that it sits on the equity side of the balance sheet. It’s not more debt, which is really helpful to co-ops because borrowing, even in a low interest rate market, is still debt, it’s still loading up the debt side of your balance sheet. And to bank lenders it doesn’t look so great.” Melina explains. 

“So they can now attract equity, but they don’t have to exchange ownership or influence or power. And I think in terms of social impact lending that’s an advantage.”

The most prominent example comes from Australian Unity, a company that dates back to 1840, and always member owned. They provide insurance and financial services, but their mission is to drive the wellbeing of their members and their communities. 

To drive this mission further they wanted to grow, and for that, they needed capital. 

The MCI structure was an opportunity, once they made some additions to their constitution, they were ready to go. In December 2020 they issued $120 million of Australian Unity Mutual Capital Instruments (‘MCIs’), and in January, the instruments were trading on the ASX, with each MCI having a face value of $100 and an issue price of $100. In November 2021 a further $230 million of MCI’s were issued. 

They pay a discretionary fixed-rate dividend, and, retail investors have access, which is rare in the world of impact investing. 

At the time, HESTA made headlines with a $20 million contribution that came from its $90 million Social Impact Investment Trust.

Future Pathways for Growth

Launching a social enterprise, or investing for impact, are new models of social business, but it’s a model that co-ops and mutuals have been doing for centuries. And with new financial structures being tested, and with more co-ops and mutuals being ‘MCI ready’, there’s a big opportunity for impact capital to be put to work in organisations that are already embedding in communities, and delivering vital services on the ground.

“The trigger points for co-ops demutualising in the past was this idea that they couldn’t access growth capital, and they were going to be constrained and so the argument was fairly easily waged.” Melina says.

“Then we lost AMP and all of the others, and well, that hasn’t worked out well for shareholders now has it.”

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