The Member Guide to
Cooperative Finance
A plain-language reference for cooperative members who want to understand the financial documents their cooperative produces — without needing an accounting background.
Your cooperative produces a financial report every year. Can you read it?
Every year, cooperative members receive or can request access to the annual financial report. This document contains the most important information about the health of the institution where they deposit their savings. Yet for most members, it remains unread — not because they are uninterested, but because it looks complicated.
This guide introduces the key concepts in plain language. It is not a complete accounting course — it is a practical starting point that gives members the vocabulary and the framework to engage with their cooperative's financial information.
Understanding the balance sheet, step by step
Each section below explains one important concept from a cooperative's financial statements.
What is a balance sheet and why does it matter?
A balance sheet is a snapshot of what the cooperative owns (assets), what it owes (liabilities), and what belongs to the members (equity) at a specific point in time — usually December 31 of each year. It is called a "balance" sheet because assets always equal liabilities plus equity. If a cooperative has assets worth 1,000 million guaraníes and liabilities of 700 million, then member equity is 300 million. This basic equation tells you the financial structure of the institution.
What are assets in a cooperative?
Assets are everything the cooperative owns or has a right to receive. In a savings and credit cooperative, the largest asset is typically the loan portfolio — the money that has been lent to members and is expected to be repaid. Other assets include cash and investments held for liquidity, real estate and equipment, and any other resources the cooperative has acquired. When you look at the assets section of a balance sheet, you are seeing where the cooperative has deployed the funds entrusted to it by members and creditors.
What are liabilities — and are they a problem?
Liabilities are everything the cooperative owes to others. In a savings cooperative, the largest liability is typically member deposits — the savings that members have placed with the cooperative and can withdraw. This might seem counterintuitive: your own deposits are a "liability" for the cooperative. But this is correct — the cooperative owes those funds back to you. Other liabilities include external borrowings and accounts payable. Having liabilities is not inherently problematic; what matters is the ratio of liabilities to assets and whether the cooperative can meet its obligations as they come due.
What is member equity and why does it matter?
Member equity (also called patrimonio in Spanish) is the portion of the cooperative's net worth that belongs to members collectively. It includes the share capital that members have contributed over time, accumulated reserves that the cooperative has built up from past surpluses, and any retained earnings. A growing equity base is generally a sign of a financially healthy cooperative. It acts as a buffer that protects member deposits if the cooperative faces losses. When you hear about a cooperative's "solvency," this is largely what is being discussed.
What is the annual surplus and how is it distributed?
The annual surplus is the difference between the cooperative's income (mainly interest on loans) and its expenses (interest paid on deposits, operating costs, provisions). Unlike a bank's profit, a cooperative's surplus is not distributed to outside shareholders — it belongs to the members. Paraguayan cooperative law and each cooperative's statutes specify how the surplus must be allocated: a portion must go to legal reserves, a portion may be distributed to members in proportion to their activity (retorno), and some may be reinvested. The annual assembly votes on how the surplus is distributed, which is why attending matters.
What is the loan portfolio quality and why should members care?
The loan portfolio is usually the cooperative's largest asset, and its quality determines much of the institution's financial health. "Portfolio quality" refers to how many loans are being repaid on time versus how many are overdue or at risk of not being repaid (non-performing loans). A high level of non-performing loans is a warning sign. In the financial statements, you can look for provisions for loan losses — money set aside to cover expected defaults. A well-managed cooperative will have adequate provisions. Members can ask about the non-performing loan ratio at the annual assembly.
A simplified cooperative balance sheet — annotated
The following is a generic illustrative example to show the structure of a cooperative balance sheet. The figures are hypothetical and for educational purposes only.
| Line Item | What It Means | Example Figure |
|---|---|---|
| ASSETS | ||
| Cash and Liquid Assets | Money immediately available for withdrawals and operations | Gs. X,XXX,XXX |
| Loan Portfolio (net) | Total loans outstanding to members, minus provisions for losses | Gs. X,XXX,XXX |
| Investments | Fixed-term deposits and other financial instruments held for income | Gs. X,XXX,XXX |
| Fixed Assets | Buildings, equipment, and other physical property owned by the cooperative | Gs. X,XXX,XXX |
| TOTAL ASSETS | Gs. XX,XXX,XXX | |
| LIABILITIES | ||
| Member Savings Deposits | Savings held on behalf of members — the cooperative's primary obligation | Gs. X,XXX,XXX |
| External Borrowings | Loans taken from banks or other institutions to fund operations | Gs. X,XXX,XXX |
| Other Liabilities | Accounts payable, accrued expenses, and other obligations | Gs. X,XXX,XXX |
| TOTAL LIABILITIES | Gs. XX,XXX,XXX | |
| MEMBER EQUITY (PATRIMONIO) | ||
| Share Capital | Contributions made by members when joining and over time | Gs. X,XXX,XXX |
| Legal Reserves | Mandatory reserves required by law from annual surpluses | Gs. X,XXX,XXX |
| Annual Surplus | Net income for the year, pending assembly decision on distribution | Gs. X,XXX,XXX |
| TOTAL EQUITY | Gs. XX,XXX,XXX | |
At the annual assembly, every member can ask:
"What is the non-performing loan ratio this year, and how does it compare to last year?"
"How is the annual surplus proposed to be distributed, and what portion will members receive?"
"What is the equity-to-assets ratio, and how has it changed over the past three years?"
"What provisions for loan losses were made this year, and are they adequate given the portfolio quality?"
"What external auditor reviewed the financial statements, and was any qualification issued?"
Session 3 covers all of this in detail
This guide introduces the concepts. The full Session 3 of our program goes through the balance sheet structure in depth, with worked examples and time for questions specific to participants' own cooperatives.