Personal Cooperatives Model: Basic Concepts and Evidence from Jordan

Abstract

This paper focuses on the cooperative finance model and its applications in managing financial needs at personal and household levels. The model is based on the principle of mutual qarḍ ḥasan where interest-free loans are provided to each member of the cooperative society, and the model can be called the Personal Cooperatives (PC) model. It represents an important way to finance consumer needs and enable savings for short and medium-term periods. The PC model is also an interesting phenomenon that should be studied thoroughly in the context of Muslim communities since it represents a substitute for the traditional banking system. This paper accordingly seeks to study the perception of participants involved in the PC model in order to identify their motives and personal evaluation of this model. The study further explores the participants’ attitudes toward the operation of this model based on Sharīʿah (Islamic law) principles. It is an exploratory study utilising the survey research approach. A random sample of participants in a medium-size city in Jordan whose members depend on the PC model in managing their financial needs has been selected. The questionnaire method has been used to collect data about: the economic and demographic traits of the participants; motives behind their participation in the PC model; their experience with and views on the PC model; and whether they find it better to institutionalise the model or maintain the status quo. The main findings of this survey generally agree with the mainstream findings of previous literature. The analysis of demographic traits shows that the PC model is not restricted to a particular gender. Another key finding of this survey is the low ratio of default risk. The general trend shows very positive attitudes of the sampled members towards the PC model. The survey also highlights that PC societies can be a substitute to banks in providing personal credit.