TEACHING CASE

COMMUNITY CO-OPERATIVE
FINANCIAL DOES MATTER:
SURVIVE OR NOT SURVIVE?
Noor Fzlinda Fabeil
Kamarul Mizal Marzuki
Khairul Hanim Pazim
Zuraidah Jamrin

School of Business and Economics

Universiti Malaysia Sabah

Abstract
Historically, financial sustainability is the main issue facing by many cooperative. Large
number of co-operative are constrained and some are severely threatened by inconsistent and
inadequate financing. Thus, financial sustainability could be approached with enthusiasm and
optimism by the management of a co-operative. Today, social entrepreneurship that has ‘triple
bottom lines’ orientation offers the tools needed to build capacity and to achieve and maintain
long-term financial stability during times where there are changes in the economic
environment. Social entrepreneurship through community co-operative has been identified as
a strategic approach that encourages them to diversify revenue sources and develop new
revenue-generating activities. For KOPEL Berhad, the management challenge is to allocate
resources strategically and make those resources as productive as possible using new financial
and marketing model as shown in this case study. This case study provides issues and challenges
facing by KOPEL to ensure the financial sustainability of the co-operative. Furthermore, this
case also incorporates actions and strategies being used by KOPEL Berhad to generate more
revenues for the benefit of their members and stakeholders.

Although this case is based on facts, some parts have been fictionalized in order to maintain the
confidentiality and convey certain theoretical concepts in a setting that are more conducive for
instructional purposes.

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Prologue
It has been a few days of raining. The weather forecast seems not to be a good weather predictor
at all. At a corner of River View Cafe, two close friends was sitting together facing Kinabatangan
River. Their friendship dated back eight years, as they were the pioneer who first set up the co-
operative, named KOPEL Bhd. Drawn into deep conversation, Mr. Rosli Jukrana, the executive
manager of KOPEL Berhad, was seen nodding at appropriate intervals as Mr. Mohd Hasim Abd
Hamid, the chairman of KOPEL expressed his concern on the preparation of the coming KOPEL’s
Annual General Meeting (AGM) next week. Like the previous AGM, they speculated that the
financial issues would certainly become the main concern among the majority of KOPEL’s
members in this upcoming meeting. Noteworthy, they hoped all the KOPEL members would
attend the meeting to discuss the future of KOPEL Berhad.

KOPEL Berhad
KOPEL Berhad which stands for KOPERASI PELANCONGAN is the Community Ecotourism
Cooperative of the Batu Puteh Community. Located in the village of Batu Puteh, Lower
Kinabatangan, Sabah, Malaysia (Figure 1.0) and it was registered in July 2003 under Subsection
7(1) of the Malaysian Cooperative Act 1993.

Figure 1.0: The Location of Kg. Batu Puteh, Kinabatangan

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The co-operative was established in 2003 and currently made up of 260 villagers from Kampung
Batu Puteh, Kampung Mengaris, Kampung Perpaduan and Singgah Mata Village in Mukim Batu
Puteh. KOPEL was set up to reverse the losses, to capitalise on ancient indigenous and traditional
knowledge and culture, to save and create economic value and appreciation of the mega-diverse
rich rainforests of the area, and in the process create a sense of hope for a sustainable future for
the people of Lower Kinabatangan.

From a rural community that relies on natural resources such as logging, hunting, fishing,
agriculture for survival of life, they latter transformed into an environmentally-conscious
community that eventually attract tourists and becomes one of their source of incomes through the
establishment of KOPEL Berhad. Currently, KOPEL’s main business is related to community-
based tourism like homestay, boat riding for nature sight-seeing, and conservation activities.

Central to the KOPEL is a form of a revolving fund that is generated through funding from
government agencies and NGOs, as well as income from various KOPEL’s activities especially
the homestay, boat service, guiding and catering. The revenues are channelised to KOPEL’s fund
and members have to buy a minimum share of RM100 per unit. The co-operative only keeps 3
percent of the income for its operational expenditure and the fund also provides micro credit for
its members by offering them low interest loans.

First stride...
Hasim and Rosli reminisced how KOPEL first established, in which the progression has involved
series of meetings and dialogues between MESCOT and other stakeholders that pave the direction
of KOPEL.

The establishment of KOPEL was first initiated by Mr. Mohd Hasim, Kampung Batu Puteh
locally-born who also a volunteer of World Wildlife Fund (WWF) Malaysia. It started from initial
cooperation with conservation project under coordination of MESCOT (Model for Ecologically
Sustainable Community Tourism) in 1998 (Appendix 1a) which involved various community-
based programs funded by three non-government organisations (NGOs), the WWF of Malaysia
and Norway and Discovery Channel Television.

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MESCOT project set up the Miso Walai Homestay Program in Kampung Batu Puteh as the pilot
project, with its main objective to develop awareness, knowledge and skills among local
community relating to conservation of natural resources, cultural and environment for economic
development. The capacity building program involved several workshops on inventory and natural
resources management, development of tourism product for business, and cultural and
environment conservation.

In year 2000, Miso Walai Homestay Program gained greater involvement from community in all
villages of Batu Puteh as the project has convinced the community about the potential of the
activities to their income. The involvement of community was increased from only 1,700
participants in the early phase of the program to 3,300 participants, which also led to increment of
number of homestays operated, from 7 participants to 34 participants.

Financial Sustainability Does Matter...

“The highest use of capital is not to make money, but to make money to do more for the betterment of
life.”

— Henry Ford, Manufacturing Entrepreneur and Philanthropist

The conversation between two close friends, Hasim and Rosli, continued in one evening, a week
before the AGM of KOPEL is held. While gazing on one of the pages of the KOPEL’s financial
report, Hasim looked anxiously at Rosli and said:
“Our dividend yield this year seems stagnant. We’ll have hard time explaining
this to our members for sure”.

Rosli admitted as he quickly examine the company’s financial statement in front of him. He then
stressed:
“It’s good if the KOPEL members are aware that KOPEL is not merely about
money. It’s about cooperation and mutual benefit between us and environment”.

Hasim then brought up his thought:

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 “...this is not a short-term profit project. It involves long cycle and requires
patience and passion to succeed. But the people do not understand, they always
want to gain immediate returns once they joined KOPEL...”

Rosli then continued:

“...Well, yes. We are in a fragile business, wildlife and nature is our key
resources. We are affected with unpredictable weather. Deforestation is beyond
our control…and look what happened recently in Gunung Rara Forest Reserve,
Tawau?! A fourteen pigmy elephants were found dead within the forest...it is not
possible that such things may also happen to our elephants…besides, we have
small market size, mostly relying on foreign tourists. Maybe we need to diversify
our products to attract bigger market, especially to cater our local tourists. The
locals seem not to be keen to stay in homestays. They prefer more comfortable
and attended place to stay. Why not we propose other product?..ermmm…like
‘kampong stay’ that suits local preference?....”

Hasim totally agreed with his friend:

“...Yeah, it’s true. But to diversify means to seek extra funds for additional
capacity building, and more experts are needed to be hired to coordinate
it...again..it’s about pooling of fund… it is a tough road but passable and
possible”

To community, KOPEL has not only provided its members with business profit (dividend), but
also social benefit, for example through provision of fund for homestay renovation and expansion,
funeral donation (khairat kematian), skills development, festival celebration, and sport activities.
Nevertheless, all these while, to sustain in its activities, KOPEL’s financial resources for
development and diversification are mostly funded by several NGOs, namely Japan International
Cooperation Agency (JICA), WWF Malaysia and Norway, Arcus Foundation as well as through
government conservation projects like Sabah Forestry Department and Ministry of Tourism,
Culture and Environment, Sabah. In addition, KOPEL also plans to cooperate with universities and

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government agencies through knowledge and skill enhancement program which may benefit the
community involved in KOPEL.

At present three university students from Japan are undergoing research on environmental quality
and conservation. It also attempts to increase the awareness to outside community about the
importance of environment and cultural conservation, which may allow KOPEL to be able to
sustain in the future.

While looking at Chi (a postgraduate student of Rakuno Gakuen University in Japan) who was
since been in KOPEL for a month for her research on quality environmental monitoring, Rosli
asserts:
‘...Hasim, I think we are very lucky to have cooperation from various
stakeholders like government agencies, NGOs and universities especially for
their financial assistance. And don’t forget the volunteers especially the youth as
our potential market who not only invest their money into our business but also
invest their own energy that support our conservation activities...”.

Hasim acknowledged Rosli’s opinion. He recalled the moment when he attended several seminars
held worldwide that made him realised the importance of stakeholders’ engagement in determining
successfulness of a social enterprise like KOPEL. He then swiftly sketched the reminiscence into
a diagram (Figure 2.0) and expressed his views:-
“Though we have strong relationships with the funders, we cannot always rely
on their supports. Perhaps, we could find some ways to be self-reliant to sustain
in the business”.

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 GOVERNMENT
 Sabah Forestry
Department
 Ministry of Tourism,
Culture &
Environment
 Kinabatangan District
Office

VOLUNTARY KOPEL
SECTOR/ NON PRIVATE SECTOR/
PROFIT
BERHAD
BUSINESSES
 World Wildlife Fund (WWF)  Shell Sabah Petroleum
 Land Empowerment Animals  Outlook Expedition
People (LEAP)  Camp Borneo
 Alexander Abraham Foundation  Exodus Travel
 Arcus Foundation  Intrepid Travel

Figure 2.0: Stakeholders Involvement in KOPEL’s Activities/Programmes

As the journey begin...

Due to successful results of Miso Walai Homestay Program, KOPEL was set up in July 2003 by
the local community with Mr. Mohd Hasim as the chairman (Appendix 1b: KOPEL Organisational
Structure). The main products of KOPEL is related to tourism, conservation and agricultural. By
year 2003, there were eight key activities actively operated by KOPEL, including Miso Walai
Homestay, Maya do Talud Boat service, Tulun Tukou Handicrafts, Culture Performance, Guiding,
Transportation, Kelab Berkayak MESCOT and Tungog Rainforest Eco Camp (TREC). Under Mr.
Hasim’s dynamic leadership, KOPEL attracted more than 2,700 guests in 2011 which generated
total revenues over RM 1.5 million (Appendix 2: KOPEL’s Annual Income, 2009-2012).

Over the years, KOPEL has won numerous awards. Mr. Hasim was able to stimulate and drive the
local community towards excellence despite having a full-time job as an Assistant Director
Development Officer for Kinabatangan District since 2005. The aspiration and achievements has
put pressure to Hasim and Rosli to maintain performance of KOPEL. KOPEL has been a successful
model of community-based tourism locally and globally.

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KOPEL - More than pecuniary outcome...
Despite the bitter and sweet experienced by KOPEL throughout its establishment, especially at the
community level in stimulating them to cooperate in this business as well as the industry level,
KOPEL has contributed more than financial profit to its members. The ‘trickling down effects’ of
KOPEL has been felt by the villagers. For example, in its first year of operation, the homestay
program generated over RM 70,000, in its second year over RM 80,000, and in its third year over
RM 104,000. In a community where average per capita income ranges between RM 3,600 and RM
9,600 per year, this income stream is both significant and transformative.

Main activities that generate income to KOPEL Berhad

KOPEL under the projects with MESCOT has also employed 40 people on a salaried basis, and
over 100 on a rotational, part-time basis. Additionally, the co-operative supports 20 families in the
homestay program, 60 people involved in the village boat services, 10 nature guides, 30 elders and
youth in the village culture group, which focuses on ethno-tourism, and four coordinators. The
local community has also benefitted from training and capacity building in educational workshop,
business and management skills and communication and marketing skills.

While looking at KOPEL’s financial report, Hasim then claimed:

“Currently, although our income surpasses RM1 million, we are experiencing a
considerable expenditure in management and operation up to 80 percent of the
total revenues, and it keep increasing!. The more activities we carry out, the more
funds will be needed. It is good for us to venture into activities that require less
capital but having good returns”. (Appendix 2: KOPEL’s Annual Income, 2009-
2012)

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While breathing a quiet sigh of relief, he then continued:
“Our strategy now is to identify products that are complementary to our existing
products and services”.

Currently, revenues from KOPEL’s activities have been used to support office and administrative
costs, coordination and management of business and conservation activities on the ground, boats,
storage infrastructure, and the tree nursery. Importantly, ecotourism revenues are reinvested into
conservation activities such as forest and wetland restoration equipment and activities.

En route for the future...

Hasim still remember how KOPEL’s mission was first developed. Since its initial development,
most villagers put high expectation towards KOPEL to improve their standard of living. Hasim
felt that one of the major keys to the present sustainability of the co-operative has been the
substantial amount of time and concerns devoted in the initial planning of these activities.

Hasim always reminded himself about MESCOT’s principle which he stated on a MESCOT poster
available in the village. He said to Rosli:
“...we based our development around the simple matra..plan your work, then work
your plan...”.

Hasim with his expertise on strategic management, and Rosli with his technical skill have created
synergy to discover new opportunities for survival of KOPEL. List of proposed projects lingered
in their minds and some of those have been materialized in the form of business plan. Nevertheless,
those proposed projects require substantial funds and that makes them feel uneasy. In addition,
what puts them feel more worried is their responsibilities to fulfil the needs and wants of members
of KOPEL who are also their families and friends.

KOPEL’s plans for the future include development of the Eco Resort, ongoing work to strengthen
community capacity and continue growth at a steady, sustainable pace. The process aspires to allow
full acquisition to the community to form an umbrella group that act as a co-operative for the

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community tourism associations. This co-operative could hire a full-time coordinator to assist
oversee development, promotion and marketing of all tourism products offered by KOPEL.

Hasim and Rosli realised about the uncertain obstacles that KOPEL may face in the future. This
requires full commitment from all stakeholders to ensure KOPEL success without ignoring
financial sustainability.

Hasim looked at his watch then conclude their discussion:

“We can proceed with some ideas. However, it is up to the members to decide.
They are also the decision makers. Furthermore, this is about collective
decisions”.

Epilogue
The rain still continues to pour without any signs of the weather getting any better. It is nearly six
o’clock and they need to head home as their wife and children would have probably waited
impatiently for them to get home. Though their responsibilities towards society are their main
concern, yet, their roles towards their families could not be forgotten either. The sound of
chattering slowly disappears as they trotted off their own way and gradually replaced with the
sound of the flow of Kinabatangan River, a promising sound of a brighter day ahead.

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DISCUSSION QUESTIONS
Based on the case above, the questions are as follows:

1. Explain the main issues or problems faced by KOPEL Berhad (C2)

2. In your opinion, which stage of venture life cycle KOPEL is having now? Explain the
characteristics of a venture during the life cycle stage in relating to sources and types of
financing or funding (C2)
3. Changes in demographics, societal, technology and economic environment are sources to
entrepreneurial opportunities. Based on the case, you are required to:-
a. explain how KOPEL survive in its business before Covid-19 outbreaks (C2)
b. predict the possible impact of movement’s control order (MCO) amid Covid-19
outbreaks to KOPEL’s business (C2)
4. As a business consultant, suggest what kind of KOPEL’s assets that can be protected and
propose to KOPEL the suitable method for intellectual property rights (C3)
5. Financial bootstrapping is a creative method of securing funding for business, especially during
development or start-up stage of a venture. This method might also be useful during crisis as
it minimise costs.
As a member of KOPEL, suggest what types of financial bootstrapping that can be used by
KOPEL to survive in the business during MCO (C3)
6. Referring to Appendix 2 of KOPEL’s Annual Income, calculate the profit margin for the years
2009, 2010, 2011 and 2012. What the trend tells you? What are the reasons do you think
contribute to the trend? (C3)

Assessment Criteria:
Teaching and Learning Domain PLO1: Involves knowledge and the development of
intellectual skills.
Cognitive Domain Level 2 Ability to explain the main issues/problems of the scenario
(C2) given in relating to sources of finance for business survival
Cognitive Domain Level 3 Ability to apply the concept of entrepreneurial finance
(C3) learned in proposing alternatives and solving questions

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Appendix 1(a): KOPEL Berhad under MESCOT

260

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 Appendix 1(b) : KOPEL Organisational Structure

260 members of
KOPEL

Chairman and Vice

Chairman

Treasurer and Vice Secretary and Vice

Treasurer Secretary

Homestay Cultural Tour Guide Boat Service F&B Transport Promotion & Conservation
Bureau Bureau Bureau Bureau Bureau Bureau PR Bureau Bureau

Manager

Staffs

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Appendix 2: KOPEL’s Annual Income, 2009-2012

Sources of Income 2012 2011 2010 2009

RM RM RM RM
1 Miso Walai Homestay 246,817.00 193,274.30 235,878.50 186,950.00
2 Handicraft Products 60,922.10 42,643.30 31,595.50
3 Cultural Dance Performance 61,252.40 75,075.90 55,981.49 48,559.20
4 Boat Service 300,891.34 286,842.93 251,371.67 82,539.12
5 Local guides 348,477.56 238,701.13 204,323.61 69,253.85
6 Rainforest Eco Camp 60,756.00 44,562.25 40,892.00 69,101.26
(TREC)
7 Transportation services 149,963.00 128,844.15 113,210.93 93,704.50
8 Conservation fees 234,312.30 126,954.40 115,347.25
9 Food and Beverages 263,353.92 238,899.64 251,677.81 100,044.69
10 Retail shop 60,444.00 53,386.50 40,307.80
11 Others 119,980.76 108,299.25 90,295.32 193,978.04
Total Revenues 1,907,170.38 1,537,483.75 1,430,881.88 844,130.66
Total Expenditure 1,663,559.02 1,431,307.81 1,282,959.76 700,066.00
Net Income 243,611.36 106,175.94 147,922.12 144,064.66

Source: KOPEL Berhad (2012)

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