Initial Analysis on Predictors of Mosque Cooperatives Performance: A Co-operator's Perspective

     One of the key performance indicators of Malaysian National Cooperative Policy 2 (NCP 2: 2011-2020) is to register 16,000 co-operatives by 2020 (MCSC, 2011). Among the initiatives taken to meet the target is the setting up of 6025 mosque co-operatives. There are three objectives of mosque co-operatives highlighted by the Malaysian Cooperative Societies Commission (MCSC) that are (i) to enhance the socio-economic of mosque co-operatives' members through economic activities, (ii) to mobilise resources, i.e. financial capital and human capital of mosque co-operatives members, and (iii) to create job opportunities for co-operative mosque members and their families (MCSC, 2016). Based on the latest statistic by the Ministry of Entrepreneurship Development and Cooperatives (MEDAC, 2021), at the end of 2019, there were 446 mosque co-operatives nationwide with 300 of them categorized as active, 69 non-active, and 77 dormant. The record showed 30,515 mosque co-operative total members and generated an aggregate income of RM 15.37 million. While the figures indicated promising prospects, they also revealed multiple areas of improvement requiring greater attention and focus. 

     In the Mosque Cooperatives Strategic Development Plan 2017-2020, the review sub-section identified factors leading to poor performance of mosque co-operatives, namely the mosque co-operatives' structure, support from members and community, and internal governance (MCSC, 2016). Even though the review was not prepared based on the intellectual capital framework, the findings revealed that mosque co-operatives operate as small scaled businesses and operations, offer less diversified products and services, and experience a lack of funding. Therefore, this factor is regarded as structural capital. Moreover, the report showed that mosque co-operatives suffered low support from members regarding purchasing products or services, poor attendance in programmes, including mosque co-operatives' Annual General Meeting (AGM), and a lack of awareness of members' rights and rights duties (MCSC, 2016). Therefore, this factor is considered relational capital. Besides, mosque co-operatives are without proper internal control mechanisms due to the incompetence of board directors' members; hence, the situation indicates human capital concern. Thus, this study is carried out to explore determinants of performance through an intellectual capital framework based on mosque co-operators' perspectives.

Literature Review

2.1. The Underlying Theory: Intellectual Capital Theory

     Sveiby (1997) considers that intellectual capital consists of human capital, relational capital, and structural capital. The first element represents knowledge, competence and the intellect of the employees. Structural capital refers to organisational systems, culture, practices and processes, while relational capital represents relationships with customers, sponsors, and distributors. In Bontis (2001), intellectual capital is the sum of human and structural capital. Human capital consists of employee efficiency and the firm's culture and values.

      In contrast, structural capital refers to the intangible assets owned by the firms, such as the use of software, databases, trademarks and work process, which support the employees in performing their tasks and also includes the relationship built with the customers. Extending this concept, Zaytsev et al. (2020) argued that value-added intellectual capital is the sum of value-added structural capital, human capital and physical capital. However, while Intellectual Capital Theory has progressed significantly in the literature on organisational performance, there is still an indecisive classification of capital. As a majority of studies classified capital into structural capital, relational capital, and human capital; some studies like Khyakin and Toechkina (2021), Khalique et al. (2020), Khalique et al. (2018), Khalique and Mansor (2016), Khalique et al. (2013), and Khalique et al. (2011), and Ramezan (2011). offered suggestions for enhancement of categorisation, such as introducing a new type of capital like physical capital, spiritual capital, service capital, technological capital, and social capital.

      In the context of co-operatives, Intellectual Capital Theory has been explicitly deployed by researchers like Khan et al. (2016) examined the impact of structural, relational and human capital on co-operatives' performance. The study specifically refers to human capital as the employees' skills and abilities, which could increase the firm's efficiency in providing consumer services, which could be gained through training and education. Structural capital refers to the stored knowledge which lies within the firm and will remain even if the employees leave the firm. This is such as databases, work processes and others. Finally, relational capital refers to the firm's relationship with its customers since a good relationship with the customers may help the firm to meet the consumers' demands and thereby sustains its revenues and profits.

    Meanwhile, some studies did not specifically deploy the Intellectual Capital Theory in explaining co-operatives' performance; however, they highlighted the element of Intellectual Capital Theory in driving co-operatives' performance, such as relational capital and human capital. For example, a study by Yaacob et al. (2012) found that active members' participation contributes to the co-operatives' success. Besides, Othman et al. (2013) highlighted the essential of co-operatives to continuously encourage the involvement of members in the decision-making process to maintain its. Additionally, Othman et al. (2014) supported that loyalty of the members, and their active participation is vital for the survival of the co-operatives sector since it could help the co-operative increase their efficiency.

2.2. Dual Performance Objectives of Co-Operatives

       Hind (1999) and Kaur (2006) argued that a co-operative's performance measures financial and non-financial indicators due to dual objectives that drive the existence of co-operatives, i.e., economic and social goals. Despite such objectives, co-operative faces a challenge in the dynamic business world. It needs to deal the typical objective of a co-operative is to maximise the benefits to its members and ensure that their needs are met with the competition and must be able to operate like other business entities in order to continue offering benefits to its members (Rajaratnam et al., 2009). Therefore, traditional analysis ratios like profitability, efficiency, liquidity, and leverage widely measure a co-operative's financial performance (Hind, 1999).

   On the other hand, co-operative performance is also examined through non-financial performance perspectives. It is referred to as offering performance information in non-monetary terms (Kaur, 2006). Studies by Hind (1999) and Mayo (2011) have argued that member-based organisations should prioritise co-operatives' non-financial performance more than financial performance. The non-financial performance usually includes governance, social responsibility initiatives towards members, their families, and society, compliance with established regulations, service delivery quality, and customer or members' satisfaction. In the context of mosque co-operatives, the Department of Islamic Development Malaysia (JAKIM, 2010) also described the contribution toward mosque institutions' well-being in terms of activism enhancement, infrastructure well-being, and good governance. In a similar vein, Sallehhudin et al. (2017) categorised mosque co-operatives' performance into two dimensions: financial performance and non-financial performance. The financial performance consists of common financial ratio indicators, while non-financial performance covers good governance, corporate social responsibility, members, customer satisfaction, and contribution to mosque institutions' well-being.

2.3. Intellectual Capital Component – Structural Capital

2.3.1. Co-Operative Characteristics

    Rajaratnam et al. (2009) proposed several organisational or physical characteristics as determinants of co-operatives' success. These include size, types of function provided, and diversification of activities. An assessment by Ward and McKilliop (2005) found that the size of co-operatives' assets significantly influences credit co-operatives' financial performance. Besides, a more substantial credit co-operative had a lower cost to income-percentage and enjoyed economies of scale than a smaller credit co-operative. Earlier, Trechter (1996) used the number of members as an indicator to measure co-operatives' size.

      A type of function provided by a co-operative was also found to influence the co-operative's financial performance (Ward & McKillop, 2005). The study showed that co-operatives offering credit and agriculture-related functions are financially well-off than co-operatives providing other types of operations. Besides, Mustapa et al. (2013) showed that giving shariah-compliant products determines the credit co-operatives' success. Additionally, Noordin et al. (2011) evidenced that consumer, credit, agriculture, services, and transportation function co-operatives perform better than other functions provided by co-operatives. Furthermore, offering a variety of functions to members and societies leads to the diversification of co-operatives' activities.

         Diversification of activities enables co-operatives to carry out multiple business segments, thus reducing the risk of relying on a part only. Besides, diversification of activities facilitates cooperation to fulfil various needs of its members. Hence, it significantly influences the performance of co-operatives (Carr et al., 2008). In addition, by diversifying its activities, the co-operative can increase its membership, size, and resources (Trechter, 1996). Carr et al. (2008) found that a performing co-operative diversifies its activities, but these activities are integrated or concentrated on a set of core activities. Indeed, the diversification strategy of mosque co-operatives is strongly highlighted through Mosque Cooperatives Strategic Development Plan 2017-2020 (MCSC, 2016). It expects more co-operatives to enrol in high-value economic sectors viz; tourism, healthcare sector, plantation sector, agriculture sector, properties sector, wholesale and retail, and financial service. A similar emphasis is echoed in the Malaysia Cooperative Transformation Plan 2021-2025 by the Ministry of Entrepreneurship Development and Cooperative (MEDAC, 2021). Concerning the cost of operations, studies like Bryunis et al. (2001) and Boyer et al. (2008) evidenced that cost of operation has a significant influence on co-operative financial performance. A low operating cost and prudent spending allow co-operative and adequate financial records to generate higher income and enable the co-operative to benefit its members sustainably.

2.3.2. Internal Control and Supervision

    Noordin et al. (2011) identified adequate internal supervision and control as one of the success determinants of co-operative performance. Internal supervision and control concern co-operatives' internal monitoring aspects such as risk management and records or document control. Adequate internal supervision and control allow a co-operative to proactively prepare and safeguard its survival during unprecedented events or facing risks threatening situations. In the study, Noordin et al. (2011) measured adequate internal supervision and control by looking into co-operative internal control policies, spending and investment policies, and accurate financial accounting and reporting policies. The study indicated that a performing co-operative has accurate financial reports and records, but more efforts are needed to improve internal control and risk management programs, especially investment and spending policies.

    Besides, Zakaria et al. (2021) found the importance of palatable governance practices towards more excellent performance among oil palm co-operatives in Malaysia. The good governance aspect encompasses clear responsibility of board governance, management, employees, and members, sound management system and practices, and proper audit and control. Additionally, Chareonwongsak (2017) highlighted the importance of structural elements such as apparent board authority and function, composition, meeting quality, transparency in the evaluation process and compensation setting process and financial compensation as predictors of co-operatives performance in Thailand.

2.4. Intellectual Capital Component – Relational Capital

2.4.1. Members' Support

    Rajaratnam et al. (2009) emphasised members' support as the determinant of co-operatives' performance, particularly members' participation and education. However, a previous investigation by Lluch et al. (2006) confirmed that co-operative members' active involvement significantly influences co-operative performance. In addition, Bryunis et al. (2001) suggested that sufficient capital gathered from members contributes to co-operative success. Besides, Amini and Ramezani (2008) identified members' education as a determining factor in co-operative performance. Hence, continuous education to members, in terms of enhancing their awareness of members' rights and responsibilities, needs to be given extra focus.

    Similarly, Noordin et al. (2011) evidenced that performing co-operative members consistently attend the co-operative's Annual General Meetings, provide sufficient capital, and consume products or services from their co-operatives. Khan et al. (2016) also supported members in determining the performance of co-operatives in Malaysia. Additionally, Abdul-Rahman and Zakaria (2018) also cited the lack of members' support as one of the factors causing the poor performance of mosque co-operatives in the state of Selangor. 

2.4.2. Stakeholders' Support

    Like other co-operatives, mosque co-operatives also require support from various stakeholders to success financial and non-financially. Indeed, the MCSC is the regulator and an enabler for co-operative sectors in the country. It monitors co-operative registration, members' satisfaction, and compliance with rules and regulations among co-operatives as a regulator. As an enabler, it provides financial and non-financial assistance to co-operatives. Financial aid includes funding, working capital, grants, discounts, rebates, and advance financing. It also offers technical and know-how advice to co-operatives. In the context of mosque co-operatives, it also plays a leading role. In this aspect, Noordin et al. (2011) discovered that a performing co-operative received a wide range of support vis-a-vis technical, financial, material and moral support from the MCSC and other federal and state government-based agencies. Another important stakeholder is the National Industrial Association for Co-operatives (ANGKASA), which provides assistance to mosque co-operatives. It has launched initiatives to assist new mosque co-operatives, such as research and development, managerial consultancies, and financing programs. It also holds an annual conference for mosque co-operatives board members and managers to equip them with the latest information and economic opportunities. It also works alongside the Institute of Cooperative Malaysia (IKM) in providing knowledge, training, and learning opportunities to mosque co-operative officials.

         In Malaysia, a mosque is administered by a mosque committee, commonly appointed by the community or congregation. The list then is endorsed by state religious authorities since the Federal Constitution's Ninth Schedule states that, among other things, the administration of Malay customs and mosques comes under the purview of the state government (Sulaiman et al., 2007). There are two critical organs in each state's administration of Islamic affairs – the Islamic Religious Council (IRC) and the Islamic Religious Department (IRD). The former is for policymaking, while the latter is for implementing policies through programs and procedures. Abdul-Rahman and Goddard (1998) evidenced a different working culture among state Islamic Religious Councils, influencing the organisation's productivity and performance. Mosque co-operative is closely connected to mosque institutions; thus, to succeed, mosque co-operatives need support from the mosque committee, the state IRC and IRD (Norwahi, 2014; Othman et al., 2014). Additionally, Abdul-Rahman and Zakaria (2018) found that the lack of support from mosque committees and state Islamic religious authority contributed to the lack of performance among mosque co-operatives in Selangor. 

2.5. Intellectual Capital Component – Human Capital

2.5.1. Board Members' Competencies

   The co-operatives' board members must acquire several skills, competencies, and experience. Moreover, the competencies and skills of managers can be enhanced through continuous training (Bryunis et al., 2001). On the co-operative board aspect, Noordin et al. (2011) discovered that a performing co-operative has more working experience, is older in terms of age and continuity element, and has vast expertise in engaging co-operatives movement board members than a non-performing co-operative. Furthermore, the study also supported that a board member of a performing co-operative shall acquire specific skills, competencies, ability, and knowledge to confront challenges and deal effectively with hardships faced by the co-operative. In Thailand, Chareonwongsak (2017) also found evidence that board members' skills are essential in driving co-operatives' performance. In Indonesia, Marwan et al. (2018) revealed that the entrepreneurship abilities of board directors significantly and positively influence the members' participation in co-operatives' programmes or initiatives. Besides, Lajuni et al. (2019) showed that board members' financial planning competency is an important predictor of co-operatives' financial and non-financial performance.

2.5.2. Managers' Competencies

      The managers' competency is another identified co-operative success factor in Rajaratnam et al. (2010). Planning skill is considered a vital competency for co-operatives managers, and it was found to significantly influence a co-operative's financial performance, particularly in generating high sales growth (Noordin et al., 2011). Besides, sound planning skill by managers is needed to ensure entities like co-operatives remain competitive, adaptive to dynamic changes in the business environment, and deploy the proper practice in dealing with uncertainties (Rajaratnam et al., 2009; Rajaratnam et al., 2010; Noordin et al., 2011). In addition, Pathak and Kumar (2008) evidenced that one of the factors contributing to the closure of multiple co-operatives in Fiji is insufficient planning skills, particularly long-term planning among the managers. Furthermore, Fathonih et al. (2019) urged managers to play active roles in monitoring and enhancing employees' skills towards improving customer service and customer satisfaction in the service industry. In addition, Ssekakubo et al. (2014) found a significant and positive relationship between managers' competency and the financial performance of savings, credit and co-operative societies in Uganda. Besides, Wan-Idris (2019) confirmed that the competent human capital of co-operatives, including knowledgeable, talented and skilful managers is a primary predictor in ensuring the success of women co-operatives in Malaysia. In the more recent study, Mohamed et al. (2020) contended that the lacking performance of mosque co-operatives is also closely linked with the ability, experience and skills of managers to manage co-operatives in line with the current trend in order to be able to survive in the volatile, uncertain, complex and ambiguity challenging business environment.

2.6. Intellectual Capital Component – Spiritual Capital

2.6.1. Spirituality

     Spirituality is a sense of relatedness or connectedness to others, providing meaning and purpose in life, fostering well-being, and having a belief in and a relationship with a power higher than the self (Hawks et al., 1995). Studies like Rocha and Pinheiro (2020) and Fathonih et al. (2019) have been carried out to examine the impact of spirituality on organisational performance and organisational members' behaviour. Additionally, Sachitra and Chong (2019) found the support of religiosity and spirituality influence in explaining the performance of agribusiness farms in Sri Lanka, while Adi and Adawiyah (2018) found similar evidence in the context of entrepreneurs in West Java and Central Java, Indonesia. Besides, Gill and Marthur (2018) also found an association between spirituality and organisational performance among socially responsible agribusiness entrepreneurs in India. In a related study, Mubarak et al. (2015) found a strong influence of spirituality on organisational performance and the individual success of selected successful entrepreneurs in Kelantan.

    As the study focuses on the success model of mosque co-operative, the influence of spirituality is imminent, as it is closely related to mosque institution – a centre of worship where Muslims perform their daily, congregational, and weekly Friday prayers. Other activities include celebrating important events in the Islamic calendar, like Ramadhan's fasting month and Eid Mubarak. In leading mosque co-operatives, board members, managers, and members have accountability to Allah (vertical relationship) and accountability to other people and surroundings (horizontal relationship). In fulfilling these horizontal relationships, mosque co-operatives board members, managers, and members are considered Khilafah (vicegerency). As Khilafah, they are given trust in managing mosque co-operatives' resources viz financial and non-financial resources by Allah as the ultimate owner of all resources. Therefore, they are expected to utilise the resources to benefit the community and surroundings. These benefits include the economic enhancement of society as the history of the Prophet Rasulullah s.a.w described the mosque's function as the centre of economics (Sulaiman et al., 2007). Furthermore, the concept of cooperation itself is consistent with two Islamic teachings – ta'awun (helping each other – cooperation spirit among co-operative members and adl (fair and just – the surplus of cooperation is shared fairly and equitably among co-operative members (Wan-Adlina, 2014a; 2014b). Therefore, it is expected that spirituality will affect the mosque co-operatives performance and contribution to mosque institutions.