Mutual companies are customer-owned, public companies.
Customers become collective owners of the Mutual and are known as Members.
A Discretionary Mutual is a financial services organisation that issues risk protection products, as an alternative to insurance.
Like all financial services organisations, capital is required to operate.
Prior to 2019 that capital base had to come only from Members and the contributions they paid for their risk protection.
Unless there was a very large cohort of Members joining a Mutual at the same time, it was difficult to generate enough capital to launch a Discretionary Mutual.
In 2019, Part 2B of the Corporations Act 2001 (Cth) was amended to provide regulation for Mutual Capital Instruments (MCI).
Mutual Capital Instruments are a form of share that an investor can own in a Mutual company.
As MCIs are a new class of financial instrument, there are some key elements that make them unique:
> MCIs are long-term, stable-term investments and are used to provide additional capital to Mutual organisations, on top of membership and product fees.
> MCIs can be offered to Members of a Mutual and to external investors. They are subject to the same requirements of disclosure and information as ordinary shares.
> MCI investors may receive dividend payments from their investment, as determined by the constitution of the Mutual.
> MCIs do not compromise a Mutual's member-owned status.
> It is possible to have a secondary market for MCIs
> There are various other rights, such as voting rights, which can be designed into a particular MCI issue.
Before MCIs, Mutuals could only raise additional funds through borrowing from the big Banks or attracting new members. This restricted the ability of Mutuals to grow and compete, often in the same market as the big banks.
With 80% of Australians being members of a Mutual or a co-operative*, ensuring they are competitive and robust is vital.
MCIs are used by member-owned organisations to increase growth, fund innovation and compete with publicly listed companies.
MCIs have been heralded as ‘modernisation without corporatisation’ and allowing Mutual organisations to invest in growth and services – all for the benefit of customers.
* Measuring the value created by Australia’s cooperatives and mutuals, Monash University, 17 November 2017.
Talk to us to learn more about MCIs to start a new Mutual, or to invest into an existing Picnic managed mutual.
