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DBA 304 NOTES 1

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DBA 304 NOTES

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LECTURE ONE INTRODUCTION: THE MEANING THE RULES THE PRINCIPLES AND THE VALUES OF THE COOPERATIVE SOCIETIES

LECTURE OUTLINE1.1 Introduction1.2 Lecture Objectives1.3 What is a Cooperative Society1.4 Principal Rules of a Cooperative Organization and Operation1.5 The Principles of the cooperative societies1.6 The values of the cooperative society1.7 Justification of the Cooperative Institution1.8 The Objectives of the Cooperative Institution1.9 The Distinctive Features of the Cooperative Institution and how

they differ from a workers movement.1.10 The Cooperative Management and Development 1.11 Summary of the lecture

1.1 IntroductionI would like to welcome you to the study of the Principles of Cooperative Management. You are required to have done and passed all the Part 1 courses before you register for this course unit. In this first lecture we will learn what a cooperative society is. We shall also discuss the rules, the principles, the values, the importance and the benefits of a cooperative enterprise. We shall also discuss the distinctive features of the cooperative enterprise and how the cooperative society differs from both the business organization and a trade union

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1.2 Lecture Objectives At the end of this lecture you should be able to:

1. Explain what a cooperative society is2. Identify the benefits, rules, principles and

values of a cooperative society3. Explain the origins of the cooperative institution4. Explain the philosophical foundations of the

cooperative enterprise5. Discuss the distinctive features of a cooperative

institution6. Identify the origins and the basis of the

cooperative movement7. Explain the principles of the cooperative

movement

1.3 What is a Cooperative Society

According to the Oxford English Dictionary the word ‘cooperate’ means to join together, to act with another, to concur in producing the same effort. Therefore a cooperative is a society in which members work together, where they put up a joint effort for their mutual benefits. A cooperative society seeks to improve the situation of its members or to get them out of it when it arises, or to protect or free them forever from the possible social domination of those who hold economic power.

According to the International Co-operative Alliance (ICA) a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. The ICA definition recognises one essential element of cooperatives: membership is voluntary. Coercion is the antithesis of cooperation. Persons compelled to act contrary to their wishes are not truly cooperating. True cooperation with others arises from a belief in mutual help: it cannot be dictated. In cooperatives persons join voluntarily and have the freedom to quit the cooperative at any time.

Another widely accepted definition of a cooperative is the one adopted by the United States Department of Agriculture (USDA) in 1987: a cooperative is a user- owned user- controlled business that distributes benefits on the basis of use This definition also captures what are generally considered the three primary cooperative principles namely user ownership, user control and proportional distributional of benefits. The user owner principle implies that the people who use the cooperative (members) help finance the cooperative and therefore they own the cooperative.. Members are responsible for providing at least some of the capital. The equity capital

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contribution of each member should be in equal proportions to that member’s use (patronage) of the cooperative. This shared financing creates joint ownership. The user control concept means that members of the cooperative govern the business directly by voting on significant and long term business decisions and indirectly through their representatives on the board of directors. Cooperative statutes and by laws usually dictate that only active coop members ( those who use the coop) can become voting directors, although non members some times serve on the boards in a non voting advisory capacity

Co-operative societies are also business enterprises which are set up and run by the members. They are undertakings that operate on business principles including profit maximisation, efficiency in production, maximum turnover, and minimum operational costs etc. Cooperative societies are not charitable institutions. They have objectives which they strive to achieve. They have common and collective objectives, they are run by members who also manage and control the undertaking for their own benefit and at their own risk. The cooperative institution has both economic and social benefits.

The cooperative undertaking is also established by members who wish to become their own masters in the economic and social fields. The members know and understand that the efficiency and hence the success of their undertaking ultimately depends on them and for their benefits. This feature of a co-operative institution emphasises that the members in the undertaking must be able to see that their personal interests are bound up with the common interests of all the members. Consequently all members must actively participate in the management and operations of the association, sensibly exercise their rights and obligations and provide their best qualities of common sense, judgement and honesty in managing their undertaking. This feature calls for proper and appropriate education of members on a continuous basis.

1.4 Principal Rules of a Co-operative Organization and Operation Because the cooperative institution is not a philanthropic institution, it is also not a capitalist institution, and it rests on a voluntary association of persons, and it serves human beings and their needs, its organization and operation is governed by three basic rules which are peculiar to it namely the rule of equality, the rule of equity and the rule of ethnic, racial and political neutrality. These three rules are briefly discussed below. The Rule of Equality This rule specifies that relations between members and the association and between members within it are governed by the rule of equality that is to say, irrespective of possible differences of race, creed, political opinion, social status or contributions of capital, all the persons whose needs can be satisfied by the services rendered by the undertaking possess equal rights and duties with respect to the association and within its ranks. This rule also means that there is the same right to join the society (of course subject to certain conditions of residence, occupation etc), there is the same right to refrain from joining, there is the same obligation to refrain from behaving in such a manner as to offend fellow members, there is the same right to resign from the society and the same obligation to do so only under certain prescribed conditions which safeguard the interests of the society. There is the same right of supervision over all operations and the people entrusted with them, there is the same right

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of speaking at general meetings, there is the same voting right and there is the same right of standing for election to the various organs of the society. The Rule of Fair Share This is also referred as the rule of equality This refers to the rule of proportionality or equitable sharing. The rule means that in sharing of the society’s surplus, the surplus is shared out to each member in proportion to the business he/she has done with the society i.e. in exact proportion in which he has helped to form the surplus. The Rule of Political, Religious, or Ethnic Neutrality This rule emphasises the fact that a co-operative institution should practice political, religious or ethnic neutrality in all their operations, practices or processes. However the rule does not mean that the members do not have a religion or a tribe of their own. Neither does it mean that members should not have a political opinion or should not express their political opinion freely. The rule means that the society should not discriminate against its members on the basis of their political or religious standing or their tribe for that matter. The society should treat all members equally and without discrimination. In fact it should assist members to understand their political rights and prevent any form of exploitation of the members by the political elite. In fact for a cooperative society to allow members to be exploited by the political elite is inconsistent with the very basis on which the cooperative institution is founded i.e. to eliminate any form of exploitation.

1,5 Cooperative principles Cooperatives throughout the world share the same universal principles of cooperatives, namely;

Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all persons who are able use their services and willing to accept  the responsibilities of membership without gender, social, racial, political or religious discrimination. Each person has the freedom to join or not join a cooperative society. Once he or she has joined he has the freedom to leave the society if he or she so wishes. This is a fundamental principle as it implies that those who are member are there of their own free will and undertake all the obligations of membership freely.

Democratic Member Control – cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. Members have equal voting rights – one member, one vote. Each member has a right to speak in meetings and stand for any position in the cooperative.

Members’ Economic Participation – members contribute equitably to, and democratically control the capital of their cooperative. At least part of that capital is usually the capital of the cooperative. Members usually receive little compensation if any.  Members allocate surpluses for developing and safeguarding their cooperative, and for returning to members as dividends.

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Autonomy and Independence – cooperatives are autonomous self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by members. Members are responsible to themselves for their own decisions. Decisions about their coop societies are and no other body should make decisions on their behalf.

Education, Training and Information – Cooperatives provide education and training for their members, elected representatives, managers, and employees, so that they can contribute effectively to the development of their cooperatives. Cooperative societies should endeavour to offer education and training not only to their members but to the policy makers and the public so that they an understand about the cooperative in their midst and provide support when needed.

Cooperation among Cooperatives – cooperatives serve their members and strengthen the cooperative movement by working together with other cooperatives, and through local, national, regional and international structures. Concern for Community – cooperatives work for sustainable development of their communities through policies approved by their members.

.1.6 The Values of a cooperative Enterprise 

A cooperative society is also expected to have certain values, norms, briefs, and practices to make it truly a cooperative society. Values are principles that guide planning and operations of a person or entity. They provide an ethical framework towards certain activities and away from others. These values include self-help, self-responsibility, democracy, equality, efficiency, effectiveness, equity, and solidarity. Cooperative members believe in the ethical values of honesty, transparency, accountability, social responsibility and caring for others. The value of self help means that members believe that they are wholly responsible for the success or failure of their society. Self responsibility has the same connotation as self help and emphasizes that every member feels that his contribution in both material and knowledge and experience is essential for the society’s success. Democracy emphasizes not only the supremacy of members when they are together but also the right of every one of them to speak, stand for an office and vote in every meeting of the society. Equality as a value emphasizes that the cooperative society in the provision of services must treat all members equally regardless of creed, position in the society or religion or even political beliefs. This ensures satisfaction for all members in the society. Efficiency implies that every members seeks to produce at least cost and effectiveness implies that members strive to achieve the societies goals as much as possible. The value of equity means that the cooperative society believes in fairness not only in the distribution of surplus but also in dealing with all the issues of sharing

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such as materials. Solidarity emphasizes the need to work together as team in all endeavours.

1.7 Justification for the Cooperative Institution The most frequently heard arguments in support for cooperatives are the following: a) Economic democracy: Cooperatives overcome obstacles to development more

equitably than other institutions because they are based on active participation byindividuals. Because they promise and provide social benefits, cooperatives are potentially good vehicles for motivating and reaching large numbers of people.

b) The economies of scale: Cooperatives are able to improve the economic status ofthe less well-off members of society by pooling their meagre resources andoperating with large capital and turnover. In this way cooperative activities canalso attempt to displace middlemen. As producers the members should receivehigher incomes and as consumers they should pay lower prices as a result ofreorganization of marketing functions through cooperatives.

c) The resource allocation: Cooperatives may be less expensive in terms ofgovernment subsidies than parastatals or other direct alternative public sectorinitiatives to organise large scale services such as agricultural marketing, farminput supply, extensions and electrification especially in rural areas.

d) Synergism The efforts of a group working in a cooperative effort results in a greater benefits for all than the sum of individuals in the group

People who organize and belong to cooperatives do so for a variety of economic social and even political reasons. Cooperating with others has often proven to be a satisfactory way of achieving one’s own objectives while at the same time assisting others in achieving theirs. Farmers create farm supply and marketing cooperatives to help them maximize their net profits. This requires both effective marketing of their products for better prices as well as keeping input costs as low as possible. The farmers recognise that they are usually more efficient and knowledgeable as producers than as marketers or purchasers. By selling and buying larger volumes they can also usually achieve better prices. Consumer cooperatives are established to sell the products a group of consumers want but cannot find elsewhere at affordable prices. The consumer members are primarily interested in improving their purchasing power- the quantity of goods and services they can buy with their incomes. They naturally wish to get as much as possible for their money in terms of quantity and quality. As owners the members have a say in what products their stores carry. Employees organize bargaining associations and labour unions to negotiate collectively with management and owners. In some cases employees form workers owned cooperatives. As the name suggests a worker owned cooperative is owned and controlled by its employees. Employees establish bargaining units and cooperatives in the hopes of improving their general working conditions and ensuring job security. All in all the cooperative institution helps in the attainment of economic and social goals for all most efficiently and effectively by utilizing economies of scale and benefiting through synergy.

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1.8 The Objectives of the Cooperative Institution A cooperative enterprise seeks to achieve several objectives. In the first instance cooperatives are formed by people sharing a common bond i.e. they have at least one other interest in common besides their membership in the cooperative society. Their common interest is often defined in occupational or geographical terms. A cooperative is a joint activity by members in the pursuit of certain group aims and objectives. These can be commercial, religious, humanitarian, idealistic, or geared towards social reforms. Cooperatives work for these objectives through members.Secondly a cooperative is a permanent business organization established and maintained by members as an operational business enterprise. It functions like other permanent economic units offering commercial and financial services, or producing agricultural, handicraft or industrial products. A special type of relationship is supposed to exist between the cooperative enterprise and its members for the welfare of the members. Accordingly, and within legal limitations, a cooperative enterprise many not act independently of its members and its activities are ideally determined by their economic priorities. As a business/commercial enterprise the success of a cooperative society is measured by firstly improvement of the situation of a member. This is usually interpreted to mean improving member’s living standards through increasing their cash income and liquidity. The second measure of success is the continued existence of the cooperative; This requires that a cooperative society develop rationally, be staffed effectively, maintain a sound financial structure to ensure solvency and liquidity, firmly establish business relations and procedures and strive for other positive qualities essential for commercial survival. Thus cooperatives minimize prices on goods sold to members and total or per unit costs of given operations. They also maximise total payments or payment per unit to members, service offered to members, the per unit or enterprise surplus, turnover (total revenue), market share and social services.

In the achievement of these objectives, conflicts or controversies often arise To reduce these conflicts and controversies it is preferable to prioritise these objectives and specify conditions under which the minimisation and maximization objectives are to be met for example, produce payments should be increased under condition that first a targeted amount of surplus is retained by the cooperative enterprise secondly each qualifying member is extended credit for the purchase of farm inputs up to a limit not exceeding a specified proportion of the value of that member’s previous year’s harvest marketed through the society and thirdly farm inputs are sold to members at not more than 2 per cent above wholesale price.

1.9 The Distinctive Features of the Cooperative Institution and how it differs from a Workers’ Movement. There are many ways in which cooperative societies differ from other institutions created by society to solve society’s social and economic ills. Firstly a cooperative society is a form of working class association. It is an institution of the people. The people who form it are in the same social strata as the workers. The motivation to form the association is to emancipate them from similar exploitation that faces the workers. These people are mainly in lower strata. However while the main or immediate goal of trade unions is to alleviate their poverty or put an end to wrongs done to them and to limit the powers of

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those who occupy the strategic positions and the toll gates created by the market economy the main goal of the cooperative institution is not to patch up the situation created by the market economy but rather to remove the exploitative situations for ever. Secondly to patch up the exploitative relationship existing between the workers in a trade union and those who hold the strategic position (the employers), the workers negotiate or renegotiate their employment contracts and agreements to provide for greater protection and increased rights. In the case of the cooperative association members seek to free themselves forever from the possible social domination and economic exploitation of those who hold the toll gates. They do this by cutting all links with those middlemen and ensuring that they control and own all the strategic positions and the toll gates that exist between them and the consumers of their produce or labour.

Thirdly to achieve the goals sought by the cooperative association the cooperative sets up and runs undertakings located at these strategic points in order to maintain or reopen free contact with all markets. This is unlike in a worker’s association which may or may not set up an undertaking. In other words the primary methodology of achieving its goals is to set up an undertaking – unlike a workers association whose primary methodology is to set up an association to strengthen their negotiation process.

Fourthly the undertaking of a cooperative association is established, managed, owned and run by and for the members. The undertaking is run not only for the sake of members, but actually by them, at their own expenses and at their own risk. In the case of a trade union the members hire others to negotiate for them but the risk is entirely with the members.

Fifth the Cooperative Association is an Economic Organization. The wish of the members to associate and become their own masters in the economic field is the fundamental reason for their cooperation. The members associate to form an economic and social undertaking. They subscribe the capital of the society, assume the responsibilities and bear the risks of the economic undertaking. They are the ones who are expected to enjoy the benefits. It is on them that the efficiency and hence the success of their institutions ultimately depends. This efficiency depends on their loyalty, their “cooperative” mindedness (i.e. their ability to see their personal interests as bound up with the common interests of all the members), their active participation in the life of the association and in the operation of the undertaking, sensible exercise of their rights, scrupulousness in carrying out their obligations and lastly their personal qualities of common sense judgement and honesty which enable them to select wisely those whom they entrust with special responsibilities, and to exercise their power of supervision.Another difference is found in the use and the purpose of power. The power in a profit oriented organization is used for the advantage of those who have the power (capital). This is unlike in a cooperative society where power is used for the common good, including the good not only of the members, but of the community to which the cooperative society belongs. The seventh difference is found in the administrative structure. In the case of a profit oriented institution, the administration is, as often as not, of an oligarchic and authoritarian character. This is unlike in a cooperative society where the administration is based on democratic principles horizontal structures, and flexible structures. The administrative structure of a cooperative society is laid down by its by-laws. The by-laws are a set of agreements voluntarily entered into by the members

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regarding their relations with one another and with the joint enterprise, their rights and duties and the functions and arrangements of the bodies or organs for running the society. On the other hand, a profit making organization is basically administered by a constitution framed to describe the objectives and functions of the institution. The framework, phraseology, and the content of a private institution’s constitution is different from the by-laws of a cooperate society.Differences are also found in other areas. In the first instance, the general meeting consisting of all members or of their representatives is the supreme body and the source of all authority and all powers within the institution. Provided it has been arrived at in the required manner, any decision it takes in the prescribed form is binding on all members. In the case of a profit oriented institution, the supreme organ and source of all power is not the general meeting. The source of power is multifold - the AGM, the Board of directors, and probably the managing director (or executive chairman based on the size of capital held) all have and exercise their separate powers.

In the second instance the management committee is the body responsible for the day to day management function of the cooperative institution. The functions, power and authority are delegated to it by the general meeting. In the absence of the express permission of the by-laws, the management committee cannot perform specific functions e.g. purchase or sale of real property, contract loans or charge assets, of the society. In the case of a board of directors, its functions and powers are specifically stated by the company’s constitution and these powers are exercised by itself and of itself, not on behalf of other authority. Another difference is that the members of the management committee serve in an unpaid capacity, although the society can reimburse, expenses incurred in performance of their duties. In a profit making institution, the board of directors can be and are paid salaries or allowances.Another difference is in the existence and the role of the Supervision Committee. Generally speaking a profit making business does not have a supervisory committee, although they have an auditor. In the case of a cooperative society a supervision committee is a key institution to ensure that the management committee performs in accordance with the by laws and in accordance with the decisions of the AGM. Where a business enterprise has a supervision committee its role is mainly to oversee some specific function of the business organization and not necessarily to supervise the board.

Another difference is found in the effect and advantage of the two fold character of the cooperative society’s administrative structure. The two fold character of the cooperative society’s administrative structure - i.e. the powers of the general meeting and the executive powers vested in it which it delegates to the management committees and the controlling bodies (the supervisory organs) give the cooperative administration structure a specific difference and advantage from the administrative structure of a profit oriented business enterprise. In the first instance, because the supervisory committees are elected by and are answerable to the members the members are able to ensure that their decisions are followed by the management committee. In the case of a business firm there is no such supervisory organ and as such the members just hope the board implements its decisions in accordance with the memorandum and articles of association.

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Another major difference is that the administrative structure of a cooperative society enables the members to be not mere spectators in their organization, but key players in the management and decision making processes of their organization. The cooperator is able to play a part or a role in the business operations of his undertaking which the shareholder of a limited company will not usually play in his profit making concern. The cooperator offers his institution much more than just his financial contribution, his purchasing power or working ability, his output or his capacity for taking things on credit. He puts at its disposal his innate gifts of knowledge, his experience, good will, judgment, instance and uprightness through which he can exert a confounding influence on the conduct of the society’s affairs. This he does through his active participation in the meetings. The role and influence of the general meeting are comparatively greater in a cooperative institution than in a company.The other difference between a business firm and a cooperative institution lies in their philosophical foundations. The philosophical foundation of the cooperative movement is the Marxian philosophy whereas the business organization is founded on the neo-classical (capitalist) philosophy. The Marxian philosophical foundation differs from the neo classical foundation in the following ways.

i. The unit of analysis the neo classists’ unit of analysis is the firm and the individual consumer while the Marxists’ unit of analysis is society.

ii. The neo classists separate the economic from the social and the political discipline. The Marxists emphasize the inseparability of the two disciplines.

iii. The scientific / mathematical logic of social relationships by the neo classical economists differs from the dialectical relationships in Marxist analysis

iv. The neo-classists emphasize social harmony created by the market forces. The Marxian philosophy emphasizes the conflicts and contradictions that exist in society. The neo classists talk of harmonious relationships of firms in a free enterprise system

v. Problem solving in the Marxian environment is to resolve the exploitative relationships that exist in society. The neo classists recommend the perfection of the capitalist system to resolve the social problems. In the case of the Marxian philosophy, the problem can only be solved by dismantling the capitalist enterprises and the exploitative situation that obtain therein.

1.10 The Cooperative Management and Development

To prosper cooperatives must be well organized, well financed, well managed and governed well by a committed membership. They must be progressive, adapting to changing business climates and responsive to their members changing needs. Members, the board of directors and management each have responsibilities within the cooperative. Strong viable cooperatives require all the three groups to do their share. Cooperative success also hinges on effective member education and communication. Indeed providing education, training and information to members is one of the seven cooperative principles adopted by the ICA.

Cooperative financing is also critical and in today’s complex cooperative organization, it can be quite complicated. Adequate capital is one of the fundamental principles of sound

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business operation and at the same time one of the biggest challenges facing cooperatives today. Financing options must be consistent with the principles of cooperation as well as with the country’s laws. Chapter 7 lays out the main concepts and principles behind cooperative financing including alternative sources of capital and equity redemption plans.

As with other business forms, cooperatives should be established only to meet a well-defined need in the market. Before cooperatives are created, advance research should be done by a steering committee to ensure sufficient support by other potential members in the community. A good feasibility study, strong membership drives and a comprehensive business plan are essential ingredients.

Activity1 Discuss the differences between the cooperative institution and the trade union2 Explain the differences between the neo classical and the Marxist philosophies3 Justify the establishment of the cooperative institution.4. Discuss the principles and values of cooperative societies.

Summary In this chapter we have defined the cooperative institution and discussed the rules the principles and the values of the institution. We have defined the cooperative society as an institution in which members work together for their mutual benefit. We have discussed the three basic rules of cooperative societies namely the rule of equality, the rule of equity and the rule of political and ethnic neutrality. We have discussed the seven cooperative principles namely the principle of open membership, democratic control, and cooperative cooperation, and cooperative independence, concern for community, cooperative education and fair share. We have discussed the main features of the cooperative and how the features differ from those of a business organization and a trade union. Finally we have concluded by emphasizing the role of management in the development of the cooperative enterprise

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References International Labour Organization: “A

Workers Education Manual”.

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======================== END OF LECTURE ONE ========

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LECTURE TWO THE HISTORY OF THE MODERN COOPERATIVE MOVEMENT

LECTURE OUTLINE2.1 Introduction2.2 Lecture objectives2.3 The basis and the origins of the cooperative institution2.4 Reasons for the development of the Cooperative Enterprise2.5 The Pioneers of the cooperative movement2.6 The Rockdale Cooperative Society.2.7 Summary

2.1 Introduction

In the last lecture we defined a cooperative enterprise and discussed its rules, principles and values. We also discussed its importance, its distinctive characteristics and how the features differ from those of a business firm and a trade union. We further discussed the bases of justifying a cooperative institution. In this second lecture we are going to discuss the historical evolution of the cooperative society i.e. how it has developed from the earliest times to the modern times. In this respect we are going to discuss the forces that led to the development of the modern cooperative society. We first discuss the traditional society and then the modern form of the cooperative.

2.2 Lecture Objectives

At the end of this lecture you should be able to:

1 Explain the origins of and the basis of the cooperative institution

2. Explain the historical evolution of the cooperative enterprise

3. Describe the forces that led to the development of the traditional forms of cooperation

4. Describe the forces that led to the development of the modern form of the cooperative society

5. Identify some of the pioneers in the development of the cooperative institution

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2.3 The Origins and the Basis of the Cooperative Movement The origins of the traditional form and the modern form of the cooperative institution differ. The paragraphs below discuss the origins first of the traditional form and secondly the modern form of the cooperative institution. Cooperation defined in the widest sense (meaning the union and the coordination of resources and endeavours of each individual in a joint effort to achieve the result sought after by all) is a form of human behaviour observed in all ages of humanity, even the most remote. In the most primitive societies such cooperation may take on a religious connotation. In later stages it is perpetuated by custom of the authority of traditional chiefs. This habit of mutual assistance nurtured by the need each has for all, is met in modern times not only in its traditional forms but in new ones as well. In the world of labour it takes the form of trade unionism in which the individual strives to obtain better conditions of life and work not only for themselves but for all, or of assistance to an injured comrade a fellow worker in danger or family stricken by illness, bereavement or poverty. Among the small farmers and in all rural areas of the world, the herding of the livestock is often carried out in turns by each of the herdsmen; the gathering in and threshing of each person’s harvest are often carried out by all the neighbours joining together to help one another in a manner which, though voluntary is morally compulsory by tradition. In other countries, the same method is used for digging wells, building irrigation reservoirs and ditches and putting up houses. Some form of co-operative association existed in every community of the world since time immemorial. In the pre-historic times, man found out that through some form of co-operation he could reap greater benefits in hunting for food, in cultivating food, in fishing etc. During tribal wars, cooperation among individuals, among clans, among societies and tribes brought greater success. In cattle raids, worriers achieve greater results through co-operation among more people. Thus cooperation to achieve individual and social greater benefits was the first step in man’s attempt to improve his standards of living.

A close study of the traditional form of cooperation finds that cooperation is enduring and can be found in the lives of people in all ages and in all countries. The rules that govern these traditional institutions are sometimes simple and sometimes complex. They are living forms in the sense that they are capable of adapting themselves to new circumstances along with the social group that has produced them. Though originally forming part of a primitive community system, they subsequently expressed only the compulsion of tradition In a closed economy, the people produce all they need. They also consume all they produce. Labour problems in the modern sense do not arise. Wages are not necessary, since people are paid in terms of what they need. People produce what they can, when they must or when they wish. Hours of work need no regulation. The various risks – injury, sickness, old age and others- are covered by the community fellowship.

.The origin of the modern cooperative society can be traced to the challenges of industrialisation that faced Europe in the 16th to 19th centuries. The modern form of a cooperative society was born out of a new form of struggle by the common man against certain problems facing him. These were: wars in Europe that created new forms of

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injustices and economic unrest among workers and peasants, the emergence of the Industrial Revolution that brought extreme levels of poverty, injustices and exploitation of the workers and the advent of the market economy When people produce goods for sale, when thy have to sell in order to buy and often have to buy before they have sold, then the producer and the market (consumer) are separated. Little by little, the producer is separated from the product of his labour: When the producer is separated form the product of his/her labour and the outlet of his/her product when another person, a chain or eventually a group of people stand between the producer and the market, then this person, the chain or group of people command a strategic position at which he can charge tolls on all that passes through. It is this strategic position, this toll gate, this potential bastion of social domination and economic exploitation that is the basis of the social conflict between those who produce and those who command the strategic positions. This is the basis of the modern cooperative society. It is an attempt by the producer to control the toll gates, set up between his produce and those who consume it. It is an attempt by those who produce and toil to enjoy the full benefits of their labour. It is an attempt by the producer to determine what he does with his product, who to sell to, what price to charge and how to enjoy the fruits of his labour. Before the advent of the cooperative institution, the price to charge and what to do with the profit is determined by a third party who does not partake in the production of the product. His main responsibility is to enjoy other people’s toil. The cooperative society seeks to connect the producer directly with the consumer of his product. It seeks to remove those who hold the strategic positions between the producer and the consumer without having toiled in the production of the product. It is a mechanism to correct this exploitative situation created by the capitalist system. This exploitative relationship created by the capitalist system was the greatest force that led to the creation of the cooperative institution. This exploitative situation between the producer and the consumer of his/her goods is illustrated in Fig 1 below.

Fig. 1 The toll gates standing between the producer and the consumer

2.4 The Philosophical foundations of the cooperative movement

The philosophical basis of the cooperative institution is the Marxian Philosophy rather than the neo classical economics. Both Marxian and neoclassical economists try to analyse and explain the same economic system i.e. market economy or capitalism. However, they do so from different points of entry and methodology. The starting point of the neoclassical economists is the individual economic unit-the firm, the consumer, or the household -and the working of the larger economic system is deduced from predictions concerning individual action. The starting point of the Marxian political

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Producer Toll gates Toll gate Toll gate Consumer

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economy is society as a whole- the entire economic system- and the individual action is governed and circumscribed by the way the larger system works.

The neo classical approach separates the economic from the social and political, and hives off the last two for treatment in different disciplines. The Marxian approach emphasises the inseparability of economic, social and political dimensions of human societies.

The logical method of the neo classical economics is deduction from a set of prior assumptions. The more precisely this deduction can be formulated (e.g. by mathematical logic) the happier is the neo classical economist since it seems to lend the discipline a scientific character. The method of Marxian political economy is dialectical, i.e. it focuses on tensions and contradictions between opposites both as the focus of theoretical interest and as explanation of the forces which drive society as a whole in particular direction. Some relevant opposites are production for use, versus production for exchange; owners versus non owners of productive resources, capital versus labour, profit versus wages etc.

The neoclassical economics emphasises social harmony. Individual economic units only interact with each other through exchanges in the market place, and since each individual is assumed free to choose whether and when to enter the market, no conflict between people can arise. On the other hand the Marxian political economy emphasises contradiction and potential conflict in the relations between social classes as the central explanation of the way societies change over time. This does not mean that Marxian analysis is only preoccupied with social turmoil. Conflict and tension are creative as well as destructive forces, and recognition of them often provides a sounder basis for explaining the patterns and direction of social change than appeals to an imaginary harmony.

The domain of interest of the neo classical economics is largely confined to problem solving of a technical economic character over a time horizon which holds social, political and technological factors constant. The domain of interest of the Marxian political economy is social change. This social change arises out of conflicts and contradictions that exist in society. These conflicts and contradictions necessarily lead to the creation of institutions in society to bring about the change. One such institution is the cooperative enterprise designed to resolve the conflicts and contradictions. The institution tries to resolve the conflicts and contradictions arising from exploitation, inequality, and injustices created by the capitalist system.

2.5 Reasons for the Development of the Cooperative Enterprise Some form of cooperative association has existed in every community of the world from the time immemorial. In prehistoric times (Stone Age ice age) man found out that through some form of cooperation (i.e. working together, undertaking projects jointly with others) he or she could reap greater benefits in hunting for food, in fishing, in cattle rustling in getting wives etc. During tribal wars, cooperation among individuals, among clans, among societies and tribes brought greater success. In cattle raids worriers achieve

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better results through cooperation. Thus cooperation to achieve individual and social benefits was the first step in man’s attempt to improve his standards of living. The modern form of cooperative society however was born out of a new form of struggle by the common man in his attempts to address new problems brought about by the capitalist system. These problems were: Exploitation by middlemen occupying strategic positions between the producer or worker and the consumer of his product, Poverty created by Wars in Europe, The Industrial Revolution which transformed the production technology from manual to mechanical rendering many people jobless, The Agrarian Revolution which transformed land ownership from small pieces to large pieces thereby making many people landless and jobless and the Injustices that resulted from the creation of a new class system in society in which the rich enjoyed legal justice different from that enjoyed by the poor. The above conditions created a situation of such a high level of desperation, suffering and helplessness that something had to be done to lift the poor from the situation. Some people addressed the problem by starting the trade unions and others by recommending the formation of cooperative associations. The early proponents of the cooperative association were the pioneers. The next few paragraphs discuss some of those early proponents of the cooperative association as a way of addressing the problems facing the people. 2.6 The pioneers The following are some of the early writers and sponsors of the early cooperative enterprises. i) John Bellers: John Bellers was an English Quaker who in 1695 published his “proposals for raising a college of industry of all useful trades and husbandry”. The college of industry was to bring the producer, the consumer, agriculturalist and artisan into a single organization, but it was also to sell in the market, and the profits of such sales were to be available to pay interest on capital which it assumed must come from outside the group. The basic ideas of Bellers were to form a foundation of a cooperative society namely: combination of self-help and mutual aid a voluntary democratic and egalitarian association for an economic purpose Direct relations between producers and consumers. And elimination of middlemen and exploitersJohn Bellers in his writings argued for the creation based on the above principles as a way of addressing the problems brought upon society by the capitalist system.

ii) Robert Owen (1771-1858) Robert Owen is regarded as the founder of the modern cooperative movement. Owen was the son of a small shopkeeper in Wales. At the age of nine, he was apprenticed to a Lincolnshire draper. At 14, he was an assistant in a barber’s shop, and at 19, he was a manager in a Manchester cotton mill. At 21, he was a partner in a group of textile mills in Scotland. At this point, he began to look at the society more critically “ I soon observed” he wrote ” with what care lifeless machines are treated and with what neglect and contempt, machines which are alive” are treated. Owen to the horrors of his fellow

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manufacturers reduced the daily hours of labour from 17 to 10, refused to employ children under 10 years in his factories and provided descent houses , education, and food at reasonable prices for his employees. To the general astonishment of his rivals, he continued to make money. He went further and used his money and influence to found such working environments in North America, Mexico England and Ireland. Like Marx, Owen believed that economic value resided in the human labour. He initiated in 1832, a “labour Exchange” where “labour notes were exchanged for goods and services in the shops (labour notes “represented an estimate of the value of labour which had gone into the production of goods exchanged at the labour exchange). After a few years, however, the experiments tried by Owen failed probably due to the fact that they were far ahead of their time, or probably because the state gave it little help or very probably most of the other industrialists, were not for the idea. Nevertheless, the foundations for the modern form of co-operative societies were laid down, where fairness, justice, democracy etc reigned. Owen wrote a number of books on the subject of cooperation and this probably more than anything else, strengthened the spirit of cooperation even after Owen's death in 1858.

iii) William Thompson This was another pioneer in the co-operative movement who in 1824 published a book titled “an enquiry into the principles of wealth most conducive to Human Happiness” and followed it up with “the claims of capital and labour conciliated”. In these two publications Thompson preached the benefits of cooperation and proposed that there must be fairness in the distribution of output between labour and capital.

iv) Dr. William King (1786-1865). Dr. King was another contemporary of Owens, who founded numerous small cooperatives about the year 1830. Dr. King published a monthly, paper “the co-operator’ which although lasted for only 28 months, exercised great influence to people at the time on the virtues of cooperation. Dr. King preached about the supreme value of labour, but also recognized the value of capital. He emphasized on democratic principles and he was for self-help and no patronage from the rich. He emphasized that all men were created equal and saw the Christian virtues as the basis of both family and cooperative societies. Most of the cooperative societies founded by King or under his influence were consumer stores selling daily needs to members, but some were also associations of producers. The main aim of all those societies created by King was to make sure that, workers enjoyed the fruits of their labour and producers were not exploited by middlemen. However with the passing on of the pioneers, most of the cooperative societies they had stated were not successful. Most of them collapsed even without contributing any benefit to the members. However one of the societies became successful and is there even today. This is Rochdale Cooperative Society and the story of its success briefly discussed below highlights the reasons of its success and conversely the reasons for the failure of the other cooperative societies.

2.7 The Rockdale Cooperative Society

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As noted above several philanthropists and men of good will realised that the challenges facing society at the time required a solution. Among other proposals one solution suggested was the formation of the cooperative institution to address especially the challenges of poverty and inequality brought about by the advent of the capitalist system. This society was founded in December 1844 by members of a small town of Rochdale in England. The specific objectives of the society were as follows:

i) The establishment of a store for the sale of provisions and clothing.ii) The building, purchasing or erecting a number of houses in which those

members desiring to assist each other in improving their domestic and social condition may reside.

iii) To commence on manufacture of such articles as the society may determine, for the employment of such members as may be without employment or who may be suffering in consequence of repeated reduction in their wages.

iv) As a further benefit and security to the members the society shall purchase or rent an estate or estates of land, which shall be cultivated by members who may be out of employment, or whose labour may be badly remunerated.

v) That as soon as practical, this society shall proceed to arrange the powers of production, distribution, education and government, or in other words to establish a self supporting home or colony of united, interested or other societies in establishing other colonies.

vi) That for the promotion of sobriety a temperance hotel is opened in one of the society’s houses as soon as convenient.

At first the shop opened for only two hours a night. A year later, the shop was able to operate every week night and add tea, and tobacco to their stock. At the end of their first year, capital stood at £181, their membership had risen to 74, and a surplus of £22 was realized on a turnover of £710. By 1952 (over 100 years later) the society’s capital stood at £501,473, membership was 29,603, and a turnover of £1,469,834 and surplus of £47,827 was realized during the year. Unlike others before it, and after it Rochdale was a stunning success.

Why did Rockdale Society Succeed?i) Cash payment: no credit. The society had realized that previous societies had

failed due to giving credit that was never paid.

ii) Immediate benefit to members.For cash payment, members received dividends and discounts. Earlier societies had postponed for far too long the benefits to members.

iii) Democratic controlThe Rochdale society was run by all its members in a democratic way. Earlier societies had been controlled by one or two people.

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After many tribulations and failures the society which was founded in 1844 is still operational in Rochdale and the surrounding districts.

Another aspect that enabled the Rochdale society to succeed where others had failed was in the field of cooperative education. The society established a leadership that aimed not only at enrolling members but also at making good co operators of them. This included the inculcation of a clear awareness of the principles of cooperative trading as well as a new insight into the problems of citizenship and of the moral and material forces that were shaping the industrializing Britain of the time.

The society therefore encouraged education in both technical and cooperative aspects. Members were also encouraged to educate their children. As early as 1853, two and half per cent of the Rochdale cooperative society trading surplus was allocated to financing their educational activities which included the maintenance of a newsroom and library.

Activity1) Explain why in your view the Rochdale cooperative society was a success2) What was the role of the pioneers in the promotion of the cooperative institution3) Discuss the forces that led to the development of the modern cooperative enterprise4) Discuss the contribution of each of the following to the development of the cooperative movement: Robert Owen, William King, and John Bellers.

SummaryIn this lecture we have identified the various forces that led to the development of the modern cooperative institution. One of these forces is the advent of the capitalist system which led to the development of exploitative institutions between the producer and the consumer of his product. The principal aim of the cooperative society was to obliterate for ever these exploitative institutions. We have also discussed some of the better well known pioneers of the modern cooperative society such as Dr. Robert Owen and William Thompson. We also discussed one of the earliest cooperative societies, the Rochdale Cooperative Society and explained why it was able to succeed where others had failed.

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References International Labour Organization: “A

Workers Education Manual”.

== END OF LECTURE 2 ========================

LECTURE THREE: THE EVOLUTION OF THE COOPERATIVE MOVEMENT IN KENYA; THE PRE INDEPENDENCE PERIOD

LECTURE OUTLINE

3.1 Introduction

3.2 Lecture objectives

3.3 The traditional society in Kenya

3.4 The modern form of the Cooperative Enterprise in Kenya

3.4.1 The Pre-independence period

3.4.2 Independence

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3.5 Summary

3.1 Introduction In the last lecture we discussed the main reasons that led to the development of the cooperative enterprise. We discussed first the forces that led to the development of the traditional form of the cooperative institution. Then we have discussed the basis and the origins of the modern form of the cooperative enterprise. Finally we have also discussed a few of the individuals who originally conceptualized and promoted the institution of the cooperative society. In this third lecture we are going to explain how the cooperative movement has evolved in Kenya up to the time of independence. We shall look first at traditional society in Kenya. We note that every community in the country recognized the importance of cooperation and practiced some form of togetherness. We then look at the modern form of the cooperative enterprise and how it has evolved first in the period prior to 1930 then between 1930s and the 1945 and after that the form taken by the cooperative institution between 1945 and 1966 when the independent Kenya Government enacted a new cooperative societies’ act to govern the cooperative institution during the early period of independence. In this period we note that the cooperative institution experienced periods of success and periods of failure. For example during the 1960s the 1970s and the early 1980s the cooperative society experienced periods of sounding success. However during the 1980s and the 1990s the Kenyan cooperative institutions faced very difficult times despite the fact they faced the same legal framework and the same political system. Finally we discuss the cooperative institution after the 1997 cooperative societies’ act.

3.2 Lecture Objectives At the end of this lecture you will be able to:

i) Explain the status of the traditional society in Kenya

ii) Explain how the modern cooperative society has evolved in Kenya

iii) Discuss the status of the cooperative movement in Kenya at independence

iv) Explain how the characteristics of the political system impact on the cooperative enterprise

v) Explain the status of the cooperative movement in Kenya during the 21st century

3.3 The Traditional Society Cooperation defined as working together for mutual benefit is a strong African tradition. In the African pre-colonial setting cooperation was a way of life in every Kenyan society. The African cooperated in all fields of his endeavor – in tiling his/ her land, in building his/her house or hut, in clearing bushes for planting, in harvesting the fields, in looking

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after cattle or sheep, in hunting, in defending themselves against common enemies etc. In fact our ancestors clearly understood that UNITY IS STRENGTH and to survive both individually and as a society (or community) they had to cooperate. In the traditional African set-up, cooperation was both material and moral. In addition to helping people improve their material well-being, both as an individual and as a community, cooperation enhanced unity, discipline and social cohesion and helped to make the members of the community, good citizens. In addition cooperation taught and promoted morality and general social education. Cooperation also enhanced unity, discipline and social cohesion and helped to make its members good citizens. It taught comradeship, morality and general social educationIn the traditional set up cooperation was “voluntary”. Nobody was forced to be a member of any group. However, there was moral obligation and social pressure to join a cooperative group. Failure to join in such group effort led to scorn isolation and even rebuke of such a person or group.There were no payments for group work, either in kind or cash. However at the completion of each task, (or after each days work) food and drinks were servedNo individual person was expected to more significantly benefit from such group work than other members. For example one individual should not have a ten acre field cleared or tilled while the others had only one or two acres.In Kenya the following informal traditional co-operative groups can be cited among some of the various Kenyan groups:In the Coast Province the Taita women formed groups to cooperate to help digging or weeding gardens for each woman in turn. This was known as Kingarua. In the Eastern Province the Meru women came together to help women mud wall their huts in what was known as Kithingi Nyumba. The Kamba had what was known as Mwethya to help build houses for each woman in turn. In the Rift Valley the Kalenjin had Kipande a joint piece of work done together by a group of people for the benefit of each member in turn. In the Western Province the Teso had what is known as Ekitae which means people come together on a given project eg farm ploughing, or building a house. The Luhya have what is called bulala or a group of people working to help an individual member of a group. In theNorth Eastern Province the Somali people practice what is called Iskaishato which means pooling resources to complete a project. In the Nyanza Province the Kisii practice what is called egesangio where people come together to work on a project either for the benefit of one of them or for the benefit of the group. The Luo have what is called a saga or riwruole or doing work together for the benefit of the individual member, of the village, or of the community. In the Central province the Kikuyu have a ngwatio whereby the members of a group perform certain tasks for the benefits of an individual member in turn. These tasks include bush clearing, farming or weeding, planting etc

As indicated above each of the Kenyan communities practiced some form of cooperation in the traditional set up. The basic characteristics of these traditional forms of cooperation were:(a) “Voluntary” nobody was forced to be a member of any group. However there was

moral obligation and social pressure to join. Failure to join in such group effort might lead to scorn, isolation or outright rebuke of such a person by the group.

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(b) There were no payments for such group work when done, either in kind or cash. However, at the completion of the task or at the end of each day food and drinks were served.

(c) Such cooperation created unity, social cohesion, and overall economic or social progress for the society or community.

(d) No individual person was expected to more significantly benefit from such group work, than the other members; for example, one individual should not have a ten acre field cleared of bush while the average for every member was half an acre. Each individual was expected to benefit equally or nearly equally. Therefore, traditional cooperation did not encourage enrichment of a few at the expense of the majority. Thus, in a traditional set up there was no extreme poverty characterized by hunger, starvation etc or extreme richness characterized by laziness, wastage, extravagance and pride; instead, there was general equality and general satisfaction with the social system

e) The main activities to which Africans cooperated were Clearing the land Defended themselves against common enemies Helped to look after cattle together Raids in search of food, cattle, women

3.4 The Modern Form of the Cooperative Society in Kenya

The evolution of the modern cooperative enterprise in Kenya can be discussed under two separate periods namely the Pre independence period (the colonial period) and the post colonial (independence) period. The pre independence period can be discussed under three separate sub periods namely 1900- 1931, 1931- 1945, and 1945- 1963. The post independence period can also be discussed under three separate sub periods namely 1963- 1997, 1997- 2002 and 2002 and after.

1900= 1931 During this period the membership of the formal cooperative societies was restricted to Europeans only. The societies were mainly founded to help farmers in the following ways: Market their agricultural produce i.e. maximize their marketing prices through organized marketing, Purchase agricultural inputs at lowest possible prices through organized purchasing Provision of credit facilities to purchase agricultural inputs, and farm implements Enable them process their agricultural produce to add value for the members benefits.During this period the government did not directly promote, assist or regulate the

cooperative society. The government left the cooperative societies entirely on their own; the societies were formed, managed, and promoted on the initiatives of members. The government did not have a specific department to deal specifically with the cooperative sector. There were no laws dealing specifically with the cooperative sector. The cooperative society was treated like any other company or organization. The cooperative societies liked it that way and the Government also liked it that way. Both prospered. However the government gave indirect support to the European cooperative societies as follows

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a) By discouraging the formation of formal African cooperative societies or preventing Africans from joining the European societies, the government enabled the European settlers to reap maximum profits from the fruits of their labor.b) Through legislation it was only the settler community who had the support and opportunity for organized agricultural marketing and consequently for realizing maximum profits from their labor. The following legislations attested to this indirect support of the settler community by the government to maximize agricultural production and consequently form cooperative societies.

The 1902 Crown Lands OrdinanceThis piece of legislation allowed white settlers to own land on freehold or

999, or 99 year leases. The 1908 Land Titles Act

This law facilitated the separation between crown lands and privately owned lands. All tribal lands were crown lands and only European

settled lands (specifically the White Highlands) were privately owned land.

The 1910 Coffee Plantations and Coffee Dealers OrdinanceThis law prevented Africans from growing coffee in that it empowered

district commissioners to issue certificates which permitted holders to grow coffee. No such certificates were issued to Africans until the 1950s.

During the 1900 to 1930 period, therefore, Africans were not encouraged to form co-operative societies. The basic principle of unity is strength was used by colonialists to make sure that Africans did not get “strong” both socially, economically and politically through unity and cooperation.

1931=1945 In 1931 the Government enacted The1931 Cooperative Societies Registration Ordinance. This was the first piece of legislation enacted to deal directly with co-operative societies. It was enacted to deal with two main issues:i) To strengthen cooperative business practices of the settler community by allowing

companies or associations to operate under this law, as long as they were engaged in cooperative marketing.

ii) To allow, and register under the Act co-operative societies owned by Europeans.

The law was enacted in response to demands by cooperative societies formed by European settlers for protection and recognition.

The 1932 Amendment of the 1931 Ordinance further strengthened the business organisations of the settler community as the amendment allowed persons, partnerships, and companies in the timber industry to fall within the definition of the co-operative societies and therefore gain some legal protection.The 1931 Act regulated the cooperative sector until the enactment of the 1945 Cooperative Societies Ordinance.

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1945= 1963 The 1945 Co-operative Societies Ordinance was the first legislation whose main purpose was to encourage and guide Africans in the formation of co-operative societies. The main relevant sections are as follows:

Section 42 empowered the Registrar of Co-operative Societies to hold an inquiry, either on his own accord or on an application by the majority of committee members, on the workings and the financial condition of the society. The registrar could cancel the registration of a society after the enquiry.

Section 59 made it an offence for the society or officer of the society to fail to provide information to the registrar.

Section 57 The governor of the colony was given powers to make rules to govern the affairs of the society.

Rule 23 made it a duty of the society committee to prepare annual accounts showing income and expenditure of the society.

Rule 32 empowered the registrar to prohibit or restrict transactions of a society with non-members if to do so was against the co-operative principles.

The ordinance defined a co-operative society, limited a single member’s shares to one fifth or less, and specified that each member had one vote.

The ordinance exempted the following co-operative societies from the control of the registrar (KPCU, KFA, and KCC).The 1945 Co-operative Societies Ordinance was important because it allowed any body to form a cooperative society provided strict conditions were met especially the provision of annual accounts and reports of the society to the registrar. Thus for the first time Africans cooperative societies were recognized by law and encouraged. The main reasons for this development were.

(a) The depression of the 1930s and the effects of the 2nd world war had created sufficient impact on the colonial empire’s economic system to warrant exploitation of all available capabilities including those in the colonies and those of the colonized to improve the empire’s economic situation. Thus, it was found necessary by the colonial power to exploit and harness the economic potential of both the settlers and the Africans in a regulated manner to improve the empire’s economic power particularly with respect to self-sufficiency in food production.

This co-operative effort was necessary if African agriculture was to be improved to ensure its maximum productivity. Where possibilities of improvement were identified, cooperative institutions were promoted among Africans under the supervision of the newly recruited and empowered registrar of cooperative societies.

(b) Demobilised soldiers

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Another factor prompting the colonial government to seriously consider promoting co-operative societies among the Africans during this period was the need to provide employment and assistance to African soldiers who had helped the colonial masters with their war effort. It was a measure of gratitude by the colonial government to help establish and regulate co-operative societies to assist demobilised African soldiers.

(c) Attitude of the British Labour GovernmentThe third factor explaining the encouragement of the African peoples to form cooperative societies was the attitude of the British Labour Government which came to power in 1945. This government had a different view from previous conservative governments, not only towards the development of cooperatives throughout the empire but also with regard to social justice and equality. This labour government wanted first to promote economic power in the colonies and secondly promote democratic principles through formation of co-operative societies.

(d) Initiatives by the Africans themselvesDeveloping African elite had noted the increasing wealth of the settler community, and the production and marketing practices of their co-operative societies principally KCC, KPCU and KFA, and associated this economic growth and wealth of the settler community with those co-operatives. Consequently, they started promoting co-operatives among themselves as a way of marketing their limited outputs from their small agricultural holding, and also as a way of improving their social welfare. This was noted by the colonial administration and as a way of bringing into control those African co-operative societies the government enacted the 1945 Act.

The Swynnerton planThe Swynnerton plan of the early 1950s was also a systematic promotion of cooperative societies by the government. The plan aimed at stimulating the commercialization of small holders’ agriculture by means of land adjudication, improvement of rural infrastructure and not least the introduction of cash crops (e.g. coffee, tea and pyrethrum) which so far had been the exclusive privilege of white settlers. An overriding objective behind this plan though was to cub the growing political unrest in Central Province. The effects of the plan on the growth of the cooperative Movement was positive in that as a result of the land consolidation and the improvement of the infrastructure in the rural areas agricultural production increased and this led to the formation of cooperative societies to help market the produce.

The Co-operative Movement in Kenya during the Colonial Period (1900-1960) can be said to have exhibited the following characteristics;

(a) The traditional co-operative society existed side by side with the colonial formal system.

(b) The earliest forms of formal co-operative societies were exclusively European. (i.e. membership was restricted to Europeans only).

(c) The following are some of the early co-operative societies.

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(i) Lumbwa Farmers Co-Operative SocietyFormed in 1908 by European settlers in the White Highlands for the purpose of benefiting members through sale of their produce (mainly maize but also other agricultural products such as milk and wheat) and purchase of agricultural inputs (eg fertilizers, seeds and grade cows) for the benefit of members who were Europeans.

ii) Plateau Maize Growers Co-operative SocietyMembership restricted to European maize growers. The purpose of the society was to market maize for members, and also purchases agricultural inputs at low prices.

iii) The Kenya Farmers Association (KFA)KFA was formed specifically for European farmers in the country to benefit them through purchase of subsidized agricultural inputs, machinery and implements.

iv)The Kenya Co-operative Creameries Union (KCC). KCC was another successful cooperative society formed to help European milk producers market and process their milk.Thus during the pre independence the cooperative movement flourished and prospered in some of the periods with relatively high Government control (after 1945) and in some periods with no Government control at all.

Summary In this chapter we have discussed the evolution of the modern cooperative society in Kenya. We noted how the cooperative institution prospered without any legal framework prior to 1931. We also noted that there were three laws namely the 1902 Crown Lands Ordinance, the 1908 Land Titles Act and the 1910 Coffee Plantations and Coffee Dealers Ordinance which had a profound impact on the cooperative societies of the time in that they gave confidence to land owners who invested heavily on their lands and consequently increase production so as to cooperative marketing. We discussed the 1931 legislation and its impact on the cooperative societies. After that we discussed the 1945 cooperative society’s law, its causes and its impact. Finally we discussed the Swynnerton plan and how it affected the cooperative movement.

Activityi) Explain the status of Kenya’s cooperative movement

at the beginning of the 20th century.ii) Discuss the various laws that regulated the cooperative

institution in Kenya prior to independenceiii) What are the advantages and the disadvantages of

regulating the cooperative enterprise? Illustrate your answer with examples from the history of Kenya’s

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cooperative movement

References Victoria Muchai Kattambo “Cooperatives

Formation, Management and Settlement of Disputes”.

Kenya Government The 1931 and the 1945 cooperative societies ordinances.

===============END OF LECTURE THREE ==================

LECTURE FOUR THE COOPERATIVE MOVEMENT IN KENYA DURING THE INDEPENDENCE PERIOD

LECTURE OUTLINE

4.1 Introduction

4.2 Lecture Objectives

4.3 The Cooperative Movement in Kenya at Independence

4.4 The Cooperative Movement in Kenya during the 1970s.

4.5 The Cooperative Movement in Kenya during the 1980s and the early

1990s

4.6 The Cooperative movement in the 21st century

4.7 Summary

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4.1 IntroductionIn the last lecture we discussed how the cooperative enterprise in Kenya has evolved. Both the traditional forms and the modern forms were discussed. We found out even before the colonial times the idea of cooperation was practiced among the Kenyan communities. Every Kenyan community had a form of cooperation in which cooperation was practiced to undertake tasks jointly for mutual benefits. With regard to the modern cooperative society we found out that during the period prior to 1930 government treated the cooperative society just like any business organization. Both the cooperative society and the government liked it way and the cooperative society prospered. During the period 1930 to 1945 a cooperative society’s law enacted in 1931 protected the cooperative institution. In 1945 a new act which governed the cooperative movement came into force and for the first time in Kenya Africans were allowed to form their own cooperative societies. In 1966 the new independent government enacted its own law to help it use the cooperative movement to achieve the many challenges facing at independence. This fourth lecture we will explain how the cooperative movement in Kenya was during the independence period.

4.2 Lecture Objectives At the end of this lecture you should be able to

1. Explain the status of the cooperative movement in Kenya at Independence

2. Explain the status of the cooperative movement in Kenya during the 1970- 1997 period

3. Propose a policy framework for the cooperative movement in the Kenya of the 21st first century.

4.3 The Cooperative Movement in Kenya at Independence At independence the cooperative movement consisted of both the traditional society and the modern society both playing their roles in the social and economic development. Each one was successfully playing its expected role. The government that came to power at independence in 1963 faced various challenges including poverty, unemployment, injustice and landlessness. One of the vehicles the Government sought to use in addressing those challenges was the cooperative movement. As a first step therefore the Government amended the 1945 Cooperative Societies Act to enable it to use the sector as a vehicle of addressing those challenges it faced. The main objective of the amendment was to give more powers to the Government in controlling and directing the cooperative societies. Thus the 1966 Cooperative Societies Act gave the following powers to the Government:

Power of registration; Every Cooperative society was required to register with the Ministry of Cooperative Development

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Information provision: Every registered cooperative society was required to file some specific information annually. This information included information on the management committee members and financial statements.

Budget: Every cooperative society was required to present to the ministry an annual budget. No expenditure could be incurred unless it had been provided for in the budget and had been approved by the Ministry

Financial controls: Any expenditure in excess of Kshs 5,000 had to be cosigned by the ministry official.

The Act also established an extensive administrative network to supervise and guide the cooperative movement. The network consisted of The Minister The Permanent Secretary The Commissioner of Cooperative Development The Registrar of cooperative societies The Provincial, District, and in some cases divisional cooperative officers

The results of this type of control were as follows:

The 1970sDuring the 1970s the cooperative movement flourished by increasing in terms of numbers and efficiency in service delivery. By early 1970s, there were 1060 active cooperative societies in Kenya with a total membership of approximately 450,000 people. 600 of these were agricultural marketing societies with a turnover of about Kshs 400 million. These were mainly concerned with marketing a range of agricultural products such as coffee, pyrethrum, and daily products.At this time about 90% of the pyrethrum, 50% of the coffee and 25% of the milk sold by farmers in Kenya was marketed though small scale farmer’s primary societies.

The other 400 cooperative societies consisted mainly of - 210 farm purchase societies formed by groups of people for the purpose of

acquiring large-scale farms formerly owned by non-;citizens.- 107 credit and savings societies with total memberships of 30,000 and mostly in

urban areas.- 40 consumer cooperative- 11 housing cooperatives - 14 fishermen cooperatives

There were also countrywide cooperative societies such as; Kenya Planters Cooperative Union (KPCU) Kenya Farmers Association (KFA) Kenya Cooperative Creameries

By the end of the 1980s decade the number of cooperative societies had increased to over 10,000 as can be seen in the table below

TABLE 4.1 Number of cooperative societies in Kenya Between 1960 and 1999

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By the end of the 1990s the number of cooperative societies had increased to over 10,000 as can be seen in the table below

TABLE 4.1 Number of cooperative societies in Kenya Between 2000 and 2004

2000 2001 2002 2003 2004

Agric 4349 4372 4414 4166 4215

Saccos 3627 3925 4020 4200 4474

Others 1378 1382 1494 1838 1857

Unions 89 89 89 93 96

Total 9443 9768 10017 10297 10542

Source 2005 Economic Survey

The 1980sDuring this decade the cooperative movement started experiencing problems of service delivery and productivity. Except for the savings and credit cooperative societies the number of other types of cooperative societies started to drop. By the end of the 1980s decade the cooperative movement was almost at the brink of collapse. Formerly giant cooperative societies, such as the Kenya Cooperative Creameries and the Kenya Farmers Association, had been reduced to shells through looting, mismanagement and outright theft by state officials who had been detailed by the Government to manage the societies.

The 1990sBy the beginning of the 1990s the once vibrant Kenyan cooperative movement had already collapsed. Except for the savings and credit cooperative societies the rest of the movement was dead. Both KCC and KFA had become extinct. Other cooperative societies faced monumental problems of mismanagement, corruption, and lack of funds to provide even basic services to members. In 1996 the Government organized a conference to advice the way forward for the cooperative movement. The conference developed a new policy framework for the sector in the form of the 1996 Policy Paper on the sector. The main recommendation of the conference was that government should liberalize the sector and leave the members to manage their cooperative societies. In keeping with the practice in the other sectors the government liberated the sector. The Ministry responsible for the cooperative movement was reduced to a mere department of the Ministry of agriculture to reflect the new approach to cooperatives. The new approach

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was designed to give more responsibility to the cooperators. They were expected to be more self reliant and more responsible in managing their affairs in accordance with cooperative principles. The Government’s role and functions changed to the following:

Formulation of cooperative policy Enforcement of the cooperative societies act Registration and liquidation of cooperative societies Registration of cooperative audits Carrying out inquiries investigations and inspections Creating a good environment for cooperative growth and development

Previously under the 1966 Cooperative Societies Act the Government was responsible of the following functions:

Development and implementation of cooperative policy Enforcement of the laws on cooperative societies Cooperative registration and extension services Advisory management services Accounting auditing and management systems Audit supervision Approval of budgets capital expenditure and allowances Cooperative credit and finance The Cooperative Bank Hiring and dismissal of graded staff Inspection inquiries and investigations Removal and selection of management committees after inquiry Settlement of disputes Institution of charges Amalgamation, sub division and liquidation of societies Cooperative education and training

The above change of policy was reflected in the Cooperative Societies Act of 1997.

In 1997, the government enacted the 1997 Cooperative Societies Act to try and reduce the strict government control on the cooperative sector with a hope that the sector may reflect different characteristics from the system and hopefully provide better services to members. The result of this change in policy was catastrophic for the cooperative movement. Instead of improving its efficiency the cooperative societies became even more inefficient. Members even fought one another during meetings Due to the fact that government was no longer in the scene the members became even more serious in the protection of their assets against looters. Within five years of no government control it was found essential that some form of government control was necessary, As such an amendment to the 1997 Act was introduced in the year 2002 to bring some form government control to the sector.

The effects of this reform are yet to be felt in most societies. Some societies are showing some signs of improvement due to initiative of its members, and also of the management committees. It is however, essential to note that government involvement in the cooperative movement is very essential to provide the following services and guidance.

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Making overall policy guidelines for the movement and ensuring those policiesare adhered to by all societies

Giving direct support in education and training activities.

Giving financial aid which should be based on priorities set and defined bysocieties concerned, without conditions that deprive societies of the privilegeto practice democracy and make own decisions on all issues.

Establishing a legal framework that guides the general operations of thecooperative movement.

Ensuring that the law must be fairly applied throughout the movement.

Summary In this lecture we discussed the status of the cooperative movement in Kenya at independence. We also explained how the 1966 cooperative societies act sought to achieve the government’s objective. We further discussed the consequences of the act on the cooperative movement during the 1980s and the 1990s.

Activityi) Identify the key elements and the objectives of

the 1966 cooperative societies actii) What were the consequences of the act on the

Kenyan cooperative movement?iii) What were the objectives and the consequences

of the 1997 cooperative societies act?

References Kenya Government 1966 Cooperative Societies Act Kenya Government 1970- 1974 Development Plan Kenya Government Sessional Paper No. 10 of 1997 on the

Cooperative Societies in a Liberalised Environment International Labour Organization: “A Workers

Education Manual”.

Keny Government Economic Surveys

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===================== END OF LECTURE 4 ======================

LECTURE FIVE THE STRUCTURE AND TYPES OF COOPERATIVE SOCIETIES

LECTURE OUTLINE

5.1 Introduction

5.2 Lecture Objectives

5.3 The Primary Society

5.4 The Secondary Society

5.5 Country Wide Cooperatives

5.6 The Apex Society

5.7 Types of Cooperatives

5.7.1 Service Cooperatives

5.7.2 Workers Cooperative

5.8 Summary

5.1 Introduction

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In the last lecture we explained the status of the cooperative movement in Kenya at independence. We were also able to discuss the state of the Kenyan cooperative movement in the 1970s, 1980s and the 1990s. We noted that during the 1960s the 1970s and the early 1980s, the cooperative movement experienced efficiency and effectiveness and provided adequate services to the cooperators. Cooperatives increased in numbers and in size. The reasons for this were that the system that controlled the cooperative movement (the government) was efficient. However during the second half of the 1980s the cooperative movement started experiencing inefficiency and ineffectiveness. The services they provided to the cooperators became poorer and poorer to the extent that by the early 1990s most of the primary cooperative societies had but collapsed. Except for the Sacco’s the other types of primary cooperatives actually decreased in numbers. This state of affairs was accentuated by the inefficiency the corruption and the ineffectiveness of the system that controlled the movement (the Government). In 1996 the Government organized a conference of stakeholders to look the problems of the cooperative sector and propose the way forward. The conference noted that the main cause of the problems facing the cooperative movement was the strict supervisory powers the government had over the movement. They recommended a relaxation of this control through the enactment of a new Act the 1997 Cooperative Society’s Act. This Act relaxed the wide powers the Government had over the cooperative movement by leaving the Annual General Meeting and the management committee with the responsibility of managing their cooperative societies in accordance with the principles of the cooperative societies. In this lecture we shall discuss the structure of the cooperative movement in Kenya and show how the structure helps advance the principles. We shall also discuss the various types of cooperative societies such as the service and workers cooperative societies/

5.2 Lecture Objectives At the end of this lecture you should be able to: 1. Explain the structure of the cooperative movement in Kenya 2. Discuss the various types of cooperative societies

5.3 The Structure of the Cooperative Movement in Kenya

At the bottom of the structure is the primary society followed by the secondary society, country wide unions and societies and the apex society.

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5.3.1 Primary Society

The term “primary society” is defined by the 1997 Act to mean a registered society the membership of which is restricted to individual persons. Primary signifies something that leads in order of time or development. In this context, it also means something that comes first. A primary society is therefore formed by individuals, and it is at the lowest level of the structure of cooperatives. It is formed by individuals who have common economic interests and are desirous of promoting those interests by pooling their meagre resources together and working as a team in order to minimize the cost of doing the same thing as individuals. Artisans may find that as a group organised formally together rather than separate individuals they are in a better position to buy in bulk materials necessary for their trade since bulk purchases attract discounts. They may also find they are better able to organize reliable marketing outlets as a group since they will produce more than if they worked as individuals. They may then form a primarily cooperative society to achieve their objectives.

Individuals may also form a savings and credit society which will enable them to pool their money from which they can borrow in time of need. People of humble means who have formed savings and credit cooperative societies have found out that they are able to borrow money from their societies at more reasonable terms than they would otherwise get from commercial banks.

Similarly individual farmers may form a society which will enable them to market their produce collectively and to share facilities such as cattle dips or coffee factories which can serve all of them. The common characteristics of those who form cooperative societies are that:

(a) They have a desire to improve their economic well being(b) They are basically of humble means and forming a cooperative society is the only

way out of getting out of their current predicament.(c) They may also be suffering exploitative status in their current situation through for

example low prices for their products, high interest rates for loans and high prices for their inputs

The primary cooperative societies are the backbone of the cooperative movement in Kenya. Examples of these cooperative societies are: Saccos Agricultural cooperative societies

5.3.2 The Secondary Society

The word “secondary” refers to something that comes after what is “primary”. It follows therefore that in the organisation of cooperatives, the term is used to refer to a cooperative union formed by primary societies. The Act has defined a secondary society as a registered society whose membership is restricted to primary societies. A group of primary societies within a district can form a district cooperative union to serve them.

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The office of the union would normally be situated in the headquarters of the district. Examples of district unions are the Kilifi District Cashew Nut Growers Cooperative Union and the Embu District Cooperative Union. But a district may have more than one union depending on the specific activities engaged in by each union. The Kiambu Coffee Growers Cooperative Union and the Kiambu Dairy Marketing Cooperative Union are both within Kiambu district and have their registered offices in Kiambu town – but they deal with different activities. A union serves primary societies which are affiliated to it by making it easier and cheaper for them to obtain various facilities required for efficient operation. The aim of forming the union is ultimately to benefit the individual members of the primary cooperative society and to ensure that they are not exploited by the middlemen.

According to the 1997 Cooperative Societies Act, a union must provide, organize and supervise efficient centralized services for marketing, supplies, accounting, banking, transport and such other services as may be necessary for its members.Unions have been used extensively to channel development finance from government and donor agencies to individual members of primary societies. District unions also maintain banking sections which are used by their members. If the government advances money to a primary society through the union, the latter administers the loan and ensures the recovery of the money by making deductions from payments due to members. The union usually plays the important role of purchasing supplies in bulk, for example stationery and farm inputs, such as fertilizers, for distribution to societies. The intended result is that the cost of supplies will be less than what the societies would otherwise pay operating as individual societies. Unions charge fees for their services.

District unions are also involved in the training and education of members of staff and in the employment of graded and trained staff of primary societies.The act empowers the commissioner of cooperative development to require any two or more primary societies to form and apply for the registration of a cooperative union or a district cooperative union. He has also the power to order any primary society to join a union or a district cooperative union all this in order to improve the efficiency of the delivery of services to the individual members of the primary society.

5.3.3 Country Wide Cooperatives

The country wide (nation wide) cooperatives act as an umbrella for all the union (secondary) and the primary cooperative societies by handling a particular commodity in the case of agriculture, or providing a specific service to the cooperative societies on a nationwide basis for other types of cooperative societies. Examples of country wide cooperative societies include the Kenya Cooperative Creameries (KCC), the Kenya Farmers Association ( KFA), and the Kenya Planters Cooperative Union (KPCU). Other nation wide cooperatives include the Cooperative Bank of Kenya which provides banking services to all cooperative societies, the Cooperative Insurance Services (CIS) which provides insurance services to the cooperatives and the Kenya Union of Savings and Credit Cooperatives (KUSCO) which serves all the savings and credit cooperatives throughout the country.

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5.3.4 The Apex Society

Finally there is the apex body to which the various types of cooperative organizations are affiliated. The membership comprises mainly of country wide cooperatives, cooperative unions and the big primary cooperative societies operating in areas without cooperative unions. The apex organization is the Kenya National Federation of Cooperatives (KNFC). The KNFC was established in 1964 to serve as the national cooperative representative organization to unify the cooperative movement, to educate its members, and to assist in the improvement of the various cooperative activities.

Table 5.1 The Structure of the Cooperative Movement in Kenya

The primary

The District or union

Countrywide

The Apex

40

The primary society

District cooperative unions

Countrywide cooperative unions

The Kenya National Federation cooperative

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In the above paragraphs we have described the general outline of the structure of the cooperative movement in Kenya. In concluding we need to ask ourselves the following questions:

i) How does the structure benefit the cooperatorii) How does the structure help the cooperative society advance each of the

cooperative principles

5.4 Types of Cooperatives There are two basic kinds of cooperatives: Service cooperatives and workers cooperatives

a) Service cooperatives: a service cooperative provides a service to its members. The following are some of the different types of service cooperatives

i) Marketing and supply cooperatives Examples: a cooperative that sells baskets or furniture made by its members. A cooperative that markets vegetables grown by its members and

supplies the members with inputs such as seeds or irrigation equipment

A cooperative that supplies fishing equipment to its members at a low cost and then markets the fish which are caught.

ii) Consumer cooperatives Examples A cooperative that buys groceries in bulk and sells them to its

members at prices which are just high enough to cover costs A cooperative that provide a child care service to its members at a

reasonable price A cooperative that provides its members with low cost transport to

work and back iii) Housing cooperatives

Examples A cooperative that buys land and helps people build their own houses A cooperative that gets loans from a bank to buy houses that it can

rent or sell to its members. iv) Savings and credit cooperatives

Examples A cooperative where the members pool their savings and make loans

to each other.

v) Multi-purpose cooperatives: these are cooperatives that are a mixture of two or more different types.

Examples A produce marketing cooperative might also provide a savings and credit

scheme for its members and act as a consumer cooperative by running a small shop which provides groceries to members at bargain prices.

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(b) Workers cooperatives: a workers cooperative creates employment for its members.

Workers cooperatives are best suited to types of work which can be performed on piecework basis (such as security or woodworking) because these types of work can easily be sub-dividend aiming different workers.

Examples Brick making workers cooperative Bread-baking workers cooperative Handicraft workers cooperative

Summary In this chapter we have discussed the basic structure of the cooperative movement in Kenya. We have explained that the structure consists of the primary cooperative at the bottom followed by the secondary and then nationwide. At the top of the structure is the apex society whose role is to bring together the country’s cooperative societies and ensure that their interests are addressed. We were also able to discuss the various types of cooperative societies in the country. The cooperatives can be sub divided into main groups namely the service and the workers.

Activityi) Define primary, secondary and apex society and discuss the

role played by eachii) Identify the main types of cooperative societies in Kenya

giving specific examplesiii) Explain how the structure enhances the individual co-

operators interestsiv) Explain how the structure helps advance the various

cooperative principles

References

Victoria Muchai Kattambo “Cooperatives Formation, Management and Settlement of Disputes”.

Kenya Government (1997) Cooperative Societies Act

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==================== END OF LECTURE FIVE =================

LECTURE SIX THE ADMINISTRATIVE ORGANIZATION OF A CO-OPERATIVE SOCIETY

LECTURE OUTLINE

6.1 Introduction

6.2 Lecture Objectives

6.3 The Administrative Functions

6.4 The Administrative Structure

6.4.1 The By-Laws

6.4.2 The Annual General Meeting

6.4.3 The Extra – Ordinary General Meeting

6.4.4 The Supervisory Organs

6.4.5 Summary

6.4.6 The Management Committee

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6.4.7

6.1 Introduction In the last lecture we discussed the structure of the cooperative movement in Kenya and the main types of cooperative societies. We noted that the cooperative movement is structured in such a way that at the bottom of the structure is the primary cooperative followed by district or union cooperative after which comes the secondary or country wide cooperative. At the top of the structure is the apex society namely the Kenya National Federation of Cooperatives. In this sixth lecture we are going to discuss the administrative structure of the cooperative society and explain how this structure helps in advancing the principles of the cooperative enterprise.

6.2 Lecture Objectives At the end of this lecture you should be ale to:

1. Explain the administrative structure of the cooperative enterprise.

2. Explain how the administrative structure helps advance the principles of the cooperative enterprise

6.3 The Administrative Function The administrative function incorporate the following aspects i. Planning for the futureii. Providing the society with resources best suited to ensure

maximum efficiency with minimum riskiii. Linking its various operations to secure the best returniv. Giving instructions that will cause the necessary or desirable action

to be taken v. Making sure that the whole concern is running in accordance with

the plans, orders given, the intentions and the ultimate goal.

The administrative organization and the functional relationships are laid down in the societies by laws. By laws are a set of agreements voluntarily entered into by the members regarding their relations with one another and with the society, and duties, and the functions and the bodies or organs running the society. The by-law must be framed with greatest care so as to observe the requirements of law and the general principles of co-operative movement. They must also be framed in a language that is easily understood by all the members.

6.4 The various organs of the Administrative Structure

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The administrative organs of a co-operative society includei) The by laws of the society ii) An annual general meeting iii) A committee of management iv) The supervisory organs (the supervision committee and auditor)

6.4.1 The by lawsThe bylaws describe how the cooperative society is to be administered. It sets out the powers and the functions of the various organs of the cooperative organization such as the AGM, the Management Committee and the supervision organs. The bylaws also state the qualifications needed for membership. 6.4.2 The general meeting This is the supreme organ of the society. It consists of all the members of the society or their representatives. It is the source of all authority and all powers within the institution provided that it has been constituted in the required manner. Any decisions it takes in the prescribed form are binding on all members whether present or not. The general meeting is convened at least once a year. The law or more often the by-laws lays down the periods of notice and the procedure for convening it. In order to respect the rights of members, it is essential that they should be informed in good time of the date, place and agenda of the general meeting.

The general meeting has the following functions.a) To elect and remove members of the management committee and

members of the supervisory committeesb) To examine, approve or reject the report and balance sheet which must

be submitted to it, generally once a year.c) To dispose of the trading surplus (to special reserves or funds, or in the

form of distribution of dividends) after making allocation to the reserves required by legislation and the by laws.

d) Generally to make the final decision on the admission and exclusion of members

e) It has also the power at its first meeting to adopt the by-laws of the co-operative society and thereafter to alter them or decide that the society shall be dissolved.

Voting rights at the general meeting a) Each member has one vote and one vote only at the general meeting regardless of

how much he has contributed to the society’s capital and however great the volume of his business with the society.

b) The voting right is reserved to members who have met their obligations, either wholly or to the extent laid down in the by-laws

c) In principle the right to vote can only be exercised by its possessor. For this reason legislation or by-laws often prohibit voting by proxy, the excessive use of which in joint stock companies tends to concentrate authority in the hands of a minority. Nevertheless, while the importance of personal participation by co-operators in the

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administration is not in doubt, it is liable to impede the exercise of a fundamental right where a person has a genuine difficulty in attending. This is why certain laws or by-laws sanction voting by letter or by proxy subject to certain conditions e.g. the proxy can only be given to another member, (sometimes only to the members’ wife) who must not be a member of the management committee and may hold only one proxy vote.

6.4.3 The extra ordinary general meeting An extra ordinary general meeting is called in any of the following situations a) Whenever decisions are called to affect the by-laws or the actual existence of the

societyb) Whenever a decision regarding the dissolution of the society is to be madec) Whenever a committee of management deems it necessary for the satisfactory

running of the societyd) Whenever a given proportion of the members (a minimum of one tenth) submit a

written demand for one.

An extra ordinary general meeting:a) Only discusses matters on its agenda. In this way it is more restrictively conducted

than the annual general meetingb) The required quorum is generally high (two thirds or three quarters).c) Voting is by two thirds majority of the members present or represented. This is

especially in the case of amendments to the by-laws and in the case of dissolution of the cooperative society.

6.4.4 The management committee (MC)1) The management committee is responsible for the day to day management of the

business of the society 2) The general meeting delegates a portion of its authority to the management

committee 3) The management committee is given all the powers to achieve the object of the co-

operative society including a) Appointing and discharging employeesb) Fixing employees’ remuneration c) Taking leases d) Organizing the departmentse) Representing the society in a court of law

4) Except by express provisions in the by-laws, the management committee cannot (except by a decision of the general meeting) purchase or sell property, or business, nor contract loans nor transfer assets, of the society.

5) The management committee only exercises its powers as a body, that is to say, in the absence of a special authority no one member may exercise them individually.

6) The management committee can delegate all or part of its powers to one or more of its members, provided the powers are clearly defined and are for a limited period.

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7) The management committee can divide itself into sub committees and it may also appoint committees consisting of other persons to deal with promotion of education, social and welfare activities.

8) The members of the management committee serve in an unpaid capacity, but they may be reimbursed for expenses incurred in the performance of their duties.

6.4.5 Supervisory organs 6.5.1 Auditor: i. auditors are responsible on behalf of the members for the inspection of the books of

accounts of the co-operative society ii. auditors are independent of the management committeeiii. Auditors are elected by the general meeting and report back to it and are

responsible to it.iv. Auditors are entitled to call for a special general meeting if they think fitv. Auditors are granted a remuneration determined by the general meeting.

6.5.2 Supervision committeei. Such a body is elected by the general meeting ii. The supervisory committee has the duty of satisfying itself that the

decisions of the general meeting are being carried outiii. The supervisory committee ensures that the decisions of the

management committee are consistent with the law and the by-lawsThus,(1) The basic features of the administrative structure ensure that the democratic character of the cooperative society is adhered to.

a) Note the supremacy of the general meeting and the b) Balanced division of responsibilities between the executive body and the

controlling bodies.

These two features reflect the democratic nature of the co-operative movement and also the danger the movement might face. The danger is that the co-operative democracy may be misused owing to the passive attitude of the members. But once the members participate fully in the affairs of their society, the democratic feature can be used for the full benefit of the members through the various checks and balances.

Beneficial results are maximized due to the co-operative nature of the co-operative institution; the bonds which bind the co-operators together and to the undertaking they share. All these different ways combined contribute to the success of the joint endeavors. In addition, of course for the co-operative societies, success will further depend on good judgment and character of the administrator, the technical officers and the competence of managerial staff.

The enhancement of the democratic feature of a cooperative society is further enhanced through: (a) Adherence to basic principles of cooperation namely:

Democratic participation

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Voluntary membership Limited return to capital Income sharing Cooperative education Cooperative cooperation Concern for community

(b) Adherence to the administrative structure that explains the responsibilities, functions and method of operation of the cooperative organization i.e

The by-laws The AGM and EGM The MC The supervision bodies The SC The auditor

© Adherence to the basic values of cooperation namely Integrity Self reliance Self responsibility Democracy Fairness

Summary In this lecture we have discussed the administrative structure of a cooperative society. The main institutions of the structure are: the bylaws, the AGM, the Management Committee, the auditor and the supervision committee. We briefly described the functions of each of those institutions. We have also explained how the structure enhances the adherence to the various cooperative principles. We noted that the balanced allocation of responsibilities and supervisory role played by the two supervisory organs ensure that the cooperative enterprise adheres to the basic principles and values that make the cooperative institution special in addressing the challenges that face society as a result of the capitalist system.

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Activityi) Discuss the basic elements of the administrative structure of

the cooperative society. ii) Explain how the structure advances each of the principles and

each of the values of the cooperative societies

References

International Labour Organization: “A Workers Education Manual”.

============== END LECTURE 6 ============================

LECTURE SEVEN THE FINANCIAL AND MARKETING MANAGEMENT FUNCTIONS IN COOPERATIVE SOCIETIES

LECTURE OUTLINE7.1 Introduction7.2 Lecture objectives7.3 The Financial Management Function7.3.1 Definition of the financial management function7.3.2 Objectives of Financial Management7.3.3 Pre-requisites of a sound Financial Management Function7.3.4 Differences between the Financial Management in a Cooperative

Enterprise and that of a Business Enterprise7.4 The Marketing Function7.4.1 What is Marketing

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7.4.2 The Marketing Concept7.4.3 Marketing Philosophy7.4.4 Objectives of Marketing Management in Cooperative Societies7.4.5 Marketing Practice in Cooperative Societies7.5 Summary

7.1 Introduction Welcome to the seventh lecture. In lecture six we described the administrative structure of the cooperative enterprise and explained how this structure helps the cooperative enterprise to advance the principles of cooperation. We noted that the structure consists of institutions such as the bylaws, the AGM/ the management committee, and two supervisory organs namely the auditor and the supervision committee. This seventh lecture describes the financial management function of the cooperative enterprise and the prerequisites of a sound financial management function. We shall also discuss the differences between financial management in a cooperative enterprise and that of a business enterprise. Finally we will explain the concept of marketing and how it is applied in the cooperative society.

7.2 Lecture Objectives At the end of this lecture you should be able to:

1. Describe the functions of financial management2. Discuss the prerequisites of a sound financial

management function3. Explain the differences between the financial

management function in a cooperative enterprise and that of a business enterprise

4. Explain the marketing concept5. Explain marketing in cooperatives

7.3 The Financial Management Function7.3.1 Definition Finance function may be defined as that administrative area or set of administrative functions in an organization which relate to the arrangement of cash and credit so that organisations may have the means to carry out its objectives as satisfactorily as possible. It deals with making sure that an organization has sufficient financial resources. It also makes sure that the arranged financial resources are utilized in the best possible manner. Therefore the finance function can be broadly defined as the organisational activity that is concerned with the planning, raising, controlling and administering of the funds used in the business. Financial management is concerned with

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the managerial activities related to procurement and utilization of funds for business purposes. It deals with planning organizing, directing and controlling financial activities of the enterprise.

Financial management activities should not be restricted to raising of capital but also to other aspects of financing like assessing the needs for capital, raising sufficient funds, establishing the cost of financing, budgeting, maintaining liquidity, formulation of borrowing policies and distribution of profits. Procurement of funds is a complex process as choices of sources of finance is based on problems such as risk, control and cost. After the funds have been procured, their effective utilization is another major task of financial management. Funds should not be allowed to stay or remain idle as they involve many costs. Funds should be put into those uses, which generate incomes higher than the costs of procuring them. Safety, soundness and liquidity are some of the factors which should be taken into account before investing in any business venture.

7.3.2 Objectives of Financial ManagementThe financial management function should have the same overall objective of the business enterprise. Its objective should therefore be so devised as to contribute directly towards the achievement of the enterprise’s overall objective. In the case of a business enterprise the following are some of the overall objectives of a finance function.

(a) Ensuring regular and sufficient supply of capital to the business.(b) Ensuring a fair rate of return to the suppliers of capital.(c) Ensuring efficient utilization of capital by following the principles of liquidity

profitability and safety.(d) Coordinating the activities of the finance department with those of the other

departments of the enterprise.

7.3.3 Prerequisites of a sound financial management function in a cooperative societyi) Profit maximization objective

All financial decisions are made with the specific objective of maximizing the undertaking’s surplus ie minimizing costs.

ii) Liquidity objective: all decision must ensure that funds immediately at hand are adequate to cover short term liabilities and requirement.

iii) Fixed asset investment Decision on fixed asset investment must ensure that not too large a proportion of the society’s financial resources are tied up in capital expenditure so as to jeopardize members’ needs and requirements. Fixed asset investments should also be made so as to generate income and profit.

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iv) Depreciation allowance: decision makers must allow for sufficient amortization and depreciation allowances to offset wear and tear and depreciation of equipment and installations.

v) Investment decisions: all investment decisions must be based on proper analysis such as Internal financial rate of return criteria: only investments which guarantee an internal financial rate of return greater than the cost of capital should be undertaken.Cost benefit analysis only investments whose discounted benefits exceed discounted cots should be undertaken. All investments should also be settled on the basis of net present value (NPV), payback methods and other investment criteria that justify profitability acceptability and prioritization of any investment projects.

vi) Sound financial management also requires good book keeping ie a book keeping system that is simple and clearly fits the society. A cooperative society should therefore have from the onset, the services of a competent accountant. Competence, honesty and transparency should be the basis of any good cooperative society’s financial management system. This should be supported by well chosen independent, honest and conscientious auditor.

vii) The legal framework of the cooperative movement should also be supportive of a sound financial management system, where failure to follow required financial procedures , is severely punished

The above prerequisites are important in a cooperative society because:i) Co operators usually come from humble background, not only with

meagre resources but also not endowed with high education standards.ii) There is need to reconcile the conflicts which may arise due to the

principle of profit maximization and the principle of maximum benefits to members i.e. services at cost. Product sale at minimum cost need to meet the needs of society of maximising surplus.

iii) There is need to take account of the principle of equality and its attendant contradictions especially with respect to profit maximization.

7.3.4 Differences between the financial management in the cooperative enterprise and that of a business enterprise

1 A share on a company based on capital is first and foremost an investment and is a measure of the risk the investor is prepared to take on the yield he hopes to secure from the earnings. On the other hand, a share in a cooperative society is simply the contribution that each co-operator makes towards the essential resources and expenditures of the common undertaking, so that it will be in a position to render him/her the specific services that he expects of it.

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2 Since a cooperative share is only a payment in consideration of services anticipated, it cannot unlike a share in a private sector company be expected to fetch a premium over its nominal value. Thus, when it is refunded, only amount actually paid is returnable, after deduction of a due proportion of any losses incurred by capital of the society.

3 A share in a cooperative society does not stand to earn, and cannot earn a dividend. All it earns is a fixed and limited rate of interest. This is unlike in a private or public company where dividend is earned – only limited by the extent of the earnings of the company.

4 Like membership, the cooperative share is strictly personal. Thus, it is not only registered in the member’s name, but is also non-negotiable and non-assignable except by transfer and then only with the authorization of the management committee.

5 The capital of a cooperative society is essentially variable. It increases automatically with admission of new members. It decreases as a result of death, expulsion and withdrawals of members.

6 Liability towards creditors

Every member is required to accept liability in order to guarantee the debts that the cooperative society may have to incur in the course of its operations.

The amount of liability is determined by the by-laws. It is often limited to the value of shares which each member has taken out.

7 Distribution of surplus

7.3 The general meeting decides what is to be done with surplus.7.4 The surplus distributed is generally fixed and limited and is distributed in

proportion to the business the member has done with the society.7.5 The cooperative laws, and often the by-laws require that a certain percentage of

the surplus be paid into a Reserve Fund before any amount is distributed. This Reserve Fund is intended to meet any possible losses and its effect is to strengthen the financial position of the society. This reserve fund is not divisible even on liquidation and is in fact supposed to ‘devolve’ or be passed on to some other cooperative society or public institution. This is referred to as the principle of “disinterested devolution” i.e. in the event of liquidation a society’s surplus reserve fund is not shared out but ‘devolve’ into some other social institution.

8 Loan capital Cooperative societies like other institutions which seek to expand their

businesses and operations need to borrow.

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It is also natural and reasonable to assume that cooperators aim at owning their undertaking i.e. they would like to make it gradually independent of outside capital. With this in mind, the source of loan capital is mainly from members themselves. Another source is from other cooperative societies national cooperatives or government. Finally the society may turn to cooperative bank – which in most countries (Kenya included) are set up by cooperative societies.

Lastly, and as a last resort, societies may turn to other banks.

7.4 Marketing in Cooperative Societies

7.4.1 What is marketingIn a narrow sense marketing can be defined as the business activities that direct the flow of goods and services from the producer or seller to the consumer or user. This definition assumes that marketing follows logically from the function of production.However since marketing is today applied in a wide variety of business and non-business situations the definition should be wider. A more encompassing definition is therefore as follows. “The performance of business and non business activities which attempt to satisfy a target or group needs and wants for a mutual benefit or benefits”.Marketing is also the economic process by which goods and services are exchanged and the values determined in terms of money prices. Marketing is the performance of business activities that directs the flow of goods and services from the producers to consumers or users ie it includes all those activities carried on to transfer the goods from producers to the consumers and involves the exchange of goods for money.Marketing is also the business process by which products are matched with the market and through which transfers of ownership are affected. Matching products with the market means determining the requirements of potential consumers and supplying the products which meet their requirements.7.4.2 Marketing concept: This is the modern marketing philosophy which emphasizes the determination of the requirement of potential customers and supplying products to satisfy their requirement. This concept embraces the process of identification, assessment and satisfaction of human wants.According to Stanton W.J. “Marketing is a total system of interacting business activities designed to plan price, promote, and distribute wants satisfying products and services to present and potential customers”.This last definition has several implications.(a) The entire system of business activities should be customer oriented. Customers’

wants must be recognised and satisfied effectively.(b) Marketing is a dynamic business process. It is an integrated process rather than a

fragmented assortment of institutions and functions. It is not any one activity but a result of the interaction of many activities.

(c) Marketing activities start with the generation of a product idea and ends only after the customers’ wants are completely satisfied.

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(d) Marketing implies that it must maximise profitability of the business over the long run.

7.4.3 Marketing philosophies. The term philosophy refers to the management attitude; orientation or state of mind as far as marketing practice is concerned. At least 5 alternative philosophies can be identified e.g. .i) productionii) productiii) selling iv) marketingv) societal marketing

Production philosophyAccording to this philosophy the emphasis of a firm is to produce as much of a product as possible. The assumption here is that the market is characterized by shortages and whatever is produced will quickly be bought regardless of the quality.

Product philosophyAccording to this philosophy the marketer assumes that the consumer or buyer will buy a product of high quality and shun away from products of inferior quality. A major weakness of this philosophy is the assumption that people are aware of the products’ technical qualities and they will buy the product without any persuasion from the producer.

The selling philosophyThis philosophy contends that although consumers look for quality, there is need to convince them to buy the firm’s product. Thus, the business unit will implement promotion and selling effort to convince the consumer.Although this is a more reasonable philosophy than the first two, it still suffers from the fact that it emphasizes the sellers’ point of view more.

iv) Marketing philosophy

This orientation believes that all marketing decision making should start with understanding what the consumers wants, and then working backwards to the organization. That is the marketer should first identify the customers’ needs and wants and try to satisfy it.

v) The societal marketing philosophyAccording to this philosophy, the marketer should not only be interested in satisfying the customers’ needs but also the long-run welfare of society. The marketer should ensure

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that in satisfying the interests of the customer, societal interests and needs should also be served.

7.4.4 Objectives of marketing management in cooperative societies

The objective of cooperative marketing is to sell to the advantage of the producer products surplus to his/her own needs and those of his/her immediate neighbours. The reasons for setting up a marketing cooperative are therefore due to:(a) Members have produced through improved methods (or introduction of a cash crop)

more than their needs.(b) If they are already selling, middlemen exploit them by paying them low prices, poor

credit terms etc. hence members want to jump the middlemen and obtain better prices.

(c) Members want improved and efficient marketing services such as processing, packaging, pricing, financial, transportation etc.

The marketing function in a cooperative society therefore necessarily includes the following aspects.(a) Knowledge of product This includes quality demanded in the market place, Where

the goods are demanded, quantities likely to be available (demand and supply) and at what times. It also includes knowledge on whether the product is perishable, and under what conditions it can be stored, what is the existing system of marketing, what are the methods of payments for the product. There is also the knowledge on the consumers, their tastes and preferences.

(b) Marketing finance: to complete a marketing process requires the availability of adequate financial resources to finance one or all of the following financial requirements:

Farmers who sell may require to be paid immediately Some may require to be paid at least some proportion. Others want advances before they deliver. Others may want finance to develop their hand.

On the other hand the cooperative may have the following financial needs. The cooperative may have to store the commodity while looking for buyer. The cooperative may need to process the product further The cooperative may have to give credit to its buyers.

Thus, the cooperative will require sufficient financial resources to complete these stages of the marketing function.A marketing manager must provide guidance/resources to meet the financial requirements of the co operator, and the cooperative society to complete a marketing function.(c) Pricing: pricing is one of he most important and difficult decisions of a marketing

manager in a competitive environment. An innovative marketing manager determines the price in such a way that the cooperative society is able to sell its products

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successfully. Prices, unless they are subject to government control, vary from one market place to another, and in the same market at different times of the year, or even from day to day. The main factors that determine price include: demand and supply; cost of production; actual and potential competition and government regulations. The marketing manager in a cooperative society will have to understand the various factors affecting the prices and pricing of his cooperative society’s products and make appropriate pricing decision.

7.4.5 Marketing Practices in Cooperative Societies

The function of marketing is not a simple one and calls for the services of skilled men and women with a flair for business, as well as complete honesty and integrity. Such men and women are not easy to find and when found, they are expensive to keep and maintain. As such cooperatives need well trained, honest experienced and trustworthy marketing managers. The degree of training and cost is obviously determined by many factors among them the size of a cooperative society, the nature of a product, the market (whether for local or export market). The cost of obtaining a good marketing manager goes beyond the ability and sometimes even needs of many cooperatives societies. Therefore many societies result to other means of marketing their products such as.

(a) Federal, national or district cooperative marketingAll local cooperatives handling a particular commodity, at national or district levels form a marketing cooperative to carry on the marketing function of the group of societies in the region. In some large countries, especially those with difficult communications, there are state regional or provincial cooperatives societies, which in turn unite to form a national organization. Such a national organization is in a much better position (through utilization of economies of scale) to market a product nationally or internationally. It commands a large volume of produce, can be able to properly grade, pack and market. It can be able to have offices even cold storage facilities in the capital city, port or many ports to deal with the commodity. It is in touch with banks, whether cooperative bank, commercial bank or government bank, and also in a position to negotiate for sufficient financial resources to finance all the facilities and financial requirements of the marketing process. It has the resources to employ well paid, highly qualified marketing staff with experience of markets, prices, foreign buyers and government regulations. The principle of federal marketing may carry these benefits even further by forming national or federal cooperatives in more than one country, and can establish an office in some centre of world trade like New York or London, where they can jointly sell their produce through economies of scale. They will also be able to get even more expensive and expert marketing services, they will avoid competing against one another, and if the product is seasonal they may be able to keep a continuous supply all the year round thus avoiding wide fluctuations in price.

(b) Marketing Boards

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In some countries, governments establish marketing boards or institutions, which control either all local sales or export sales of a given commodity or group of commodities. In some cases the boards are elected by producers but retain statutory powers by which all producers are under its control. The relationships between cooperative societies and marketing boards vary from one country to another or even within a given country depending upon the commodity handled. These marketing boards may also be used for internal controls covering quality, hygiene, methods of handling, and the quantities which may be placed in the market at any one time. In the case of certain commodities the state may use the marketing board to collect both revenue and taxes.

Importance of marketing concepts and practices in the cooperative movement Needs to sell its product/service to consumers. The product/service could either be a

cash crop or production surplus to their needs. Need to remove middlemen who exploit them. Members also need improved and efficient services in the product/service they obtain

from their society.

The following factors are important in the marketing of a cooperative product. Marketing finance Pricing Processing, packing and transportation.

Special needs of marketing in cooperative societies

i) Honesty, well trained, trustworthy, businessmen, experienceii) Many cooperative societies result to the following means of marketing their

products. Federal , national or district cooperative marketing Marketing boards

SummaryThe chapter identified the various objectives of the finance function.

In the chapter we also discussed the basic pre-requisites of a sound

financial management function in a cooperative society. We found

out that just like an ordinary business enterprise the cooperative

organization needs to make financial decisions based on sound

financial management principles. For example the decisions must be

based on the principles of net present value (npv) the internal

financial rate of return ( ifrr) and the cost benefit analysis. But

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because of the special nature of cooperative societies, for example

that they are formed by people of humble backgrounds and that they

have both social and economic objectives there is need even to be

even more strict in the application of the basic financial management

principles. In particular emphasis should be made on cost benefit

analysis rather than ifrr. Several differences were also cited between

the financial system of cooperative organization and the other

business enterprises.

In the case of the marketing function, we defined the marketing

concept and discussed the reasons why cooperatives need well

trained and experienced marketing managers. We ended the

chapter by explaining that cooperative societies market their

products either through federal, national or district cooperative

organizations. They can also use marketing boards established by

government. These methods help the cooperative societies benefit

from economies of scale.

Activity

i) Discuss the basic pre-requisites of a sound financial

management function

ii) In which ways does the financial function in a cooperative

enterprise differ from that of a business?

iii) What are the special features and needs of a marketing

organization in a cooperative organization?

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References International Labour Organization: “A

Workers Education Manual”.

======================= END OF CHAPTER SEVEN =========

CHAPTER EIGHT THE STATE AND THE COOPERATIVE MOVEMENT

LECTURE OUTLINE8.1 Introduction8.2 Lecture Objectives8.3 The Early Period8.4 Government Treatment of Cooperatives

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8.4.1 As any other organization8.4.2 As a vehicle of progress8.4.3 As an economic organization8.5 Advantages of Government involvement in the cooperative

society8.6 Disadvantages of Government involvement in the cooperative

society.8.7 Principles/ guidelines of Government involvement in the

cooperative societies8.8 Summary.

8.1 Introduction Welcome to lecture eight. In the last lecture we discussed both the financial and the marketing functions in a cooperative enterprise. We also presented the prerequisites of a sound financial management function in a cooperative society. We were also able to explain how marketing is done in cooperative societies. In this eighth lecture we are going to explain the various ways governments can treat the cooperative movement. We are also going to discuss the advantages and the disadvantages of government involvement in the cooperative societies and propose some principles or guidelines to follow when governments get involved in cooperative societies.

8.2 Lecture Objectives At the end of this lecture, you should be able to: 1. Explain the three ways governments can treat the cooperative

movement 2. Discuss the advantages and the disadvantages of government

involvement in the cooperative movement 3. Propose guidelines to be followed when governments involve

themselves in the cooperative movement

8.3 The Early Period In the early days of the cooperative movement, and for quite a long period thereafter, the state ignored and then underestimated the cooperative institutions, sometimes even regarding them with a kind of suspicion, which the cooperative institution heartily reciprocated. In the 18th and the 19th centuries during the beginning of the cooperative movement, the state completely ignored the cooperative institution and regarded it as an opposition to its governing principles. The cooperative principles were in contradiction to the principles of capitalism and free market system. In Kenya during the colonial times

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the government almost completely ignored the cooperative institution except in the general advancement of the settler community. Even then, at least in the early years, the cooperative institution was left completely free of government control and legislation, and was largely in the hands of the cooperators. In the case of Kenya, this freedom from government interference made the cooperators manage their institutions in the best way possible, and the Kenyan cooperative societies had their most successful periods. This was the period when cooperative institutions such as the K.C.C, K.F.A and the KPCU achieved their apex.

In recent times however, the mutual interrelationship and in some cases interdependence between the state and the cooperative movement has been recognized. The interrelationships and interdependence however depends on the country, the state of development reached by the country and the cooperative movement and the vicissitudes of economics and politics existing in each country.

8.4 Possible Ways Government can treat The Cooperative MovementIn general the Government can treat the cooperative movement in the following three different ways:

8.4.1 Treating the cooperative institution like any other The state only introduces a legislation under which all the institutions in the country should be registered, run, and operated. Other issues covered in this aspect include regulation of prices, taxation, and others, as they relate to all the institutions in the country. The cooperative society is treated like any other enterprise. No special legislation is made for the cooperative societies.

8.4.2 Treating the cooperative institution as a vehicle of progress. The state here recognizes the crucial role which the cooperative movement can play in improving the standards of living of the more underprivileged members of society, through increasing productivity especially in agriculture. Those countries which seek to increase the standards of living of the lower classes of society encourage and facilitate the development of cooperative societies. The following are some of the ways that are practiced in “progressive” states, (i.e. countries which use the cooperative institution as a vehicle of progress)

Education and training: the state undertakes the teaching of cooperation in public educational institutional establishments, as a way of creating awareness of the importance of cooperation in society. The state can also promote and finance research on cooperation to advance the knowledge on the subject. The state could also provide information and education material on cooperation through publications.

Technical aid: in some countries the state sets up active cooperation departments in the governmental machinery, specifically to disseminate the principles and rules of cooperation, assisting in the establishment of cooperative societies and even helping to run them and manage them until they have taken off. In some

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cases, government officers, train, advice and even supervise the cooperative society’s staff members.

Financial aid: financial aid can take many forms e.g. Tax exemptions. This is usually done in the early years of the formation of

the cooperative society, or for some specific sectors of the cooperative movement e.g. agriculture, housing etc.

Subsidies. In this instance governments shoulder some responsibilities of the cooperative movement e.g. education, agricultural inputs or services such as provision of storage capacity

Loans and / or guarantees. Here governments may give “soft” loans to the cooperative societies or guarantees their loans from banks.

Tenders. Here governments may give favorable consideration to tenders for goods and services submitted from cooperative societies.

Writing off of loans: borrowed by the cooperative sector.

However, financial aid may sometimes be disadvantageous to the society since it may be a threat to their independence and if it is unduly large, as a danger to the initiative and responsibility that are prerequisites for cooperative action. Consequently, financial aid from the state should only be accepted by the cooperative society if

i) It is moderate in amount ii)It is limited in duration iii) It is subject to definite conditions which do not include limiting the independence of the society.

Overgenerous state aids to cooperative societies may result in the following risks:i) Threat to their independence in - decision making - staff recruitment and promotion - mode of operation - sourcing of their raw materials - marketing of their products ii) Hinders initiative and development potential of the members and staffiii) Promotes a dependency attitude which may lead to the collapse of the society, once financial and is not forthcoming iv) Reduces the responsibility of the society to practice and promote the principles of democracy and others, which is a prerequisite for cooperative action.

8.4.3 Treating the cooperative institution as an economist organization Over the years, both in developing and developed countries, the cooperative movement has become a significant economic power in its own right. Thus, the state, in its efforts to promote economic development cannot fail to interact with the cooperative sector. On the positive side the state can use the cooperative movement to promote rapid economic growth, and on the negative side, the state can cripple the economic status or region through improper interference with the cooperative movement In progressive

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countries, the mutual collaboration between the state and the cooperative sector towards promotion of economic growth can be in the following ways; (among others).

a) Representation and consultation with cooperatives Cooperative organizations are represented in important economic policy formulation and implementation committee’s e.g. planning commissions, price control committees etcb) Assignment of public utility function to cooperatives. The following functions

are some of the areas where cooperatives can be given responsibility by the state.- distribution of credits to agriculture and fisheries - construction of workers houses - collecting and marketing of agricultural produce - importing or exporting of essential agricultural commodities - importing and distribution of essential consumer goods

8.4.5 Advantages of government involvement in the cooperative society i. giving direct support in education and training

- educating the cooperative principles through public educational institutions - publishing cooperation education materials and disseminating them throughout

the country - establishing cooperation education institutions

ii. giving technical aid in the management, administration, and even formation of cooperative societies

iii. giving direct and indirect financial aid to cooperative societies in such forms as - tax exemptions - loans and guarantees- favorable consideration tendering for supply of government goods - subsidies

iv. Including cooperative movement representation in top economic policy making and formulation bodies such as economic planning commission. Hence the views of the cooperative movement can be considered in the countries’ economic policy

v. Using the cooperative sector as a vehicle of economic development through giving it responsibilities in such economic activities as - distribution of agricultural credit - construction of workers houses - importation or exportation of essential - importation and distribution of essential consumer goods

vi. Creating a ‘good environment’ through favorable economic, regulatory and political environment.

8.4.6 Disadvantages of Government involvement in the Cooperative societiesGovernment involvement in the cooperative organization leads to dependency attitude on the part of the cooperative society which can lead to lack of creativity and innovation. This can lead to poor performance of the cooperative enterprise. Government

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involvement also leads political interference which can lead to poor adherence to the basic principles of cooperative societies. Government involvement in the affairs of the cooperative society is also clearly in contradiction with the principle of cooperative independence. .

8.4.7 Principles/ Guidelines for Government involvement in the cooperative societiesThe following principles should guide any involvement by the government in the affairs of the cooperative societies.

i) The involvement should be specific and clear such that if it is financial assistance the extent and terms of the financial assistance should be clearly specified and in writing.

ii) The involvement should not interfere with cooperative right of independence to make decisions on its own by the AGM.

iii) The nature of assistance should be of short duration and should be geared towards making the cooperative society independent.

Summary In this chapter we have discussed the various ways the state can

treat the co-operative movement. We have identified three ways in

which the state can treat the co-operative movement namely: as any

other business organization, as a vehicle of progress and as an

economic organization. When the government treats the cooperative

enterprise as any other business enterprise it means that there is no

special law dealing with cooperatives. They are regulated under the

same law that governs other businesses, When government treats

cooperatives as a vehicle of progress it means that cooperatives are

regulated under a specific law. They are treated as tools of assisting

government achieve its developmental goals. They are given special

support such as financial technical and other forms of assistance.

When they are treated as economic organizations government

regards cooperatives as strong well managed institutions needing no

special support. In fact the government recognises the important role

the cooperative movement can play in assisting government to

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formulate and implement policy but also in undertaking some

specific programs such provision of utilities such as water and

electricity but also distribution of credit and other inputs to develop

agriculture and industry.

In the chapter we have identified the adverse consequence of

overdependence of cooperative society on government support and

proposed some principles that should guide state financial support to

cooperative societies.

Activity

i) Discuss the possible ways the state should treat its cooperative

societies.

ii) Propose the best way the government should treat the

cooperative movement using supporting evidence from Kenya’s

experience during the 20th century.

References International Labour Organization: “A

Workers Education Manual”

================= END OF CHAPTER EIGHT =====================

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LECTURE NINE COOPERATIVE EDUCATION

LECTURE OUTLINE9.1 Introduction 9.2 Lecture objectives9.3 Importance of Cooperative Education9.4 Inseparability of cooperation and education 9.5 Subjects taught in the cooperative education9.6 Stages/phases in training co operators9.7 The importance of teaching cooperative education in the various

levels of the public education system

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9.8 Summary.

9.1 Introduction Welcome to lecture number nine. In lecture number eight, we explained the three types of relationships possible between the state and the cooperative societies. We started by explaining how at the beginning of the cooperative institution the state treated the cooperative institution. The government treated the cooperative as any other business organization. The government liked it that way and so did the cooperative. The cooperative prospered. In this lecture we are going to discuss the principle of cooperative education. We shall discuss the importance of cooperative education and explain that cooperation and education are inseparable. In addition we shall discuss the subjects that should be taught to the various parties and the justification of teaching cooperative principles and benefits to the various levels of a country’s public education system.

9.2 Lecture Objectives At the end of this lecture you shall be able to: 1. Explain the importance of cooperative education 2. Explain that cooperation and education are inseparable 3. Identify the subjects taught in the cooperative education 4. Explain the importance of teaching cooperative education at

the various levels of a country’s education system.

9.3 Importance of cooperative education Cooperative education, training and information is one of the international principles of cooperatives. Education is important in the cooperative movement because:

The movement deals with common people with limited knowledge and resources. Generally, these people lack knowledge not only of the basic principles of cooperation, but also of the benefits associated with cooperation. In addition, they lack knowledge of basic business management principles, finance, marketing, production and even human resource management. Therefore such people need to be given basic knowledge on.

o benefits of cooperationo principles of cooperation o Basic (elementary) business administration.o Expectations, responsibilities rights etc

Committee members and staff who are required to guide and to know not only what the ordinary members knows ( see (i) above) but they also need to have basic knowledge on their area of responsibility and a more advanced basic knowledge on management , business administration, accounting, marketing etc.

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The society at large need to have knowledge on the principles and benefits of cooperation not only to understand them in case they join the cooperative society, but also if they do not join , they can appreciate, assist and tolerate a cooperative society in their midst.

Policy makers, political leaders and administrators require to have a basic knowledge on the basic principles and benefits of cooperation, so that while carrying out their responsibilities, they can promote the welfare of the cooperative enterprise.

The society, the members, the committee members, management and staff, and the policy makers need also to understand that, although the cooperative institution is primarily established to benefit its members, its overall objective is to benefit the entire society. Its success and sustainability depends on how knowledgeable the entire society is regarding all aspects of cooperation and its management.

Education should also instil in the society at large, the fact that a cooperative movement is not a mere commercial system, but it is also a movement of ideas, a new concept, and a new organisation of human relationships that preaches equality, equity, democracy and commonness of needs and ideas and interrelationships, and the interdependence between the individual and the social interest.

Education should also instil its members the knowledge motives and abilities that will make them into real co-operators who will assist in the joint enterprise and make them conscious not only of their collective interests, but also the moral ties and freely collective responsibilities which unite them to their fellow members.

The education will also instil in members that they are members not only of their cooperatives society but also of an international movement that unites all peoples of every race, creed, religion, political affiliation for their mutual benefits and interests.

The education also instils in members the feeling that their cooperative society is not an organisation set up independently of them to serve their needs, but rather it is a business that belongs to them and depends on them for its efficiency and prosperity.

The importance of cooperative education was expressed by Elldin. In a paper he submitted to an international conference on cooperation he said “If we had occasion to start our movement afresh and if we were given the choice of between two possibilities that of starting without capital but with enlightened membership and staff or on the other hand that of starting with a large amount of capital and ill informed members our experience would incline us to choose the first course” those words are quoted from a paper “the importance of education and the cooperative movement “ This paper was submitted to the international conference on cooperative education in 1946. Mr. H. Elldin, was a representative of the Swedish cooperative movement. It is not only in the

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younger societies that education is essential. It is no less essential in an old established society. Indeed it becomes more so as the society grows in membership and complexity. The cooperative spirit indeed needs to be constantly kept on the alert. It is liable to weaken among members who are over inclined to rely on the efforts of others contributing nothing of their own or when business seems to be flourishing and there is the temptation to let it flourish on its own; or again in time of difficulties which gives lukewarm members an excuse for disloyalty and even desertion or lastly if there is friction between the various authorities of the cooperative society or in their own ranks. Thus education in the cooperative is essential and is part and parcel of a prosperous cooperative movement.

Consequently education not only of members and staff of cooperative societies but also of the entire society is inseparable from the concept of cooperation so that the cooperative society can prosper both for the benefit of members and staff but also of the society as a whole. Thus, although a cooperative society is an institution that is primarily established to benefit its members its overall objective is to benefit the entire society. Its success and sustainability therefore depends on how knowledgeable the entire society is regarding all aspects of cooperation and management.

9.2 Inseparability of cooperation and educationEducation and cooperation are inseparable because:

i) Cooperative societies deal with common people (wananchi not wenyenchi ) generally these people lack knowledge and education.

ii) Committee members need education in order to perform their work efficiently.iii) Society at largeiv) Policy makers

9.3 Subjects taught in the cooperative education .The subjects taught are very numerous and necessarily vary according to the students’ general level of education, and the duties they perform or will be called upon to perform either within the cooperative society or the cooperative sector or on government machinery dealing with cooperative societiesPersons who occupy, or who are destined to occupy the highest positions in the movement are taught (or must be versed) in the history, theory and practice of cooperation. They also need to have certain auxiliary branches of knowledge concerning mankind such as psychology, sociology, political economy etc.Each person requires a special type pf professional training depending on his/her position in the cooperative society e.g.

- committee member - manager- accountant - secretary- clerical officer - casual labourer- propagandist - etc

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Without neglecting the strictly academic nature of training, training in the cooperative movement should conform as closely as possible with actual conditions in the cooperative society, for example, students of a consumer cooperative society gain experience in shop keeping and management or students from coffee processing and marketing cooperative societies should have first hand knowledge in the actual processing and marketing of coffee.The teaching given in classes is frequently illustrated and supplemented by visits to cooperative societies to gain firsthand knowledge on the various aspects of cooperative society’s management.In cooperative colleges, cooperative training occupies a significant position in the syllabus. In the early 1960s the training of cooperation contained the following proportions in the syllabus of the various cooperative colleges:

Kenya 64%India 41%Ceylon 33%Bombay 33%

9.3 Subjects taught in the cooperative movement (1) The membersMembers should be taught:

principles , benefits and rules of cooperation basic management principles of accounting, financial, marketing

2) The management committee and managers In addition to what is taught the members the management committee are taught

more about cooperative movement- history, theory etc advanced management principles, functions

Managers are taught their professional areas e,g marketers, accountants, engineers etc.

3) The society / community These are taught

basic principle , and benefits of cooperative societies

(4) Policy makers In addition to being taught the subject mater in 1 and 3 policy makers are also taught economics, political science, history etc. They also need to have other auxiliary branches of knowledge concerning mankind such as, psychology, sociology political economy, and economic development.

Therefore the subjects taught in cooperative education are:

Very numerous Depends on the level and needs of each person

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Designed to take into account the special needs of both the cooperator and the cooperative society

Supplemented by visits to relevant cooperative societies

9.4 Stages in training of cooperators The following are systematic steps followed in training of cooperators:i. Publicity: the immediate aim of publicity is to attract customers

and users to the cooperative undertaking ii. Propaganda: propaganda does more than publicity. It recruits

members for the cooperative society.iii. The cooperative education proper. This stage involves training

of members who have joined the cooperative movement to become more enlightened, educated and active cooperators,.

9.4.1 Purpose of propagandaThe purpose of propaganda is to disseminate general ideas and aims of cooperation to awaken interest, create an atmosphere, and win over part at least of public opinion.

Nature of propaganda The natural tendency of propaganda is to stress the immediate advantages to be derived from membership in a cooperative society. This is a natural tendency for a movement that seeks to attract membership. However, for the cooperative movement, there is need to make it quite clear to the members that to obtain the advantages, one must work for them and accept certain risks and certain responsibilities.

It must be accepted that a warning of this sort will keep away the skeptics, and those who seek personal advantage at the expense of the efforts and the sacrifices of others. But there is no room for the skeptics and the greedy, in the cooperative movement. The two types would be the best agents to run down the cooperative society. Therefore, keeping them out during the early stages is not to be regretted but rather should be desired and encouraged. Cooperation is a fragile thing and requires people of anticipation who are determined to sacrifice effort and resources to get things done. Thus, the work of cooperation, though it tends to be the work of the greatest number, cannot but be the work of the chosen few at the beginning.

It is the function of the cooperative movement to provide mankind with a firm ladder leading from self-interest up to the highest form of social interest (and therefore disinterested conduct). Real cooperative education is that which aims higher than the mere recruitments of loyal customer, one which urges a man to climb the intermediary steps by which the movement unites the individual’s interest and the collective interest.Cooperative is born and grows more easily in a favorable atmosphere than in one of hostility. However, it is important to emphases that cooperative thrives more sturdily in an environment of struggle than in one of indifference. Therefore although propaganda should not necessarily be of an aggressive character, circumstances may compel it to be combative.

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However, whatever the circumstances cooperative education calls for continuity and in exhaustible patience.

9.4.2 Importance of teaching the principles of cooperation at various levels of the public education system

Universities Universities are the training grounds for a large number of the future leaders of the nation and it is important that this elite – key men in government, politics, lawyers, economists, educators, scientists etc. should acquire knowledge of the cooperative movement, its aims, benefits, needs, achievements, etc. which will at least enable them to recognize cooperation , so that when they come across the movement they can at least recognize it and deal with it with due regard to its distinctive nature, and which will give them the ability to think positively about them not merely in terms of government department or limited company , but also in terms of cooperation.

For this reason, must universities in the developed world have a regular course on cooperation in their curricula? The emphasis laid on this cooperation course varies from place to place. It is also of varying length (as long as four years in some universities in Canada). It is either optional or compulsory, and it may or may not be an examinable course. In some cases it could be a full degree course.

Aside from actual classroom teaching, several Canadian and United States Universities offer cooperation principle coursed directly to farmers, fishermen and sometimes industrial workers. Using various methods e.g study circles, evening courses, correspondence courses, amplifiers, films etc, these universities train outsiders on basic principles and benefits of cooperation. This has led to an upsurge in cooperation among all sorts of groups of people. The obvious results are the great economic benefits in those countries.

Technical colleges Cooperation education could also prove useful to students of technical colleges because these are the professionals who will inculcate the cooperation principles to the population they are going to serve on completion of their technical training. That is, when they are providing professional services to the people, they can also teach cooperation principles, and practice them.

Teachers training collegesExperience shows that teachers, through the fact of being scattered all over the country, through their knowledge of the people and the environment in which they live, through the prestige they usually enjoy, and through their practice in sharpening peoples wits, and inculcating new ideas, can be most effective in disseminating knowledge, principles and benefits of cooperation. For this reason, cooperation education has been introduced in teachers training colleges in many progressive countries of the world.

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Schools Young people in schools have sharp minds, inquisitive, eager to learn and understand new ideas. Young people are also likely to pass new ideas they learn in school to their parents with the result that intelligent parents interested in the learning of their children will learn a lot from them, even unconsciously. Young people also need to know about all the institutions that go to make up a modern society including the cooperative institution for they will have to decide during their time the type of institutions they will want to promote and develop.

In most of the United States and Canada cooperation education is taught in primary and secondary schools:The training of cooperative education in primary and secondary schools is covered out in different ways depending on the ages of the pupils. In the very young ones, pictures and stories will create their interests and make a lasting impression on their imaginations. In higher classes the principles of cooperation are embodied in economic and history lessons.

Cooperative youth movement In some developed countries e.g. Britain and Canada, the cooperative movement organizes young people into cooperative youth movements where young people are provided with opportunities to develop and instill in them the cooperative spirit, and the cooperative approach to thought and action. They are encouraged by means of activities, to train and form the habit of self government and discover the importance of cooperation as a way of life. Students are encouraged to hold youth camps and excursions, where they are encouraged to practice basic cooperative methodologies during their camping or excursions.

Student or school cooperatives Young people are encouraged to set up and manage their own cooperative societies for their own requirements and to the extent of their own abilities. In Canada and the United States, students are encouraged to form cooperatives to address their problems of accommodation, food and books and familiarize themselves with the machinery of cooperation. Young cooperators in those countries learn not only practical economics, but also the workings of democracy and the value of responsible action and mutual assistance.

Summary In this chapter, we have explained the importance of cooperative

education to the cooperative movement. We have argued that

cooperative education is important to the cooperative society’s

workers, and even non members. In addition cooperative education

instils in society at large, new ways of life, a new form of human

relationships that preaches equality, equity, democracy and

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commonness. It preaches a new way of life that feels to improve

society to a higher level. Furthermore education instils in members

the feelings that their cooperative society belongs to them and

depends on them for its efficiency and prosperity. We have also

discussed the various methods of disseminating cooperative

education, and explained the importance of teaching cooperative

education at various levels of the public education system.

Activity

i) Discuss the claim that cooperative society and education are

inseparable.

ii) Discuss the various stages of disseminating cooperative

education.

iii) Justify the teaching of principles of cooperation at the various

levels of Kenyans public education system.

References International Labour Organization: “A

Workers Education Manual”

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CHAPTER TEN SOME IMPORTANT LEGAL ASPECTS OF THE KENYAN COOPERATIVE SOCIETY

LECTURE OBJECTIVES10.1 Introduction10.2 Lecture objectives10.3 Registration procedures10.3.1 Qualifications for registration 10.3.2 Provisional Registration10.3.3 Privileges of registered societies10.4 Rights and duties of members10.5 Duties of the Cooperative Society10.6 Meetings of the Cooperative Society10.7 The Surplus in a Cooperative Society10.8 Management of Cooperative Societies10.9 Amalgamation and Division of Cooperative Societies10.10Charges by Cooperative Societies10.11Disputes and disputes settlement in cooperatives10.12Summary.

10.1 Introduction Welcome to the tenth lecture in this course unit. In the last lecture we discussed the concept of cooperative education and discussed its importance. We noted that cooperation and education are inseparable. We also discussed the subjects taught in cooperative education and the phases in which it is taught. We further discussed the importance of teaching cooperative education in country’s public education system. In this tenth lecture in the series, we discuss some key areas about cooperative societies covered by 1997 Cooperative Societies Act. We shall discuss such areas as registration procedures, rights and duties of members, meetings of a cooperative society and surplus and dividends of a cooperative society. We have also discussed amalgamations, charges, and disputes in the cooperative society.

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10.2 Lecture Objectives

At the end of this lecture you should be able to:

i) Explain the procedures to be used in registering a cooperative society

ii) Identify the privileges of a cooperative enterprise

iii) Discuss the duties and rights of a registered cooperative society

iv) Discuss what the law says about surplus, dividends, amalgamations, charges and disputes in a cooperative society

v) Justify why the law should cover those areas

vi) Explain how the law should treat some of the areas it has covered

10.3 Registration procedures1) An application to register a society shall be made to the registrar in the prescribed form and be signed by.i)In the case of a primary society by at least ten persons qualified for membership of the society under section 14. This section 14 stale that a person other than a cooperative society shall not be qualified for membership of a cooperative society unless:

(a) He has attained the age of 18 years(b) His employment, occupation or profession fall within the category or description

of those for which, the cooperative society is formed.(c) He is resident within or occupies land within the society’s area of operation as

described in the relevant by law.

ii) In the case of an apex or secondary society by a member duly authorised in that behalf by each of the cooperative society, or cooperative union.

2. The application shall be accompanied by four copies of the proposed by laws of the society in English, and the person or persons by whom or on whose behalf the application is made shall furnish such information with regard to the society as the registrar may require.

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3. If the registrar is satisfied that a society has complied with the provisions of this act and any rules made there under, and that its proposed by-laws are not contrary to this act, and any rules made there under he may register the society and its by-laws under this act

10.4 Provisional registration1. If the registrar is not satisfied that a society has complied with this act, and any rules

made there under or he is not satisfied that its by laws conform with this act and any rules made there under, and is of the opinion that steps can be and will be taken with diligence by the persons by whom or on whose behalf the application for registration is made to comply with this act and the rules made there under or to make the by laws conform as aforesaid, the registrar may in his discretion provisionally register the society for such period not exceeding one year and subject to its compliance with such terms and conditions and provision as the registrar may specify in writing to the persons by whom or on whose behalf the application for registration is made.

2. A provisional registration shall subject to this section, and to any terms or conditions specified by the registrar under subsection (1) entitle the society to operate as a cooperative society and such society whilst so entitled to operate shall be deemed to be a body corporate with perpetual succession and a common seal and with power to hold movable and immovable property of every description to enter into contracts, to institute and defend suits and other legal proceedings and to do all things necessary for the purpose for which it is constituted and subject to the provision of this act, any reference in any written law to a cooperative society, shall, unless the context otherwise requires, include a reference to a society which is provisionally registered.

3. A society which is provisionally registered shall cause the fact that it is provisionally registered to be stated in legible Roman letters in all billboards letter papers, notices, advertisements and other official publication of the society and on a sign board in a conspicuous position outside any premises in which it operates.

4(a) The registrar may for good cause cancel the provisional registration of a society by

notice in writing addressed to the society, specifying the reasons therefore and such cancellation shall operate as a refusal to register the society, and the society shall, from the date of the service of the notice, cease to be a registered cooperative society

(b) At the end of the period specified by the registrar under subsection (1) a society if it has not been registered in the mean time, shall cease to be a registered cooperative society.

(c) Where a society ceases to be a registered cooperative society i) The registrar may appoint a competent person to be the liquidation of the society.ii) The validity of any transaction entered into by the society during the period of

provisional registration shall not be affected thereby.

5 At any time during the period of provisional registration of a society the registrar, if he is satisfied that the society has complied with this act and any rules made there under and that its by laws conform with the requirements of this act, and rules made there under, may register the society under section 5 and therefore

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such society shall be deemed to have been so registered on the date of its provisional registration and thus section shall cease to apply to such society.

6 Where a society which has been provisionally registered under this section contravenes subsection (3) the society and every officer or person who purpor5ts to act as an officer, of the society shall be guilty of an offence and shall be liable to a fine not exceeding five thousands shillings, or in the case of a continuing offence to a fine not exceeding five hundred shillings for each day during which the offence confirms

10,5 Qualifications for registrationThe following are the qualifications for registration as a cooperative society.1. The society which has as its objectives.

The promotion of the welfare and economic interests of its members2. Has incorporated in its by –laws the following cooperative principles i) Voluntary and open membership ii) Democrative members control iii) Economic participation by members.iv) Autonomy and independence v) Education training and informationvi) Cooperation among cooperativesvii) Concern for community in general.

3. In the case of a primary society consists of at least ten persons all of whom shall be qualified for membership of the cooperative society under section 14.

4. In the case of cooperative union consist of two or more secondary societies.5. In the case of an apex society, consist of two or more secondary societies.6. An application to register a society shall be made to the registrar in the prescribed

form and signed.7. No society shall be registered under a name identical with that under which any other

existing society is registered or any name likely in the opinion of the registrar, the mislead the members of the public as to its identity.

8. The word “cooperative” shall form part of the name of every cooperative society and the word “limited” shall be the last word in the name of every cooperative society having limited liability.

Evidence of Registrationi) A certificate of registration or of a provisional registrations signed by the

registrar shall be conclusive evidence that the society there in mentioned is duly registered or provisionally registered, unless it is proved that such registration of the society has been cancelled or has been terminated.

ii) The certificate of registration leaving the number and date of registration shall be displayed at the head office of every cooperatives society.

iii) Every cooperatives society shall publish particulars of its registration in the Kenya gazette.

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iv) A copy of the by laws of a cooperative society or of an amendment of such by laws certified by the registrar shall be prima facie evidence for all purpose of the registration of such by laws or such amendments.

5 A document purporting to be signed by the registrar shall be presumed to have been signed by him until the contrary is proved.

10.6 Privileges of registered societies1. Upon registration, very society shall become a body corporate by the name under

which it is registered, with perpetual succession and a common seal, and with power to hold movable and immovable property of every description, to enter into contracts to sue and be sued, and to do all things necessary for the purpose of or an accordance with, its by laws.

2. The by laws of a cooperative society shall, when registered find the cooperative society and the members therefore to the same extent as if they were signed by each member and contained covenants on the part of each member for himself and his personal representatives to observe all the provision of the by laws.

10.7 Rights and liabilities of members 1. The rights of a member The act states that no member shall exercise any of the rights of membership unless he has made payment to the society in respect of membership or has acquired an interest which the act or the by laws of the society may provide. Thus a member should pay all his dues in respect of membership before he can assert his rights.

2. It is obligatory for the laws of the society to set out he rights and obligations of members.

3. The following are the rights of members.(i) The right to attend meeting and to vote.

Every member has a right to attend the general meetings of the society and to vote on all matters. Unless the act rules and by laws provide otherwise, any questions referred to the members present at a meeting must be decided by a majority of votes.It should be noted however, the practical exercise of this night is put into jeopardy by the growth in membership of most co-operative societies. Due to the very large membership, it is virtually impossible to participate personally at general meetings.In very large cooperative societies, the electoral process provides that general meetings he attended by delegates representing branches. These delegates represent members at annual general meeting and vote on their behalf.

(ii) The right to elect a committee and to be elected.A member has a right to elect members of the committee. He also has a right to be elected to be a member of the committee must be elected, suspended or

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removed only by a decision of a majority of members of the society present and voting at a general meeting.However, a majority of the whole committee has the power if for a good cause, to suspend one of its members but the suspension must be confirmed by the general meeting of members.

(iii) The right to be informed.It is a statutory duty of every registered society to keep at this office a copy of he cooperative societies act, rules and by laws, and a list of members open for inspection by any person free of charge. A member and any creditor of the society has the right to inspect copies of those documents and any other document creating charges and a register of charges, which the society is duty bound to keep open during business hours.This might however, presuppose a member who can read and understand the English language.

(iv) the right to demand for a special general meeting the elected committee of the society or the commissioner or his representative have a duty to convene an annual general meeting each year within one moth the of the date of receipt of the audited accounts of the society. a member has the right, as part of a member of members specified in the by laws, to demand that the committee convene a special meeting. If the committee fails to hold the special general meeting within 14 days of receiving the demand for the meeting, the members have the power to convene the meeting themselves . All demands to hold the meeting, must however be accompanied by reasons for and objects for calling the meeting is especially important when there are allegations of mismanagement.The demand for the meeting must be in writing outlining the reasons and objects of the meeting. It must be signed by the number of members specified in the by-laws.The committee is duty bound to hold the meeting on receipt of the demand. If it fails to do so, members should either organize it with the assistance of the cooperative officer or request the commissioner to convene it.

(v) The right to request for an inquirya member has a right with other members forming not less than one third of the members present and voting at a meeting of the society to request the commissioner to hold an inquiry or direct some person authorized by him to hold an inquiry into the by-laws, the working and financial condition of any registered society.

(vi) The right to use the facilities of the societyA member has a right to use the facilities of the society. This is why he forms the society in the first place.

(vii) the right to apply for the dissolution of he society

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a member has the right , as one of the members forming at least three quarters of the members of the society to apply for the dissolution of the society.

(viii) the right to financial benefits dividends and bonuses A member has the right to get financial benefits, bonuses, and dividends resulting from the society’s activities.

(ix) the right to appoint a nomineea member has a right to appoint a nominee to inherit his share or interest in society upon his death.

(x) the right to transfer shares a member has the right to transfer his shares or interest in the society subject to the act, rules and the by-laws. The following condition exist in the case of a society with unlimited liability, a member must not transfer or change his shares or interest in the capital, unless he has held such a share or interest for at least one year and the transfer or change is in favour of the society or a member of the society.

Duties of members (1) duty to follow cooperative by-laws and decision

Each member must follow the cooperatives by laws; each member must also follow the decision of the cooperative as long as those decision of the cooperative as long as those decisions are in the worth by-laws.

(2) duty to contribute to the cooperatives capital Each member must buy shares the cooperative and pay the entire cooperative, and pay the cooperative the value of the share, or make any other payments that have been agreed upon all the by-laws.

3) Duty to help meet debts if the cooperative goes bankrupt.Each member must follow all of the rules about help roof the cooperative pay off its debts if it goes bankrupt.The rules are difficult for a cooperative with limited liability and a cooperative with unlimited liability. If the cooperative has limited liability, each member is liable to pay only for the shares he /she holds unlimited liability means that there is no limit to the financial responsibility of each member. If the cooperative is in debt for more than value of all its property, then the individual members have to meet the excess from their own personal assets.

10.8 Duties of Cooperative Societies (1) Official address

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Every registered cooperative society must have an official address so that the registrar can send it notices and information. The cooperative must let the registrar know within one month it its address changes.

(2) official document Every registered cooperative society must have certain documents available at its head office. These documents are:(i) a copy of the cooperative societies act(ii) a copy of any rules made under the act(iii) a copy of the cooperatives by laws(iv) a register of all the members of the cooperative

3. Duty to keep proper books account

Every cooperative society shall keep proper books of accounts which shall be prepared in accordance with generally accepted accounting principles and accounting principles and standards and which shall be necessary to give a true and fair new of the state of affairs on the society and to explain its transactions including

(a) al sums of money received and paid by the cooperative society and reasons thereto.

(b) All sale and purchases of goods by the cooperative society.(c) All assets and liabilities of the cooperative society the books of

account shall be kept at the registered office of the cooperative society and also at such other place as may be determined by the cooperating society and shall at all times be available for inspection by any member of its supervisory committee and the auditor.

4. Duty to have the accounts audited It shall be the duty of the even cooperative society to cause its accounts to be audited at least once every year by an auditor appointed at an annual general meeting of the society held three months before the end of the financial year. The audited accounts shall include:

(b) balance sheet(c) a surplus and loss account(d) cash flow statement

And shall be approved by the members of the committee and authenticated by at least three office bearers including the treasurer.

5. Duty to produce books and other documents Any officer, agent, servant or member of a cooperative society who is required by the registrar or by a person authorized in writing by him so to do, at such place and time, as the registrar may direct, produce all moneys, securities, looks, accounts and documents belonging to or relating to the affairs of such society which are in the custody of such officer, agent, servant or member.

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10.9 Meetings of Cooperatives

The first general meetingA cooperative society must hold its first general meeting not later than one month after it receives its certificate of registration.The members must do the following things at the first general meeting.

Elect officers of the coming year Decide on the maximum borrowing powers of the cooperative society Approve estimated income and expenses for the coming financial year, or at least

for the immediate future. Appoint a bank an advocate and an auditor for the cooperative. Consider any reports presented and make any other decisions which are necessary

for the cooperatives business.

Annual general meetings The MC must convene an annual general meeting (AGM) each year, within one month of the date when the MC receives the auditors report. All members must be given at least 15 days notice of the AGMThe members must do the following things at each AGM.

Consider and confirm the minutes of the last AGM and other general meetings which took place since then.

Consider reports from the MC Consider any reports from the registrar Consider the auditors report on the accounts and balance sheet of the society and

approve the account. If for some reasons, the AGM does not approve the accounts, the secretary must

inform the registrar. The registrar will examine the accounts and decide whether they are correct, the registrar’s decision in this case will be final.

The AGM must also Decide how to distribute also Decide how to distribute any available surplus funds. Elect officers for the coming year Decide on the maximum borrowing powers of the society, if necessary Decide on the management structure of the society, such as deciding whether the

society should establish branches. Take care of any other general business so long as the members have been given

the notice required by the co-operatives by laws for that kind of business. Appoint one person from a list of three people nominated by the commissioner of

the cooperative development to suspense the election of the MC. Appoint an auditor for the coming year.

The special general meeting The MC can convene a special general meeting at any time.

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All members must be given at least 25 days notice of the special general meeting and of any special general meeting and of any resolution that will be considered at this meeting. The MC must convene a special general meeting if it receives a demand for such a meeting signed by the number of members specified in the b- laws for this purpose.The demand signed by the members must give reasons fro calling the meeting.If the MC fails to act on such a demand from the members after 14 days, the members can convene the special general meeting themselves, by sending a notice to all members.

The notice must give the reasons for calling the meeting. The meeting must also explain that the MC has failed to convene the meeting. The registrar can convene a special general meeting of a cooperative at any time and direct that certain matters should be discussed.

10.10 Surplus in a Cooperative Society

A surplus is the money which a cooperative society might have the end pf he financial year after all debts are paid.A surplus is the difference between the society’s income and expenditure during a financial year.The basic principles on surplus is that when a society makes a surplus in any particular year the surplus must be shared in accordance with the cooperative societies act, and the by laws.In general, the law prescribes how the surplus is to be shared.The law requires that a certain proportion of the surplus be retained in a reserve fund. This reserve fund is to be used to meet future liabilities of the society. it should not be shared by the members.The reserve fund should devolve to another social organisation or cooperative society. This is the principle of disinterested devolution.

Reserve Fund A reserve fund is an account where money is set aside for future needs (such as unexpected expenses or expenditure) which will benefit the cooperative (such as training for the members or maintenance of equipment) Any cooperative which has a surplus from its transaction or any cooperative which could have a surplus – must have a reserve fund.One fourth of the net surplus fro every financial year must be transferred to the reserve fund.The reserve fund must be invested in ways which are acceptable for cooperatives. The acceptable investment for cooperatives funs are;

Post office savings bank Such investments and securities as are authorized for the investment of trust

funds. In shares of any other cooperative society. In any bank licensed under the banking act. In the stock of any statutory body established in Kenya In any limited company incorporated in Kenya.

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In nay other manner approved by a resolution at any annual general meeting of the society.

The cooperative may not withdraw any funds from the reserve fund without the written permission of the registrar. If the withdrawal is approved, the AGM can decide that the cooperative must try to put the same amount back into the reserve fund later on, from funds which become available.The reserve fund belongs to the cooperative as a whole. No individual member has a right to claim any specific hare of it.

Payment of dividends or promises to members What is a dividend? A dividend is a payment to shareholders of a society made out of a surplus. The payment of dividends is a common practice in companies where people buy shares in order to make profit. Since the primary aim of a cooperative is to serve the needs of its members, a cooperative should use surplus money first to improve the benefits to members, before paying dividends.

What is a bonus?

A bonus is a share in a cooperative surplus. The amount of each member’s bonus is usually based on the amount of transactions that members have done with the society during the past year. The bonus can be paid to the members in cash or by issuing bonus shares or bonus certificates.

The following regulations apply to the payment of dividends or bonuses by the cooperative to its members.1. Every society must declare the bonuses due to its members each year – but where

the bonuses are required for reinvestment by the society for capital development, or for the redemption of bonus certificate, the society shall issue bonus certificates to its members in spite of cash payments. These certificates are redeemable from a revolving fund established fro this purpose.

2. No cooperative society shall pay a dividend or bonus, or distribute any part of the surplus, without audited financial statements showing the surplus funds which will be used for this purpose.

3. A cooperative society shall pay a dividend at such rate as may be recommended by the management committee and approved by the annual general meeting of the society.

10.11 Management of cooperative societies Management committee Management Committee members are elected by members from among members of the cooperative society. The mc is the governing authority of the society subject to any direction from a general meeting of the society and by the by-laws. The MC has powers to

- Enter into contracts

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- Institute and defend suits and other legal proceedings brought in the name of or against the society.

- Do all other things that are necessary to achieve society’s objects in accordance with it’s by laws.

The MC shall also- Ensure that any payment made by cheque as been signed by such

officers as the by-laws authorize.- Be responsible for the custody of all moneys belonging to the society.

The MC shall hold regular meetings at which(a) The minutes of its previous meeting shall be considered and confirmed (b) The accounts, banks books and cash in hand shall be scrutinized and checked,

and the committee’s observation there on be recorded in the minutes.(c) Any loans due and owing to the society shall be considered and any action

considered necessary in respect of such loans shall be authorized and recorded in the minutes.

(d) Any current business shall be considered.

In the conduct of affairs of a cooperative society the members of the committee shall exercise the prudence and diligence of ordinary men of business and shall be held jointly and severally liable for any losses sustained through any of their acts which are contrary to the act, rules and the by-laws of the society or the direction of any general meeting.

Delegation of duties The MC may delegate any of its duties to an officer or officers of the society.Nothing in this subsection shall absolve the MC from its responsibility of running the affairs of the cooperative society in a proper and business like manner.

10.12 Amalgamation and Division of Cooperative Societies It is possible for two or more cooperatives to amalgamate (unite) into one cooperative.It is also possible for one cooperative to divide into two or more cooperativesIn each case, the cooperative must set fourth its intention in a preliminary resolution. A preliminary resolution must be made at a special general meting. Each member must receive a 15 days notice of this meeting including a copy of the proposed resolution A copy of the preliminary resolution must be given to members and creditors of the cooperative and to anyone else whose interests might be affected.Members must have a chance to give notice that they do not want their membership to continue under the new circumstances.Creditors must have a chance to demand payment of any debts still owed to them before the charge takes place.Other interested persons must have a chance to make objections.Three moths after the date of the preliminary resolution, there must be another special general meeting to consider the discussion along with any notices or objections. If the members want to confirm the preliminary resolution there must be a secondary resolution which takes care of these notices and objections.Members who want to be out of the society must be repaid their shares.Creditors who want repayment must be paid.

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Then the preliminary resolution can be confirmed by a two thirds majority of members present.The registrar must be satisfied that the secondary resolution is in the line with the cooperative societies act. If the registrar is satisfied, then the amalgamation or division can go ahead.If the registrar refuses to allow the change to go ahead, the decision can be appealed to the cooperative tribunal.

10.13 Charges by Cooperatives Definition of charge A “Charge” is an agreement that is signed between a borrower and a lender when the former borrows money from the later. This agreement specifies among other things.

- Conditions of borrowings e.g. interest rate, repayment terms, security for raising money or other forms of capital. .

- Assets (property) charged- Conditions for which charge crystallizes.

A cooperative society may charge its property only if the by laws specifically give it this power, and if the charge is approved by the annual general meeting.A change created by a cooperative society must follow all the laws relating to that kind of charge.There are many types of charges e.g. equitable change, Legal charge, Mortgage charge, and a Debenture A cooperative society that wants to pledge its assets as security must register the charge with the registrar. Any other interested person may register the charge with the registrar. The cooperative society is responsible for the fee of registering the charge no matter who applies to register it. If no one registers the charge with the registrar within the time period set for such charge, then the society and its officers are guilty of an offence. They can be fined up to Ksh 200 for every day the offence continues.Once the charge is registered the registrar will give the society a certificate of registration which states the amount secured by the charge. This certificate proves that the rule about registration of such charges has been followed. The registrar will record the details about the charge in a register which can be inspected by any interested person.The register contains the following details:

- the date on which the society created the charge- The amount of money secured by the charge.- A short description of the property charged.- The persons entitled to the charge.

When the debt secured by a registered charge is repaid the registrar will enter this information on the register. This notation is called a ‘memorandum of satisfaction’ because it shows that the creditors in question have been satisfied. Any member of the public can look at the register of charges at the registrars’ office, at a fee of Ksh 100 for every satisfaction.

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The society must keep copies of the official documents creating any charges against the society’s property at its registered offices.The society must also keep a register of all charges at its registered offices. This register must list all charges against the cooperative society’s property, a description of the properties charged, and the names of the persons who have rights over the property. It is a crime to leave an entry out of this register on purpose.These documents must be available for inspection by members, creditors and anyone who would like to see them. It is a crime for any officer of the society to refuse to allow these inspections to take place.

10.14 Settlement of disputes What is a dispute?

A dispute is a quarrel or a disagreement. Disputes can be referred to the cooperative tribunal by any party to the dispute, by the commissioner, by the registrar, or by any committee member or officer of the society. The cooperative tribunal is responsible for deciding disagreements concerning the business of cooperatives if they are:

i) Disputes among members, past members, or persons making claims through members past members or deceased members on one side and the cooperative, the management committee or any of the society on the other.ii) Disputes between cooperative societies

The cooperative tribunal can hear the dispute if it involves any matter relating to the cooperative societies act, the rules made under the act, or the by-laws of a cooperative.

- the referrals must be in writing - Any party to proceedings before the cooperative tribunal can appeal a decision of

the tribunal to the high court. This must be done within 30 days – the high court can extend the time of the appeal.

- The high court can Confirm the decision of the tribunal Change it in some respects Or overturn it completely It can also refer the matter back to the tribunal for further action Make other orders e.g. regarding costs and who should pay the cost of the appeal

- The decision of the high court is final

What the law says with regard to how disputes should be treated is somehow incomplete. By stating that disputes should be treated by a tribunal ignores that cooperatives are social enterprises designed to take care of members and the first point of reference with regard to dealing with disputes should be the members themselves. The law also ignores the existence of the provincial administration whose role in society is to deal with disputes among other things. In addition the need to involve technical personnel in dispute settlement should also be recognized. Finally the law should allow any dissatisfied party to appeal to the highest level of the justice system rather than limit to the high court.

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Summary In this chapter we have discussed some legal aspects of Kenyan

Cooperative Societies as spelled out in the 1997 Cooperative Societies

Act and subsequent amendments of the Act. We have looked at

registration procedures, qualifications for registration, rights and

duties by members and duties of cooperative societies.

We have further looked at what the law says with regard to

meetings, surplus, amalgamations and divisions of cooperative

societies. We have also looked at charges and disputes and dispute

settlement in cooperation societies. We have concluded by identifying

some of the weaknesses of the way the law requires that disputes be

treated.

.

Activity

i) What do you think are the consequences of registration

for a cooperative society?

ii) What rights do you think accompany membership into

cooperative society?

iii) What is a dispute and how do you resolve disputes in a

cooperative society according to the Kenyan law.

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References Kenya Government (1997) The cooperative

Societies Act

====================== END OF CHAPTER TEN ==================

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CHAPTER ELEVEN CORPORATE GOVERNENCE IN THE COOPERATIVE SOCIETY 

LECTURE OBJECTIVES10.13 Introduction10.14Lecture objectives10.15Registration procedures10.15.1 Qualifications for registration 10.15.2 Provisional Registration10.15.3 Privileges of registered societies10.16Rights and duties of members10.17Duties of the Cooperative Society10.18Meetings of the Cooperative Society10.19The Surplus in a Cooperative Society10.20Management of Cooperative Societies10.21Amalgamation and Division of Cooperative Societies10.22Charges by Cooperative Societies10.23Disputes and disputes settlement in cooperatives10.24Summary.

10.1 Introduction

Welcome to the eleventh and last chapter in this module. In the last lecture we discussed some of the major issues covered in the 1997 cooperative societies Act. We discussed what the law says with regard to registration, privileges of a registered cooperative society, duties and rights of members and the cooperative society, the surplus, the dividend, the reserve fund, the charges and the disputes in cooperative societies . in this lecture we are going to discuss the principles of corporate governance in cooperative societies.

11.1 What is Corporate Governance? 

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Corporate Governance is a concept that is currently receiving a great deal of attention worldwide in both the private and public sectors. Corporate governance can be defined as the manner in which the power of a corporate entity is exercised in the stewardship of the entity’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value with the satisfaction of other stakeholders in the context of its corporate mission. 

In broad terms, corporate governance refers to the processes by which corporate entities are directed, controlled and held accountable. Corporate governance encompasses authority, accountability, stewardship, leadership, direction and control exercised in corporations. 

It is important to point out that an effective system of corporate governance helps to facilitate decision-making, accountability and responsibility within and outside a corporate entity. Good corporate governance ensures that: 

Varying interests of stakeholders are balanced; Decisions are made in a rational, informed and transparent

fashion; Decisions contribute to the overall efficiency and effectiveness of

the organization.

11.2 Importance of corporate Governance

A country’s capacity to achieve sustainable prosperity, which is progressive economic growth and social development over a prolonged period of time, depends on decisions about the allocation, utilization and investment of resources. In the liberalized global market, a country’s capacity to create and produce wealth is closely related to the process by which corporate resources are allocated, utilized or invested. Strategic decisions about the allocation and utilization of corporate resources are the foundations of investments in productive capacities that can make innovation and economic development possible. 

Corporate decisions on whether to invest, when to invest, how soon to invest, what to produce, and whether to employ ultimately affect the incomes, employment and indeed livelihoods of the entire society. These decisions are made by or await the judgment of the Boards of corporations. The national capacity to compete in the borderless and liberalized global market increasingly depends on the competitiveness of individual corporate entities and their ability to produce goods and services that meet the test of international competition. Corporate

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competitiveness depends on the ability of Boards to apply focused intelligence to generate innovative ideas, acquire and apply knowledge and know-how to push and integrate their corporation into the competitive global market. 

Efficient corporations can only be established and developed by responsible, creative and innovative boards. Indeed, without efficient business enterprises a country will not create and produce wealth or generate employment opportunities. Without credible, stable and sustainable corporations, investors will not invest their resources into productive capacity. Without investment, business will stagnate and collapse. If there are no corporations that prosper, there will be no economic growth, no employment, no taxes paid and invariably there will be no development in a country.

1.3 Pillars on which good corporate governance is framed 

In all fields of human endeavor, good governance is founded upon the attitudes, ethics, practices and values of the society. Good corporate governance is thus premised on the following: 

That the major role of the Government is to provide a conducive and an enabling environment in which business activities can thrive. The enabling environment encompasses the legal framework which controls business activities and the effectiveness of public governance in enhancing investor confidence.

That the society, within which corporate entities operate, upholds the highest moral values and business ethics; requires accountability, legitimate representation, democracy and fairness; and demands efficient and effective use of resources.

That the license to operate granted to corporate entities by the society carries with it the important caveat that the corporate entity will be responsible, responsive and accountable to the society within which they operate.

That those entrusted with the governance of these corporate entities will act in a socially responsible manner and exercise their focused intelligence with discipline, loyalty and integrity

That those corporate entities which do not operate efficiently and effectively for the benefit of society will be sanctioned through market forces or by the Government.

For corporate entities to be efficient and productive they must apply good corporate governance practices that are framed on the following four pillars: 

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There must be an effective body, responsible for governance, which is separate and independent of management to promote:

Accountability; efficiency and effectiveness; probity and integrity; responsibility; and transparency and open leadership

There must be an all-inclusive approach to governance that recognizes and protects the rights of members and stakeholders. The corporation must be governed and managed in accordance with the mandate granted to it by the founders and the society, and take seriously its wider responsibilities to enhance sustainable prosperity. 

The corporate governance framework provides an enabling environment within which its human resources can contribute and bring to bear their full creative powers towards finding innovative solutions to shared problems.

What is the justification and purpose of these guidelines? 

Cooperatives are organized groups of people which are democratically controlled to serve their members and produce benefits for them. Therefore cooperative corporate governance is concerned with ensuring cooperative relevance and performance by connecting members, their elected representatives, management and employees to the policy, strategy and decision-making processes. 

The cooperative movement in Kenya, as in other countries aims to mobilize financial and other resources of the members, stewarding them and ensuring that they are utilized to the best advantage of the members, providing easy credit to members, and in some cooperatives, providing support in the marketing of crops or other agricultural development ventures. As recognized at independence, the cooperative movement plays a very important role in wealth creation and hence poverty alleviation. At the dawn of independence, the Government underlined the primacy of cooperatives in its development philosophy by targeting the cooperative movement for use as a tool to affect the efficiency of development activities. It saw the movement as an instrument which would make society prosperous and ensure equitable economic growth in the country. For the large part of the period after independence, the cooperative sector in Kenya thrived, and with it came development and prosperity to a good number of the populace. However, at the beginning of the 1990’s, a litany of problems, mostly mismanagement and poor governance of

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the cooperative sector saw the collapse of previously thriving cooperative ventures.  

It has been said that “Cooperatives are the most practical way of pulling resources together and accessing credit easily among low income earners.” The collapse of a cooperative society is therefore a painful experience for the members because of the loss of both their lifetime savings and an affordable source of convenient credit.  

It is therefore important that measures are put in place to stem the collapse of this very viable form of business organization. It is important to provide guidelines which seek to enhance the implementation of good corporate governance principles and practices in the cooperative sector in order to make them more effective and enable them to contribute to national development.  

The basic objectives of these guidelines are to: 

Assist individual cooperative societies formulate detailed codes of best practice which address their specific circumstances;

Excite debate and result in further evolution of better practices and procedures in cooperative societies;

Enable the Boards (Management Committees) of cooperative societies in Kenya to focus on both their performance and conformance roles in directing their respective organizations; and

Provide a governance criterion for evaluating cooperatives.

11.4 Guidelines of corporate Governance in Kenya 

11.4.1 Introduction 

The first legislation to govern the registration of cooperative societies in Kenya was enacted in 1931. The existing countrywide organizations then were registered under the new law and incorporated as cooperative societies. The first to be registered was the Kenya Cooperative Creameries (KCC) in February 1931, to deal with dairy products. The second cooperative to be registered was the Kenya Farmers Association (KFA), also in 1931, to deal with cereals. In the mid 30’s the cooperative movement started growing fast with the implementation of a legal framework. 

At independence, the government adopted a development philosophy emanating from the traditional African socio-economic lifestyle as reflected in Sessional Paper No. 10 of 1965. The paper articulated the

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role of African Socialism in development planning. The philosophy emphasized African communal lifestyle. In this development strategy, cooperatives were seen as very important tools for development. Due to this political alignment, the cooperative movement realized very rapid growth between 1964 and 1990. 

The hierarchical structure of the cooperative movement puts the cooperative unions or federations like the Kenya Union of Savings and Credit Cooperatives at the apex, the national Savings and Credit Societies like Mwalimu Cooperative Society below them, district Cooperative Societies in third place, and at the bottom come Primary/ Rural Savings and Credit Societies, which are mainly agriculture based societies. 

A 1995 census of cooperatives in Kenya showed that there was an active membership of 3.6 million people with about 2.9 million of these being in Savings and Credit cooperatives.  The turnover of the cooperative movement stood at Kshs. 19 billion. It is estimated that approximately 1.8 million people employed in the modern wage sector are members of a Savings and Credit Cooperative Societies and that at least 80% of the peasant farmers engaged in production are members of cooperative societies. By 2003, the shareholding in the cooperative movement accounted for 20% of the National Gross Savings, with Kshs. 26 billion.  

The role of cooperative societies in the economy need not be overemphasized.  Cooperative societies are important vehicles for economic growth and development globally. National economies have benefited from well governed cooperatives. The converse is true. Good corporate governance in cooperatives would lead to the realization of the objectives of the cooperative movement, which is the creation of wealth for sustained economic growth and development.  However, despite the great potential of cooperative societies as agents for national development in the country, they have performed poorly. This poor performance is attributable in a nutshell, to poor corporate governance practices by the Management committees or other bodies entrusted with the responsibility of governing the cooperative societies. There is therefore need to get the cooperative sector back on the track to sustainable prosperity.  

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. 

11.4.2 Fundamental Assumptions  

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The guidelines are based on the following assumptions: 

ii. That all cooperatives adhere to the highest standards of corporate governance that foster independence, integrity, transparency and accountability of the Board so as to safeguard the interests of the shareholders.

iii. That each cooperative strives to improve the quality of life and better the living standards of its members.

iv. That each cooperative society develops a code of best practice on the conduct of directors, senior management, employees and stakeholders. 

11.5 Code of best practice

11.5.1 Introduction

In developing these Guidelines, consideration has been taken of International Guidelines and Codes on Cooperative Governance, and adapted them to the specific needs of cooperatives in Kenya. The views of all major stakeholders in the cooperative sector in the country have also been considered. 

The following is a summary of the principles of good corporate governance in cooperative societies: 

1.5.2 Authority and Duties of Members as Shareholders 

Shareholders in cooperative societies must play their role in ensuring that their organizations are well governed. In order to do this, they must keep themselves informed about their cooperative societies so as to be in a position to make independent and informed decisions on all issues on which they are called upon to make decisions. Shareholders should ensure that they clearly understand the objects for which their cooperatives are formed so that they can effectively hold the directors the elect, to account. 

Shareholders have a duty to ensure that only competent and reliable persons, who can add value, are appointed to the Board of Directors. In addition, they must ensure that the Board is constantly held accountable and responsible for the efficient and effective governance of the cooperative society so as to achieve corporate objectives, prosperity and sustainability. 

11.5.3 Role, functions and responsibilities of the board 

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It is proposed that the Management Committees of Cooperative Societies be renamed to be known as Boards of Directors. 

The Board of Directors shall exercise all the powers of the cooperative society subject to any limitations contained in the law and the constituting instruments. The Board of Directors shall fulfill the following functions: 

Exercise leadership, enterprise, integrity and sound judgment in directing the cooperative so as to achieve continuing prosperity. In so doing, directors shall act in the best interest of the cooperative society while respecting the principles of transparency and accountability.

Ensure good corporate governance in cooperative societies. Determine their cooperative society’s purpose, values and the strategy to achieve

its purpose and to implement its values,  including the review of appropriate  technologies and skills.

Approve and review overall business strategies, significant policies and the structure of the cooperative society.

Be absolutely responsible for the performance of the cooperative society in meeting its stated objectives and obligations.

Ensure effective accountability to the regulatory authorities for proper management of the affairs of the cooperative society.

Provide oversight and guidance to the senior management so as to enhance the efficiency and effectiveness of the cooperative society.

Ensure that effective systems of control are in place to manage major risks faced by the cooperative society and to safeguard the assets of the cooperative society.

Appoint the CEO and participate in the appointment of senior management in the cooperative society. By the same token, participate in the dismissal of these officers whenever deemed necessary.

Regularly assess its own performance and effectiveness as a whole and that of individual directors, including the CEO.

Ensure that the shareholders and stakeholders are effectively informed of the performance of the state cooperative society.

Assess managerial performance by evaluating key performance indicators and monitoring the effectiveness of the internal control systems.

Take due regard of, be responsive to, and deal fairly with other stakeholder interests, demands and expectations, including those of employees, suppliers, creditors and the general community.

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Ensure that the cooperative society complies with all statutory and legal requirements, including prescribed codes of best practice.

Ensure that remuneration is set at an attractive level to motivate, attract and retain highly competent persons both on the Board and in the management.

Ensure that the cooperative society has sufficient and appropriate resources to achieve its strategic goals.

Ensure on an annual basis that the cooperative society will survive, thrive and continue as a viable going concern.

In order to fulfill these functions the Board of Directors should: 

Accept corporate and individual responsibilities for the conduct of their affairs.

Meet regularly, engage in deliberations and make resolutions collectively.

Ensure a total degree of independence from the management of the cooperative society.

Stipulate clearly in writing the authority of the CEO and other top managers.

Ensure that there is a Board Charter spelling out clearly the authority, functions and the mandate of the Board.

Ensure that all Board members possess the requisite skills, knowledge and experience so as to meet their mandates as the stewards of the cooperative society.

11.5.4 Appointment of directors 

The process of appointing directors should ensure appointment of the best qualified candidates - that is persons whose skills and experience best meet the skills profile developed on the strategic overview of the cooperative society.  Directors of cooperative societies should be elected by the shareholders during the Annual general Meeting. However, for this process to put in place effective and competent directors, there should be “guided democracy.” The Board of each cooperative society should co-opt a director when there is need for a specific skill. 

Directors, once appointed, should be given their letters of appointment which should spell out: 

The duration of appointment. This should be for a period of 3 years renewable only once provided that the members, at the annual general meeting may, by special resolution extend the term of any deserving director for reasons to be disclosed;

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The designation of appointment. Terms of reference of the Board. The tenure of office of the directors. The director’s role and responsibilities. The role of the Chairman in evaluating individual directors’

performance. The powers of the shareholder in dismissing the directors. The allowances payable as approved by the shareholders of the

cooperative society.

11.5.5 Remuneration of directors 

The Board of directors should set up an independent Remuneration Committee to determine an equitable remuneration for directors acting on recommendation of respective apex organizations under which the cooperatives belong. The Remuneration Committee should:

Establish a formal and transparent procedure for determining the remuneration packages for directors.

Ensure that the level of remuneration is sufficient to attract and retain the quality and caliber of directors needed to run the cooperative society successfully.

Ensure that the company’s annual report contains a statement of the remuneration policy and details of the remuneration and benefits of directors.

Submit its recommendations to the Board.

The recommendations of the Committee shall be approved by the members/ shareholders.   

11.5.6 Disclosure of interests by directors 

On first appointment and on a continuous basis all directors should, in good faith, disclose to the Board for recording, any business or other interest that is likely to create a potential conflict of interest, including business interests; membership in trade, business or other economic organizations; shareholding, or other interests in the cooperative society; and any gifts, monies, commissions, benefits or other favours extended or received from a party in respect of or in relation to any business dealings with the cooperative society.   

11.5.7 Composition, mix of skills and competencies of the board 

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Composition 

It is important to point out that the law conceives the Board as a collective agency acting together through meetings in order to take account of, and hence help remove, the harmful effects of the weaknesses, excesses, madness and sinfulness of individuals. Good corporate governance practice recommends that an ideal Board size should be between five and eleven directors for any company to facilitate maximum efficiency and effectiveness.  

In addition, it is important to have more independent, non-executive directors on the Board. This is because they can provide independent judgment, outside experience and objectivity, which is not subordinated to operational considerations.

Boards should, however, strive to achieve balance and mix of skills without compromising quality. It is recommended that:

The majority of directors should be independent, non-executive directors.

An ideal Board should comprise between five and eleven members.

In order to enhance the independence of the Board, the Chairman of the Board should be a non-executive director.

The composition of the Board should take into account gender balance, geographical distribution, ethnicity, age, occupation, experience and education of the directors.  

Mix of Skills 

Boards require a broad mix of skills, competencies and experiences. Boards

should have directors with sound business judgment and acumen; integrity, general knowledge, breadth of vision, independence of thought, ability to work harmoniously within a team, time to devote to the cooperative society, ability to add value to the cooperative society and commonsense  

Competencies of Directors 

Directors should have the following competencies:

Innovativeness and entrepreneurial skills Learning abilities and willingness to learn

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Focused intelligence High ethical standards, both in business and socially Commitment and devotion to duty Wide perspective of the cooperative society Common sense Business acumen

11.5.8 Succession planning 

In order to ensure continuity within the Boards of Cooperative societies it is recommended that there be clearly stipulated succession plans for all directors.

The appointment and retirement of the members of the Board should be staggered and the practice of rotation should be applied in order to maintain continuity. The CEO, in consultation with the Chairman, should update the directors on the retirement of directors so that renewals and new appointments can be effected promptly.  

11.5.9 Appointment and functions of the chairman of the board 

The Chairman is responsible for running the Board while the Chief Executive is responsible for running the day-to-day affairs of the cooperative society. As a general rule, there should be a clear division of these roles to ensure that a balance of power and authority is maintained, and that no one individual has unfettered powers of decision. The Chairman of a cooperative society should be elected by the Board .The responsibilities of the Chairman, who should be an independent, non-executive director, are:

To provide overall leadership to the Board. To actively participate in the selection of the Board members. To ensure that the membership of the Board is properly balanced

in terms of skill, experience, expertise, age and corporate experience.

To ensure that there is a formal succession plan for the Board. To play a key role in the setting of agenda for the Board

meetings. To ensure efficient and expeditious conduct of business at

meetings of the Board. To ensure that new directors are properly inducted and that

there are adequate training programmes for directors to keep them abreast of development in corporate governance.

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To ensure that there are constant strategies for monitoring and evaluating the effectiveness of the Board, individual directors, senior management and the entire cooperative society.

The Chairman should possess the following basic qualities:

Integrity and ethics Effective leadership and governance skills Business acumen Prudent judgment and effective decision making Ability to develop a coherent and effective team among the

directors Effective communication skills Ability to mentor the directors Be sociable, dependable and reliable Be non-partisan

11.5.10 Values and strategies 

The Board should continuously determine the purpose and strategic plans of the cooperative society as well as the strategy to achieve the purpose and implement its values in order to ensure that the cooperative society thrives. It is important that the Board ascertains that the objectives of the cooperative society are achieved efficiently in the light of its mission, vision and values. It is, therefore, recommended that:

The objectives of the cooperative societies be clearly documented, including statements of the cooperative society’s’ mission, vision and strategies.

The long term corporate strategies covering a period of five years be set by the Board. These strategies which include business plans and budgets.

The annual reports of the cooperative society should be circulated to the shareholders and stakeholders.

The Board should develop mechanisms and procedures for monitoring and evaluating the efficiency and effectiveness with which its strategies are achieved. This should also include procedures for monitoring the quality of products and services. These procedures should be part of the strategy document.

11.5.11 Corporate communication 

In order for the Board members of cooperative societies to exercise informed, intelligent, objective and independent judgments on

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corporate affairs, they should have access to accurate, relevant and timely information. Therefore, the Board should:

Ensure that there is a well defined formal channel of communication in the cooperative society.

Establish a formal procedure to enable directors to take professional advice on any matter pertinent to their functions.

Provide all directors with unlimited access to information that is relevant for the performance of their duties.

Ensure that it communicates all relevant matters of the cooperative society effectively to the stakeholders.

11.5.12 Induction, training and development of directors 

Once the directors have been appointed, they must go through a well designed induction process, which provides them with an opportunity to clearly understand their role and responsibilities. The induction programme should include: the directors’ responsibilities, liabilities, Board’s manual, strategy document, Board’s procedures and instruments establishing the Board. 

The heavy responsibilities placed upon the directors call for constant programmes for training and development so as to keep them abreast of changing perspectives and developments in corporate governance. This will enhance the effectiveness of directors as well as the success of the cooperative society. Training and development of directors should be an on-going programme. 

The areas of training and development should include:

Principles and practice of corporate governance. Role and functions of the Board of Directors. Duties and responsibilities of directors. Fiduciary duties and duties of care and skill. Strategic thinking and the Board. Board Dynamics. Understanding Financial reports. Risk management. Disclosures, monitoring and evaluation. Information technology.

11.5.13 Independence of the board of directors 

An independent Board is essential to a sound governance structure. The independence of directors is necessary to ensure that there is no actual or perceived conflicts of interest and that the Board is effective

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in supervising activities of the management. The Board must be capable of assessing the performance of management from an objective perspective. It is recommended that: 

Majority of Board members should be independent non-executive directors.

Disclosures should be mandatory for all the directors. Directors should abstain from voting on issues where they have a

conflict of interest.

11.5.14 Board meetings 

It is imperative that directors devote their time and resourcefulness by meeting regularly and participating in all deliberations collectively. It is recommended that: 

The Board should meet as regularly as dictated by needs of each cooperative society, but at least once every two months.

The directors should be involved in the development of the agenda of the Board meetings.

Except in special circumstances, the notice for all meetings and all items relevant to the agenda should be received by all directors at least two weeks in advance.

The directors are expected to prepare themselves adequately well in advance of Board meetings in order to make Board meetings effective.

The Board should prepare a Board Work Plan or Board Calendar so as to guide the activities of the Board.

The minutes of meetings should be recorded accurately and stored safely.

11.5.15 Financial, operational and governance reporting 

For the Board to play its role effectively, it requires comprehensive, regular, reliable, relevant and timely information. 

Financial Reporting 

It is the statutory duty of directors, jointly and severally to cause to be kept proper and accurate books of accounts in respect of all sums of money received and expended by the cooperative society and the matters in respect of which receipt of expenditure takes place; all sales and purchases by the cooperative; and of all the assets and liabilities of the cooperative society; and to present a profit and loss account/an income and expenditure account and a balance sheet reflecting a true and fair view of the profit or loss/surplus or deficit of

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the cooperative society and the state of affairs of the cooperative society. 

It is recommended that:

Financial information presented to the Board should be prepared using accrual accounting and should include year to date actual and budget, full year budget and full year forecast.

There should be a detailed analysis of variance, and a written explanation for material variances. What constitutes a material variance should be determined by the Board.

The person with strategic financial responsibility should be included in the top management team of the cooperative society during Board meetings. This should ensure provision of high quality information and advice to assist the Board’s decision making process.

The Board of directors should maintain adequate systems of financial management and internal control over the cooperative society, including procedures for managing risk and fraud.

The Board should also ensure that the cooperative society complies with statutory requirements and international accounting standards.

Clearly defined performance indicators should be established. These would enable an objective assessment of the efficiency and effectiveness of the cooperative society.

Operational Reporting 

It is recommended that:

Reporting should be tailored to the particular levels of responsibility so that the Board members are provided with high-level data for decision purposes and management is provided with sufficient details for management purposes.

Reports should be available to the Board well in advance for effective decision making.

Appropriately defined non-financial performance indicators should be established so as to facilitate effective assessment of the cooperative society’s performance.

The reports must be sufficient to communicate the required information effectively to all the relevant people.

Management should provide the Board with bi-monthly report and be available to clarify issues that may arise.

The reports should include implementation status reports to monitor progress of all significant Board approved initiatives and compliance with legislative requirements.

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Corporate Governance Reporting 

Boards of cooperative societies should indicate in their annual reports the extent to which they have adhered to good corporate governance principles and practices. 

11.5.16 Committees of the board 

Committees of the Board enable the Board to tackle key areas more effectively. Although the number and mandate of the committees should depend on the needs of specific cooperative societies, it is recommended that the Board establish appropriate committees to enable it deliver its mandate.  

11.5.17 Monitoring the performance of the board 

The Board should monitor its collective performance as well as the performance of individual directors, including the CEO. 

11.5.18 Liabilities of the directors 

It is expected that:

The directors must act honestly, and ensuring that they do not improperly use the inside information or their position.

The directors must exercise the degree of care and diligence in the discharge of their duties that a reasonable person in a like position would exercise in the cooperative society’s circumstances.

It is expected that the directors will perform their duties with the requisite degree of skill.

The directors should give necessary attention to the affairs of the cooperative society. This also includes exercising a degree of supervision over officials of the company.

The directors must be held solely liable for all acts arising from the performance of their duties as directors of a cooperative society.

11.5.19 Accountability of the board 

The Board of directors of a cooperative society is ultimately accountable to the shareholders for all the activities of the cooperative society.  

11.5.20 Risk management 

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Risk Management of the cooperative society’s risks involves the establishment of a process of identifying, analyzing and treating risks. This includes determining risks and structures to manage risks. It is thus recommended that: 

The Board should establish effective systems and processes of identifying, analyzing and managing risks and put in place disaster management procedures.

The Board should also put in place mechanisms to manage the AIDS pandemic in their cooperative societies.

11.5.21 Balancing commercial objectives and social service obligations 

Cooperative societies have both commercial and social objectives. There is an inherent conflict in this which needs to be addressed. In view of this, it is thus imperative that the Boards develop flexible approaches that will help the cooperative societies to manage these conflicts. It is thus recommended that: 

The cooperative society’s commercial objectives and social service obligations should be clearly documented and approved by the Board.

The Board should consult and inform all stakeholders about the strategies put in place to balance the commercial objectives and the social service obligations.

The Board should submit reports on both its commercial objectives and social service obligations to shareholders for approval.

11.5.22 Social responsibilities 

Whereas cooperative societies have been established to fulfill commercial objectives and some community-based obligations, there are some social obligations which the cooperative societies should meet. These are: 

Establishment of fair, just and equitable employment policies. Preservation and protection of the natural environment. Balancing gender interests and concerns. Protecting and promoting the interests and rights of children and

other vulnerable groups. Promoting the interests and rights of the host communities.

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It is thus recommended that the Board of Directors of each cooperative society regularly monitors the extent to which the cooperative society is meeting its social responsibilities.  

11.5.23 Relationship between the board and management 

The atmosphere within which the Board and management operate should provide an enabling environment within which good governance and efficient management can thrive. The Board should ensure that an enabling relationship is established by:

Providing for transparent and clear lines of responsibility and accountability.

Appointing the right people with the right skills for all jobs. Developing transparent and fair recruitment and remuneration

procedures. Creating and maintaining effective communication channels at

all levels. Establishing and enforcing appropriate codes of conduct. Overseeing the necessary assignments, delegating

implementation to the management team with appropriate control measures.

11.5.24 Appointment and development of the chief executive officer and executive management 

One of the important duties of the Board is to recruit, select and appoint the CEO of the cooperative society and participate in the selection and development of Executive management. It is recommended that: 

The Board must solely be responsible for the appointment of the CEO through a competitive selection process and in accordance with the objectives of the cooperative society.

The Board must also prepare a detailed job description for the CEO.

The duties of the CEO should include:

Providing leadership to the employees. Interpreting and implementing the decisions of the Board. Ensuring effective management of the cooperative society’s

business in the best interest of the cooperative society and other stakeholders.

Ensuring the development and implementation of business plans.

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Developing operational plans and budget for approval by the Board.

Ensuring compliance with the laws of the country. Developing and recommending the human resource policies and

plans for the Board’s approval. Developing management succession plans for the Board’s

approval. Ensuring that there is effective communication between the

management and the Board. Acting as the principal spokesperson of the cooperative society.

11.5.25 Code of best practice 

It is expected that the Boards of cooperative societies will operate in a dignified manner, consistent with legislation and societal expectations. In view of this important demand on the Board, it is therefore recommended that Boards should approve a written code of best practice setting the ethical and behavioral expectations of both the directors and employees.  

Summary

.Activity

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References

==========END OF CHAPTER TEN====================

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