This refers to a co-operative. The term co-operative is derived from cooperation It is a body of people or a body of persons who have agreed to come together to achieve a certain goal.
The members of the public get together to voluntarily contributes capital to he corporative society sharing the risks of investments in order to achieve and enjoy the benefits.
Reasons for Promoting Cooperative Societies in Kenya.
- They facilitate members to manage their own society and distribute themselves the benefit generated.
- In order to increase bargaining power in selling the members produce or gaining maximum satisfaction.
- In order to enhance participation by members in economic activities minimizing the middlemen.
- In order to reduce market cost of produce especially in transportation and storage.
- In order to promote and improve quality production
- In order to facilitate stable income earning
- In order to put together capital resources of expensive investment e.g transport, refrigeration e.t.c.
Formation of Co-operative Societies
They are formed by a minimum number of 10 members who pursue to undertake some objectives The members work out a defined plan of what the co-operative society is supposed to do.
For the co-operative society to be formed they have to submit their constitution to the commissions of co-operative societies with the following detail.
- The objectives of the society
- By-laws of the society
- The areas of corporation of the society.
- The nature of the business to be undertaken
- The location of the head office.
- The application of registration is to be submitted to the commissioner through the local co-operatives.
- Upon satisfying the commissioner, a certificate of registration is issued .
- The co-operation then recruits members who pay registration fees and buy their specified shares in the society.
- No member is allowed to buy more than 5% of the share capital .
- The registration of the co-operative society makes it a body separate meaning it becomes a separated entity distinct from its owners and with perpetual succession.
Ownership and Management of a Co-operative Societies.
It is owned by its owners and its ownership and membership is opened and voluntarily. The members in a co-operative society have a limited liability to the amount contributed. The supreme authority of the registered co-operative society is in the AGM (Annual general meeting).
During the AGM the managing director is elected on one person one vote basis irrespective of the shares owned by each member.
The outcome is determined by a simple majority and such elections are supervised by the district corporation officer. The managing director serves for a period of time after which elections are held by a vote.
The elected members hold constant meetings to discuss operations and the concerned of the cooperative. The committee may employ professional staff to charge of various parts in the society. A number of sub-committees may be formed from the elected officers to take to take various responsibilities of various societies.
Examples of Committees in a Co-operative society
1. Executive Committee-The committee is charged with the day to day running of the society and its membership is made up of the following
- Honorable secretary
2. Education committee- It is charged with educating members of the society and it is made up of 3-members answerable to the executive.
3. Credit committee- It is normally common in saving and credit societies. It is made up of 3-members answerable to the executive and it is charged with the following:
- Processing loan applied and making recommendations.
- Loan recovery
- Credit recommendations and approval
4. Supervisory committee-It is charged with overseeing the overall management of the society’s finances.
The Relationship between the Cooperative Society and its Business with its Members. A cooperative society should usually transact its business with its members. This business relationship relates the following relations.
- The customer relations- The members can be customers of the cooperative society by purchasing its goods and services
- The supplier relations-The members can supply to the society by the seeling to the cooperative society marketing their produce.
- The employee relations- The members can be employees who work for the cooperative society which they jointly own.
Sources of Capital for Cooperative Societies.
1. Members contributions through
- Registration fee
- Amount contributed by members to purchase shares
- The fee charged from the proceeds or sales of the members produce.
- Interest earned on money loaned out or firm inputs advanced to members.
2. The loans from financial institutions.
3. Plough backs or financing through retained profits.
Features of the Cooperative Society
1. Separate entity- Registration of a cooperative society makes it separate from its owners and the cooperative society has rights and obligations that are separate distinct from those of its owners.
2. Liability-The liability of its members is restricted to the amounts they have contributed in terms of capital.
3. The minimum membership of a cooperative society is 10 persons and the maximum number is specified since it depends on the share capital of the society.
4. Continuity-The cooperative society has a perpetual life.
5. Cooperative societies are governed using by-laws contained in the constitution of the cooperatives.
6. The share capital is divided into units both persons who want to become members of the society.
7. The cooperative society is run by management committee elected
8. The distribution of profits to the members is according to the level of activity carried out among members-High volume of activity command high portions of profits.
Essentials for the Success of a Cooperative Society.
1. Adequate volumes to secure the benefits of large scale production.
2. Adequate finance to fund operations construction purchasing of equipments.
3. A sound management team with effective entrepreneur skills.
4. Existence of a definite objective
Principles of Cooperatives
1. Open Membership
Membership is open and voluntary without artificial restriction imposed on membership
2 Democratic administration.
The affairs of the cooperative society are managed in a democratic manner and elections are on a one person
3 Service to members-The primary purpose of a cooperative society is to render services to members.
4 Distribution of profits or surplus- Distribution of profits or surplus is based on a specified rate.
5 Limited interest on capital- This is because the aim of cooperative society is to help its members and not make profit.
6 Cooperation with officer cooperative society so as to achieve a common purpose and a common objective.
7 Education to its members.
Types of Cooperative Societies.
A cooperative is a voluntary association of persons who come together to promote their social economic interest.
The types include:-
A producer cooperative is an association of producers such as societies which collect, process, market and distribute the members produce.
Functions of Producer Cooperatives
- Getting better prizes for members produce.
- Providing better transport facilities for moving the produce from the source to the market.
- Providing better storage facilities for members for members produce.
- Proving grading, packing and processing services to the members.
- Extending credit facilities to its members.
- Educating members on better methods of production through seminars, demonstrations etc.
- Facilitating use of quality seeds, fertilizers and farm inputs
A consumer cooperative is an association of borers who have the same consumer needs. The consumers buy bulky and sells to the consumers at lower/fair prices. This reduces the cost of products by eliminating the middle men. The main function of these cooperative societies is to purchase and distribute quality goods to members at reasonable prices.
Benefits of the Consumer Cooperatives
- They make goods easy available to members.
- They buy goods in bulky and sell to members at lower prices.
- They distribute the realized profits to members at lower prices
Why consumer cooperatives are not popular in Kenya.
- Fears competition between the local traders which push prices down and provide quality goods hence no need for cooperatives.
- Many people supply enough subsequent food for themselves.
- Most people cannot afford large amount of capital required to start.
- Most population in Kenya lives in the rural setup and may not accept the cooperative rule.
- No proper attention to such cooperatives by the government.
savings and Credit Cooperative Society (SACCOS)
These societies are formed by persons who come together to save their money in a common pull with a view of getting loans to improve their welfare. The members of a SACCO are usually under one employer and members contributions are deducted from their salaries but the employer to the cooperative society through a check of system at regular intervals usually monthly.
At the members savings earn interest and get loans at reasonable interest rates normally 1% per month. Members savings serves as a security for a loan, three guarantors and a pay slip.
Why SACCOS are Popular among Employees
- It is easy to save with the SACCO since deductions are done through a check of system.
- Easy to get loans from SACCOS due to fewer simple requirements.
- Interest charge on loans is low compared to commercial banks.
- Loans do not require collateral except far members’ salary slip and guarantors.
- Members savings are save since they are insured.
- Incase of death the beneficiaries do not lose their savings in cooperatives nor they are called upon to repay.
- SACCOS are flexible since they give different types of loans e.g. normal, emergency, school fees loans, medical etc.
Main Reasons of Forming a Cooperative Union
- To strengthen the buying capacity especially of farm inputs or transport facilities.
- To negotiate for loans for members cooperatives from the cooperative banks.
- To market the produce of members cooperatives.
- To help members cooperatives with the processing of their produce.
- To help member’s cooperatives with storage, administrative services, accounting etc.
- To educate, advice, train, the staff of members cooperatives.
This is the union of various cooperative unions. The national cooperatives form umbrella bodies of cooperatives formed. The membership of such a cooperative comprises cooperative societies or operating in a particular production line.
- The Kenya Planters Cooperative Union.
- The Kenya Union of Savings and Credit.
These are the overall cooperative bodies to which all other cooperatives i.e primary, cooperative unions and national union are carried. An example in Kenya is is the Kenya National Federation of Cooperatives Union. They are formed to promote cooperative
performance with the aim of:-
- Providing information about the activities of cooperative in Kenya.
- Providing education and training for member cooperative for efficient and
- Represent Kenya cooperatives both regionally and internationally.
Another example is the Kenya cooperative bank.
International cooperatives: Are composed of national cooperatives from various countries e.g. The Kenya Federation of Cooperatives
Problems Facing Cooperative Societies
- Mismanagement by cooperative officials who take advantage of their knowledge and position to benefit themselves.
- Unskilled management elected without any knowledge whatsoever with management skills.
- Lack of adequate capital due to small contributors and difficult to get bank loans.
- Capital interference and self interests.
- Most cooperatives are agro based facing price fluctuations climatic problems, low prices etc.
- Little government input to rejuvenate the cooperative societies.
Advantages of Cooperative Societies.
- Low cost services to members.
- Improved welfare of members enhancing their participation in economic activities.
- Encourage savings enabling members to accumulate their capital.
- Extended credits to members at low interest rates improving their welfare.
- Limited liability protecting personal property.
- Flexibility in membership for entity and exit.
- Equality of the members in terms of rights irrespective of the number of shares held.
- Large capital base due to high membership.
Disadvantages of Cooperative Society
- Poor management caused by the system of choosing the managers I.e. AGM elections.
- Constant political interference causing unrest and mismanagement.
- Withdrawals are easy which may cause instability and discontinuity.
- Slow decision making due to over consultation.
- Lack of secrecy since all activities must be approved by all members.
- Large membership may cause management problems.
Dissolution of a Cooperative Society
- Disagreement among members or an agreement of members may lead to application of registration.
- Insolvency- Where the cooperative is unable to meet its debts.
- By a court order upon application by one or more members.
- An order of dissolution by the apparent ministry in the interest of its members.
- Withdrawal of members leaving membership to less than the minimum required.