DUTIES AND RESPONSIBILITIES OF CONTROL CLERK IN A SACCO SOCIETY

(a) Designs the internal control systems and procedures of the society.
(b) Advise the board on the weaknesses of the existing internal control systems and procedures.
(c) Ensures that all the policies of the societies are properly implemented and adhered to.
(d) Periodically, prepares internal management report revealing whether the internal control systems and procedures are being followed. This
should be done monthly.
(e) Supervises the heads of sections by getting daily report on the performance of his department.
(f) Delegates responsibilities in his department.
(g) Evaluates the performance of all departments and make recommendations whether the performance is upto required standards.
(h) Carries out induction training to new employees in his department.
(i) Liaising with the external auditor when need arises.
(j) Examines all cheques; cash payments to ensure that NO irregularity in payments is made. Also examine all accompanying relevant documents to ensure that there is genuine authorization.
(k) Examines the final books of accounts to determine whether they present a true and fair view of the financial status of the society.
(l) Prepares leave roaster for the department.

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Umoinner Sacco’s TLB License suspended!!

I have been telling Matatu Saccos that they pull their act together or face the ax as a group. If the Transport Board continues doing that, then it will be great. I feel Department of Co-operatives and Transport (Transport Licensing Board) failed on one thing, they did not sit down together and agreed how Matatu groups will be promoted and registered into Saccos, follow-ups made and what compliance issues will be addressed before and after registration and by who. The promotions and registration of Matatu Sacco should have and must be different from that of other groups. I am saying this because these Matatu guys just wanted to form the Saccos and disappear thereby failing to honour objectives for which they were registered for. Most of these Matatu Saccos are just using the name Sacco to get TLB and nothing else, you can take that to the bank!

If there are aspects of Co-operatives Societies Act they have not complied with, then it will be only prudent that the co-operative officers liaise with TLB through an agreed laid down procedures and such a Sacco be refused TLB license until they comply. You cannot be lying that you are complying with Traffic Rules and as a group or Sacco you have no policies that will fine/punish those breaking rules. This thereby endangers the whole society/membership like we have witnessed with Umoinner Sacco and City Bus Company. If Saccos were to fine or punish members’ vehicles that have breached Sacco policies and regulations or resolutions of a general meeting, then membership will start appreciating order from the grass-root level upwards. Being reactionary like TLB is doing is counterproductive. It is time to be proactive.

I feel that that it is time that TLB and Department of Co-operatives woke up and started working together. Let there be model transport policy to be adopted by all Matatu Saccos in the country. Let TLB be requiring clearance of Saccos seeking TLB License from the various Departments of Co-operatives across the country. Let Co-operative Officers refuse clearance of Matatu Saccos that have never held a meeting since registration, have never audited their accounts, lack policies especially code of conduct and transport policy, have no budget, etc. Yeah probably you are saying where is the connection between a Sacco that has not held a meeting or audited its accounts or have an approved budget and accidents!!  If there is organisation from grassroots then we can reduce the number of accidents on our roads. But if we continue groping in the dark like we are doing now, then we will be holding national prayer days when these accidents happen. It will be great if co-operative officers could call or inform the TLB of breach of Co-operatives Societies Act or transport policy and the whole Sacco be suspended from operations or fined. This is not using fear to make Matatu Saccos comply, but regulations….and I guess we all feel these accidents are too many and horrific and above all most are avoidable.

A Department or a full Ministry of Co-operatives? Vote!

SAVING MOBILIZATION STRATEGIES

 

Introduction

The essence of any savings and credit co-operative society is the mobilization of savings, the provision of credit and improvement in the standards of living of the members. In the By-Laws of a Sacco society it is clearly stated that the objectives of the Sacco society is “to promote thrift among its members by affording an opportunity for accumulating their savings and to create thereby a source of funds from which loans can be made to them exclusively for provident and productive purposes at fair and reasonable interest thereby enabling them to use and control their money for their mutual benefit.”

It is in this context that a Sacco society should not only improve on the current products and services but also introduce new ones.

The Process of Saving Mobilization

In order savings mobilization process to take place, Saccos will have to offer absolute safety of the savings deposited by their members. The members will demand protections for the value of their savings.

i) Protecting the real value of savings-: this means Saccos have to ensure that the purchasing power of savings received from the members today will be greater or at least the same when it is returned to member in future. For example, if a member saves Kshs. 1000 today and there is an annual inflation of 10%, the Sacco should return Kshs. 1000 at the end of each year to protect the purchasing power of the original Kshs. 1000.

If we fail to protect the real value of the savings, we are impoverishing the member and his family and destroying the value of the family’s assets. The key to protecting the real value of savings is the Sacco’s earnings.

ii) Protecting the nominal value of shares:- the Saccos have to be in adequate financial position to return 100% of the member’s shares value any time without loss of any kind. This means the value of the Sacco’s realizable assets have to be equal or greater than the value of the demandable shares.

If we fail to protect the nominal value of shares, members will lose faith in Saccos and will only buy shares with a Sacco in which they expect to be returned 100% of their shares value.

The above two protections are vital importance if we are going to attract sufficient savings to play an important part in economic life of our members and the nation at large.

Savings Mobilization Strategies

The successful mobilization of savings will require the following techniques and strategies.

i) Market interest rates- the Saccos will have to pay at least rates as paid by their competitors on savings. By not competitively rewarding savings, we are linking such costs as hidden costs to the lending service.

ii) Professional image- the staff and facilities must present an image that reinforces members’ confidence in the safety of their savings.

iii) Diversification of products and services- the Saccos must offer services very similar to those offered by their competition. By doing that members will be able to satisfy all their savings needs in the Saccos and not distribute their savings in different institutions.

iv) Separating the savings services from the lending services- the Saccos should not make members sacrifice the real value of their savings to obtain what is supposedly said to be cheap loans. Both services must benefit the members.

v) Obtaining savings only from members- this reinforces the co-operative identity. The member shall have share accounts which bestow ownership, rights and obligations thus the co-operative principle of serving only members is maintained.

vi) Cautiously managing large savings accounts- big account in any financial business are very volatile in that they can be easily withdrawn to obtain increases of interest in other financial institutions. These precautions may be undertaken by investing these savings in facilities which are safe and yield high returns to be able to give adequate returns to savers. Another way is matching investment maturities.

Forms of Mobilization of Savings

The forms in which a Sacco may mobilize savings from members is through financial products and services offered to its members such as:-

i) Passbook savings account (front office services)

ii) Deposits accounts (fixed deposit accounts)

iii) Children accounts

iv) Students accounts

v) Medical accounts

vi) Christmas accounts

vii) Holiday accounts

viii) School fees savings accounts

ix) Burial savings accounts

x) Retirement deposit accounts

In return for the mobilized funds, members may be offered the following financial products and services:-

i) Mortgage loans

ii) Vehicle/motorbike/bicycle loans

iii) Small business loans

iv) Home improvement loans

v) Agricultural loans

vi) Advances/overdrafts

vii) Hire purchase loans

viii) Credit card

ix) Money orders

x) Payroll deductions

xi) Safe custody services

xii) Purchase and sell of shares

xiii) Automated teller machines

xiv) Bill paying services

xv) Business advisory services

The list is inclusive and not exhaustive. It is not expected that a Sacco society will introduce all services at the same time. It is upon the Sacco to set its own priorities. Some of the services may be patronized by the members either collectively as a Sacco or individually.

Conclusion and Recommendations

In order for a Sacco to enhance the mobilization of savings and in turn attract and retain the members, the following are recommended:-

i) Effective management through provision of efficient and quality services to the members. This should be through intensive training of the management. Sound financial management and instituting a system of checks and balances.

ii) Competitive pricing of products and not to necessarily price oneself out of business

iii) Prudent investments in areas that would bring adequate returns to the members. The investment must help sustain the primary objective of the Sacco society.

iv) The Sacco must strive to encourage deposits by member by paying good interest on members deposit and dividends to its members. This will put the society in a good competitive position.

In summary, it is the responsibility of all involved to play a public and customer relations role by portraying a good image of the Sacco society. This will help attract and retain the membership of the society and in turn the much needed savings.

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Managing Change in Co-operatives

The economic environment is dynamic and keeps on changing globally. It is therefore imperative for co-operative societies to keep abreast of the global changes or risk being irrelevant. Change is sweeping in nature and non response to change leads to being obsolete.

In order for co-operatives to manage change as it occurs the following factors need to be put in place:-

1. Awareness

It is of utmost importance for members of the co-operative to be aware of the changes affecting the economy as a whole i.e. potential socio-economical, technological including information technology and their effect on modern living. To do this the co-operative are required to set aside adequate funds for training and education not only for committee members but also for the general membership. It is the general membership that provides the leadership of the co-operatives and also an enlightened membership is an asset to the society.

2. Amendment of the co-operative society By-Laws

The current liberalized economy requires that co-operatives can rise up to the challenges and pressures of everyday living. The Co-operative Societies Act Cap 490 has made provisions for the amendment of the By-Laws of co-operative societies so that they can incorporate the changes that are occurring to suit current members needs.

3. Professionalism in the management of the co-operative societies

Co-operative societies are essentially business entities with various different products and services, but they are not alone in that line of business. There are other players in their diversified fields competing for the same business. It thus important that co-operatives are managed with utmost professionalism in this age of liberalization in order for them to survive. Other competitors are professional in approach and functioning. They employ the best professionals in their fields found in the open market, they adopt the most economical, cost effective methods and strive for the maximum profit in the market.

4. Marketing strategy as a manner of change in co-operatives

Marketing research is vital to all stages of the marketing plan:-

• For decisions on the marketing mix, for example product research, pricing research, advertising research, etc.
• For the implementation and control of the marketing plan, and
• For assessing the extent to which objectives have been achieved.

Marketing research gives the following information inputs from the market:-

a) Environment audit

This reviews the organizations position in relation to changes in the external environment i.e. social, political, cultural, legal, economical and technological. The audit provides information which directly affects the setting of co-operative objectives. The market place is by definition, part of the “environment” and is a source of revenue and profit.

b) The Competitor audit

Provides competitor intelligence, competitor response models and so on, which again influence the co-operative objectives, strategy and contingency planning.

c) The customer audit

Assesses the existing and potential customer bases to provide information as to whether to develop new markets.

d) Product portfolio

This analysis provides inputs for decisions on whether or not to drop certain products and or add new ones.

e) Provides the basis for all other functional activities as well as marketing.

Information inputs from marketing to the co-operative society planning decisions perform a double duty, apart from planning they also provide objectives and strategies.

From the foregoing discussions, it is apparent that in order to manage change awareness, preparedness and implementation not to forget continuous market research are necessary components that cannot be ignored.

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NEW PRODUCT DEVELOPMENT IN SACCO SOCIETIES

In view of the changing economic role of the co-operative societies, there is need to properly formulate investment policies for maximum returns to the members.

Prior to liberalization of the co-operative movement and the economy at large, our co-operatives had been too complacent and lacked innovative approaches in performance improvement.

These co-operatives have tended to operate under policies which have led to;

a)      Lack of creative innovation

b)      Reluctance to embrace change

c)       Over-reliance on traditional customer and products

d)      Inward looking policies, etc.

Co-operatives must strictly and urgently address their operational deficiencies. This involves;

a)      Improving service delivery

b)      Focusing on core customer needs

c)       Reducing on waste

Co-operative members are becoming more demanding and knowledgeable. This means that the management cannot assume that its products will be well received forgetting that the members have a wide choice. The co-operative therefore must offer its customers additional services and customised products. This can be achieved if:

–          There exist well thought out investment strategies

–          There is proper implementation of those strategies

Developing a new product

In developing a new product, the society needs to address the following aspects.

–          What product needs to be developed?

–          Who are the targeted customers?

–          What benefits will be derived from the consumption of the product?

–          How will the product be financed?

–          How will the product compare with existing products and harmonizes with the existing market structure?

–          What is the technical capability of the society in implementing the investment/product?

–          Will the implementation be in harmony with the existing legislative and regulatory controls?

In addressing the above the society shall move in the following direction:-

1. Identify the most important service the members need;
2. Identify the extend of the market for such need;
3. Identify the sources of finance of the society;
4. Conduct a cost benefit analysis to find out if the project/investment is justified and;
5. Prepare the following:

a)      The staff skills;

b)      The system of implementation;

c)       Structure of the scheme and;

d)      System of evaluation and control.

Target market selection

The following guidelines should be followed by the Sacco when selecting target markets:

i)                    The target should be consistent or at least compatible with Sacco’s goals and image;

ii)                   The Sacco should seek markets that are consistent with its resources and;

iii)                 The Sacco should seek markets that will generate profitable volume of trade.

 

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LOAN PROCESSING AND APPRAISAL

What is loan processing?

Loan processing refers to the inter-related activities undertaken from time to time the prospective loanee applies for the loan up to the time the loan is approved, agreement signed and loan secured.

The following are the main steps in the process:-

i)  Loan application

ii) Loan appraisal

iii) Loan approval

iv) Loan collateralisation and documentation

 

1. 1.       Loan application

The loan application starts with the formal expression by the borrower that he/she needs a loan. Some Saccos provide members with free loan application forms while others sell the forms at a small fee.

1. 2.       Loan appraisal

Loan appraisal is one of the most technical areas in the lending process and any mistake made here could translate itself into cases of default and delinquency. All the principles of good lending should be adhered to. The process should also be as thorough as possible without resulting into unnecessary delays on loan processing.

Objectives in credit appraisal

a)      To determine the type of loan, loan purpose and whether it is confirming with the credit policy and procedures of the Sacco;

b)      To determine the credit risk of lending to the applicant;

c)       To determine the loanee’s plan to repay the loan and if she/he has other sources of income and;

d)      To determine whether the loanee meets the security or collateralization requirements.

What is a good loan?

A loan given:-

i) To a reliable borrower

ii) For an approved good purpose

iii) Against an acceptable security

iv) At a profit to the lender

Main issues which must be addressed when appraising loans

1. A.      Conformity with policies and procedures

a)      Whether applicant followed all the requirements stipulated in the credit policies of the Sacco contained in the By-Laws or other policy documents

b)      Verification of whether the applicants’ information given is correct.

1. B.      Addressing the issue of credit risk

This is normally looked at in form of the 5Cs of assessing credit risk

i) Character- Behaviour history of the borrower

ii) Capacity- Ability to repay the loan

iii) Capital- What financial ability does the borrower have?

iv) Conditions- Has the member fulfilled all the required conditions?

v)  Collateral (Security) – Guarantee required for the loan.

1. C.      Where money borrowed is for starting a business

The credit committee should address the following issues. Ideally the committee should require the borrower to prepare a detailed business plan. This is the standard practice in all financial institutions that lend money to business people. The business plan should have the following details:-

a)      Financial viability

b)      Marketing feasibility

c)       Technical feasibility

d)      Management and organizational capability

The main concern for the Sacco should be whether given the above assessment, the intended business can run profitably and help repay the loan successfully.

Checklist for loan appraisal

The following information should be thoroughly addressed when appraising loan applications:-

a)      General particulars (name, address, family details) by the credit committee

b)      Loan amount and purpose for the loan requested

c)       Technical feasibility when a loan is for a business project

d)      Marketing feasibility

e)      Financial viability

f)       Management and organization of the business

g)      Loan repayment arrangements- mode of repayment

h)      Collateral arrangement for the loan

Does and donts of lending

Dos

a)      Be fair to both the sacco and the applicant

b)      Listen to the borrower carefully

c)       Try to have the member clarify all issues that may be unclear before you make a decision on the loan

d)      Decide firmly and convey the decision truthfully to the member

Donts

a)      Go by opinions. Verify all facts before making decisions

b)      Pretend to have the knowledge which you don’t have

c)       Have biases against the member

d)      Reject a loan application before studying it thoroughly

1. 3.       Loan approval

Usually an approval is conveyed through a formal letter called loan approval advice. The advice apart from conveying the approval decision asks the borrower to communicate the he/she has accepted the loan and the terms and conditions attached to the loan.

1. 4.       Loan collateralization

Loan collateralization refers to the loan security arrangements. In most Saccos loans are secured using members shares and savings in the Sacco. However some Saccos especially those that serve members from the informal sector ask for other assets for guarantee of loans.

To make sure that the loan security arrangement is properly done, Sacco officials should make such members have signed loan guarantee forms with guarantors stating clearly that they are prepared to repay the loan in case of default by the borrower.

After the final loan approval, the borrower should sign a formal loan agreement form, which clearly states the terms and conditions of the loan.

Problems faced by Saccos in their lending activities

a)      Lack of good credit policies

b)      High loan default mainly due to retrenchments

c)       Excess demand for loans that outstrip available resources

d)      Inadequate loans appraisal skills by credit committees

e)      Borrowing expensive money for lending to members at non-competitive interest rates.

 

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CREDIT APPRAISAL/MONITORING IN SACCO SOCIETIES

APPRAISAL

Every credit programme must be appraised before disbursement of loan. The important objectives of appraisal are:

i) That the member meets all conditions necessary to participate in a credit programme

ii) That the lender minimizes the risk of recovering the whole loan.

Appraisal areas: whether;

a)      One is actually a member;

b)      The member loan application meets what is required by the policies and procedures;

c)       The risk can be there when approving the loan and;

d)      How the loan is going to be utilised and the returns will be positive.

Monitoring

Monitoring is the routine collection, analysis, and use of information about how well the project is going. It aims at provision of information on progress.

Monitoring can be continuous or periodic review by management at every level of the hierarchy of implementation of an activity to ensure that input deliveries, work schedules, targeted outputs, and other required actions are proceeding according to plan.

Mode of monitoring

i) Actual site visits (observation)

ii) Interview with loanee

iii) Reports

iv) Repayment records

v) Environmental factor analysis

Importance of monitoring

i) Helps both lender and loanee. Make decision to improve the project.

ii) Allows lender to decide what effect or impact the project is having on loanee

iii) Ensure accountability

iv) Ensure judgement to be made on personal and institutional performance.

Consideration for a good credit programme

A good loan programme should be one that not only enhances the welfare of the member but also repays itself fully (principle + interest).

To the lender the following features are important;

a)      The loanee is well trained to not only utilize but also understand the implications of being a loanee

b)      The loan amount is sufficient (never under lend, never over lend)

c)       The security provided is good

d)      It is adequate (value to cover the entire loan and still leave a good margin).

e)      It is realizable, should be easy to dispose of, to sell

f)       One that appreciates in value with time

g)      Repayment period is adhered to

h)      The shorter the repayment period the less risk the venture and the more liquid the society would remain

i)        Mark-up, prefer to lend to higher mark-up borrower

 

CREDIT ADMINISTRATION IN SACCO SOCIETIES

One of the fundamental objectives of a Sacco is to provide credit to its members. Indeed the continued survival of the Sacco is highly dependent on the fulfilment of this mission. That being the case it is important for each Sacco to endeavour to formulate lending policies that address members varied needs. In other words Saccos should no longer rely on the standard loaning policy.

A dynamic lending policy can be described as one that strives to satisfy members credit demands taking into account the society’s liquidity position and the security of the loans so granted. It should also ensure that loans are promptly processed and recovered at liberalised rates of interest. In addition a dynamic lending policy provides incentives for members to increase their savings thereby availing more loanable funds.

1. A.      Lending requirements

i) Budgeting for loan should be a pre-requisite to granting of loans. Adequate plans should be made for periods of excessive loan demands.

ii) Books of accounts should be accurate and up to date.

iii) The society should operate for a number of months before granting of loans (six months or more).

iv)  Minimum period of membership and minimum amount of shares/deposits before granting of loans should be part of the loan policy.

v) The member should undertake to pay the loan with interest until it is cleared.

vi) All applications for loans should be on prescribed forms showing savings, amount applied for, purpose, terms of repayment and type of security provided, proof of members repayment ability is also required.

vii) Once a loan is granted it should be recorded in the relevant books of accounts and documents.

viii) Disbursement of funds should be done as soon as possible to avoid any inconvenience to the member and to ensure prompt recovery.

1. B.      Loan repayments

Sacco loans are normally classified as normal, school fees and emergency. Normal loans should be recovered within 48 months. School fees should be recovered within a calendar year and emergency should be recovered within 12 months.

To ensure prompt repayment t of loans, the member should not suffer total deductions in excess of 2/3 of his/her basic salary. The employer should be advised to make the necessary deductions in good time on a monthly basis to avoid liquidity problems for the Sacco.

1. C.      Loan delinquency

One of the major setbacks for the Sacco lending activity is loan defaulting. Among the major causes are:-

i)  Overburdening of loanee with credit

ii) Ignoring the loaning policy

iii) Death of a member

iv) Bad investment by a member

v) Redundancies

vi) Non-remittance of society funds by the employer

vii) Misuse of loan funds

viii)  Inadequate security

ix) Delays in reviver of loans

x) Interference with recoveries

The majority of these problems can be solved by management if proper safeguards are put in place. These includes:-

a)      Ensuring that correct lending procedures are adhered to

b)      Educating the ,members on loan policy and the need to borrow wisely

c)       Inform the guarantors on their obligation to pay in case of defaults

1. Additional safeguards

For a Sacco to maintain liquidity it should practice the following financial disciplines:-

a)      Loan granted should not exceed 90% of members savings

b)      No member should be given a loan in excess of 5% of share capital and deposits

c)       The balance sheet should show the following ratios

ASSETS	LIABILITIES
Cash 2%	Members deposits 80%
Liquidity 18%	Share capital 10%
Loans to members 75%	Reserves 10%
Fixed assets 5%
100%	100%

d)      The society should always ensure that delinquent loans do not exceed 2% of the toal outstanding loan. This is known as the delinquent measure.

e)      Provision for bad loans should be based on duration for example

100% for delinquent loans over 1 year

75% between 9-12 months

50% between 6-8 months

25% between 3-5 months

f)       Ensuring that the members loans are ensured by a comprehensive risk management programme.

As a result of liberalization and other global changes, Sacco societies are finding it increasingly difficult to satisfy their members ‘financial needs and maintain adequate liquidity levels. This kind of scenario calls for dynamic lending policies to be formulated by the Sacco leadership. The following strategic approaches are recommended:-

i) Introduction of Front Office Services to provide more loaning facilities to members especially short term advances

ii) Liberalise the interest rates

iii) Introduce micro-enterprise culture to members

iv) Reward both the saver and the borrower alike

v) Encourage corporate membership

Conclusion

A sound credit policy should at all times aim at a Sacco’s own funds rather than borrowing.

It must address carefully the issue of credit collection and formulate policies for the same. Finally a good credit policy must endeavour to practice fairness in granting of loans.

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Co-operative Corporate Governance

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CO-OPERATIVE REGISTRATION PROCEDURES

HOW TO REGISTER A CO-OPERATIVE
The co-operative Societies Act, Chapter 490 of the Laws of Kenya, states that for a society to be registered with or without limited liability, it has to have its object as the promotion of the welfare and economic interest of its members and has incorporated in its by-laws the following co-operative principles:
(i) voluntary and open membership;
(ii) democratic member control;
(iii) economic participation by members;
(iv) autonomy and independence;
(v) education, training and information;
(vi) co-operation among co-operatives; and
(vii) concern for community in general,
may be registered by the Commissioner as a co- operative society under this Act with or without limited liability. Provided that a co-operative union or an apex society shall not be registered except with limited liability.

HOW TO REGISTER A CO-OPERATIVE
Essentials for registration of co-operative societies.
For a society to be registered under the Act, it must in the case of the primary society, consist of at least ten persons all of whom shall be qualified for membership of the co-operative society in the case of a co-operative union, it consists of two or more registered primary societies in the case of an apex society, consist of two or more secondary societies.

REGISTRATION PROCEDURES
When a member of the public visits a District Co-operative Office with an intention to register a Co-operative Society, he is advised, to make a formal request in writing. This request should include the following:
1. Name of the proposed society,
2. Names of a minimum of ten proposed members (including copies of their ID card, telephone number, physical address, occupation and age).

DOCUMENTS TO BE ATTACHED
1. For formerly employed persons, a letter of confirmation from the employer.
2. For religious based common bond, a copy of certificate of incorporation of the organization accompanied by a letter of approval from the presiding clergy.
3. For Matatu/Transport Societies, copies of at least ten log books of the proposed members vehicles
4. For business people, copies of certificate of incorporation,/business licenses from at least ten proposed members
5. For marketing societies, introductory letter from the area chief to confirm the common bond and expected production
6. For welfare and self-help groups intending to convert to co-operatives, a copy of certificate of registration from relevant ministry.
7. For other informal organizations, a letter of introduction from the area Chief.

PRE CO-OPERATIVE MEETING
Upon receipt of the above documents, the officer shall convene a meeting within a week with the proposed members. The quorum of this meeting (Pre Co-operative Meeting) shall be ten members. The main agenda of the meeting shall be pre co- operative education. During the meeting; the promoters shall appoint interim officials for purpose of overseeing registration.

REQUIREMENTS FOR REGISTRATION

1. Apart from above documents the following will be required:-
2. The proposed by-laws in four copies
3. Filled application for registration form in four copies
4. Supplementary information form in four copies (if any)
5. Economic appraisal in four copies
6. In case of salaried workers, a letter from the employer is needed agreeing check off.
7. Minutes of the pre co-operative meeting
8. Bankers cheque of Kshs 3,700 being application and registration fees

After successful registration, the newly registered society to convene the first general meeting within a month after receipt of the certificate by the interim officials.
Failure to do so, the co-operative officer should recommend to the CCD immediate cancellation of the certificate of registration.

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Licensing of Saccos by Sasra

1. Introduction

The Sacco Societies Regulatory Authority (SASRA) is empowered to license, regulate and supervise deposit taking Sacco Societies under the Sacco Societies Act 2008 (the Act), and the Regulations issued there under. The Act requires all Sacco Societies carrying out deposit taking business to apply for licenses from SASRA (Section 23 of the Act and Regulations 4). Deposit taking Sacco societies in the context of the Act refers to the Sacco Societies operating Front Office Savings Activity (FOSA).

2. Who should apply for license?

With effect from 18th June 2010, the date of publication of the Sacco Societies (Deposit Taking Sacco Business) Regulations, 2010:

All Sacco Societies intending to operate FOSA shall apply for license from SASRA (section 23 of the Act and regulation 4(2)); and

All Sacco Societies already operating FOSAs are required to apply for license from SASRA by 17th June 2011.
3. What are the licensing Procedures?

The licensing procedures are detailed in Section 24 of the Act and Section 4 of the Regulations. These procedures are split into five main stages as explained below.

3.1 First stage: Application for License

Duly complete and submit the “APPLICATION FORM FOR A LICENCE” coded SASRA 1/001) in the regulations for SACCO Societies (Deposit Taking Business) to SASRA. This form is available here. The completed application form should be accompanied by supporting documentation including:

a) a certified copy of the Sacco society’s registration certificate, issued under the Co-operative Societies Act [Cap 490] Laws of Kenya.

b) a verified official notification of the Sacco society’s registered head office and branches, if any;.

c) a certified copy of the Sacco society’s bylaws.

d) a certified extract of minutes of the general meeting resolution authorizing the application for deposit taking license. This requirement applies to Sacco Societies seeking to commence FOSA operations.

e) name of the proposed chief executive officer.

f) Certified copies of the financial statements for the last three years

g) Evidence that the Sacco society has adequate capital by completing and submitting the Capital Adequacy Return (downloadable from http://www.sasra.go.ke) as set out in Form 1 in the second schedule to the Sacco Societies (DT) Regulations, 2010. Refer to the guidance notes on capital adequacy for capital requirements at the point of making the application for license.

h) Business plan and Feasibility study available here

A Sacco Society must prepare and submit a comprehensive four year business plan in line with the transitional provisions (and feasibility study for a Sacco Society making the application to commence FOSA operations) detailing:

1. the vision and mission;
2. Scope and nature of business operations;
3. Economic and financial environment;
4. Organizational structure and management;
5. Financial and risks analysis;
6. Projected financial statements and analysis using the format provided in the regulations. The projections should show how the institution will meet the prudential standards within the plan period, namely:
1.
Capital adequacy – indicate sources of capital over the plan period.
Loans quality and provisioning – Evaluate the loan portfolio, age the delinquency and make provisions as appropriate.
Liquidity – plans on liquidity management in full compliance with regulatory requirements.
Investment – divesting to comply with regulation 48 (limits on property, equipment and financial assets).
Sustaining the asset structure and quality

1. Control measures and monitoring procedures

The financial projections are based on the business plan and hence should assist in monitoring the strategic goals of the Sacco Society and therefore an implementation plan and monitoring framework should be included.

Note: Where the Sacco Society has a current business plan, the same should be reviewed in the light of the regulatory requirements and the four years transitional period.

h) Fit and Proper forms

Duly complete and submit the “Fit and Proper test” form (SASRA 01/002) with the application for license. The form should be completed by all persons proposed as directors and senior management as defined in the form. This form is available here.

3.2 Second Stage: Letter of Intent

SASRA will assess the application for fulfillment of the requirements in the first stage and if satisfied issue a Letter of Intent to the Sacco Society to put the following in place:

3.2.1 Institutional Infrastructure or business premises appropriate for deposit taking Sacco business. This includes but not limited to:

A banking hall;

A adequate working space;

Physical security measures; and

Strong room and safe.

3.2.2. Management Information System

The Sacco Society’s Information Management System must be capable of performing and accounting for all transactions and providing the minimum reports required by the Authority in an accurate and timely manner. The system should be operationally integrated and provide adequate security including data back up.

3.2.3 Risk Management policies and internal control systems

Sacco Societies face constant risks in the course of their business including credit, liquidity, interest rate, operational, reputation and regulatory risks. The Authority will require the Sacco Society to develop risk management policy framework addressing each of the risk identified. The risk management framework must address the following key considerations.

a. Clear definition of roles and responsibility of the Board and management in development, implementation and review of the risk management systems;

b. Adequate policies, procedures and limits;

c. Risk monitoring and information system;

d. Adequate internal controls and audit specific to each risk area.

3.3 Third stage: Onsite inspection

Upon completion of all the requirements specified in the Letter of Intent, the Sacco shall notify SASRA so that an independent on site inspection can be conducted to ascertain compliance. The inspection will be carried out within 30days from date of notification.

3.4 Fourth stage: Letter of Compliance

Upon completion of on-site inspection, if SASRA is satisfied that the Sacco Society has complied with all the conditions as stated in the letter of intent, it shall issue a compliance letter allowing the Sacco Society to pay the license fees within 30days.

3.5 Fifth stage: Issuance of a License

SASRA shall issue a license to the applicant Sacco Society upon payment of license fee of Ksh.50,000 (fifty thousand shillings) for head office and Ksh.20,000 (twenty thousand shillings) for each branch. The license shall be issued within 14days from the date of payment of the license fees.

4. What happens if a Sacco Society operating a FOSA at the commencement of the Regulations does not apply for license within the twelve months provided?

In line with Section 23(1), such a Sacco Society is in contravention of the law and the officers liable to the actions stipulated in section 23(2) of the Act among others.

5. Other matters

5.1 What happens after licensing of a Sacco Society?

a. The Authority shall within fourteen days from date of licensing publish in the Kenya gazette particulars of any newly licensed Sacco society.

b. At the beginning of each year and not later than 31st January, the Authority shall publish in at least one newspaper of national circulation particulars of licensed Sacco societies.

5.2 When is renewal of a license due?

A licensed Sacco Society will be required to apply for renewal of a license at least ninety (90) days before the expiry of its operating license in respect of its head office and any other place of business. The expiry date for all licenses will be 31st December.

 

Guarantorship in Sacco Societies

The objects for which an investment co-operative society is established…..

a) To invest members’ contributions in prudently identified ventures in order to maximize the return on their investment.

b) To acquire, lease, or otherwise dispose of the society’s building(s) and other fixed properties as necessary.

c) To purchase, take on lease or exchange, hire or otherwise acquire any movable or immovable property of any kind of any interest therein any right or privileges which the management committee of the society may think necessary or convenient for the purpose of or in connection with Society’s business or which may enhance the value of any other property of the society.

d) To improve, manage, develop, and turn to account, grant rights or privileges in respect of or otherwise deal with any of the property, rights and privileges of the society.

e) To acquire and undertake the whole of any part of the business, assets and liabilities of any person or Society carrying on or proposing to carry on any business which the society is authorized to carry on or which can be carried on in conjunction with any business of the Society or which is possessed of property suitable for the purpose of the Society.

f)  To pay out the funds of the society, all expenses which the society may lawfully pay for or in connection with the formation and registration of the society.

g) To amalgamate, enter into partnership or into any arrangement for sharing profits, union of interests, co-operation, joint ventures, reciprocal concession, limiting competition or otherwise, with any person of society carrying on or engage in or can be carried on in conjunction with any business of the society or which is capable of being conducted so as to benefit the society, directly or indirectly.

h) To borrow money or receive money or deposit either with or without security or secured by debentures, mortgages or other security charged on the undertaking or on all or any of the assets of the society.

i) To subscribe for, underwriter, buy, hold, sell and deal (either on or off a stock exchange, and either as principles, agents or trustees) in every description, to advice on investment of all kinds, to advice on, assist and deal with issues, offers for sale, and generally to carry on the business of stock and share brokers.

j) To remunerate any person or company either in cash or by allotment of shares credited as fully or partly paid up, for services rendered or to be rendered in placing or assisting to place or guaranteeing the placing of any of the shares in the Society’s capital of any debentures, debentures stock or other securities of the society or in or about the formation or promotion of the society of the conduct or development of its business and to pay out of the funds of the society all expenses and incidentals to its formation and registration.

For the attainment of the above objects, the society may do acts and things that are permissible under the Act, rules and these By- laws including but not limited to power to purchase, hold, sell exchange, mortgage, rent, lease, sub-lease, surrender and accept surrender of land or buildings and construct buildings and doing all such other things as are incidental or consequential to the economic enhancement of its members interests provided such act is approved by the members in a general meeting.

Download the MODEL BY-LAWS FOR INVESTMENT CO-OPERATIVE

 

EXAMPLE OF LENDING REQUIREMENTS IN A SACCO SOCIETY

EXAMPLE OF A SWOT ANALYSIS OF A SACCO SOCIETY

Did you know that…

a) No management or Supervisory Committee member is allowed to receive from the society any payment apart from sitting allowance, and travelling and subsistence allowance, except an honorarium from the net surplus as allowed in the By-Laws.

b) The Management and Supervisory Committee members, and employees of the society hold in the strictest confidence all transactions of the society with its members.

c) When any Committee member is disqualified or unable to perform his duties, the Committee can co-opt a member or members of the society to serve on the Committee until the next general meeting if the number falls below five.

d)  No member of the management or Supervisory Committee shall in any manner participate in the deliberations and determination of any question affecting his/her financial interest. In the event of any disqualification, the remaining qualified Committee members present at the meeting, if constituting a quorum with the disqualified person may exercise, with respect to the matter, all powers of the Committee.

f) A copy of the By-Laws is to be furnished to every member who joins the society or on request upon payment of a fee not exceeding its actual cost to the society.

 

HOW CAN SACCOs COMPETE WITH OTHER FINANCIAL INSTITUTIONS?

By now, am sure we all know definition of a co-operative society and that a Sacco is a co-operative. Just to remind you of the definition; “a co-operative is an autonomous association of people who have gathered in a voluntary way in order to satisfy their economic needs as well as, social and cultural aspirations by means of a jointly owned and democratically-managed venture” International Co-operative Alliance. Therefore in short, co-operatives derive their advantage from their nature as seen in the definition.

Banks and micro-finance institutions are profit oriented/driven in every sense. They are doing well, when they make millions for the shareholders. We can say banks and micro-finance institutions are associations of capital. Co-operatives are not profit oriented, they are socio-economic ventures owned solely by the members. Co-operatives are association of people. The goal of a co-operative is “to promote thrift among its members by affording them an opportunity for accumulating their savings and deposits and create thereby a source of funds from which loans can be given to them exclusively for provident and productive purposes, at fair and reasonable rates of interest; thereby enabling them to use and control their money for their mutual benefit.”

So what are some of the main advantages that give Saccos competitive advantage?

1. Offering fair and reasonable interest rates. Saccos remain the source of cheapest credit to date in the country. No bank or micro-finance gives rate of interest like Saccos do. NONE! Therefore Saccos need to maintain these interest rates and use allowed procedures/structures to increase or reduce.
2. Saccos have ‘cost advantage’ meaning that the cost of undertaking Sacco ‘business’ and creating value in the business are less than that of its competitors. Look at what banks pay as interest on deposit/dividends and what Saccos pay given interest they charge loans!! Banks are miserly here! This cost advantage is difficult for other businesses to replicate. But can Saccos sustain these?
3. Saccos are democratically governed. The supreme authority is the general meeting. The interest rate, minimum shares, entrance/registration fees, etc. are proposed by management committee and discussed then approved or otherwise by membership in the general meetings. Banks and other financial institutions do not seek authority of all shareholders but this is done through a board of directors or such other body/interests. It is therefore very easy for Saccos to encourage and enhance member loyalty unlike banks.
4. The terms and conditions of Saccos loans/savings are in black and white, easily understandable. There are no ‘threats’ like interests rate is subject to change without ANY notice like with the banks! This can be a competitive edge since what you see is what you get, nobody will call or not call you when they want to reschedule/restructure your loan!

What do Saccos need to do to compete effectively?

Improve services. Some Saccos offer poor services to its members. Sometimes loan disbursement is delayed and a member is not communicated to. Staffs are usually rude and even some are outright abusive. Therefore co-operatives need a proactive management committee/board of directors of good standing who will put up measures that will ensure effectiveness and efficiency of the Sacco business. It never helps to hire a relative who is or not qualified. Professionalism must be maintained at all times and reprimanding someone hired on basis of tribe, nepotism, etc is difficult.

Service delivery is cornerstone of any business. Saccos cannot afford to lose business because of inefficiency and lack of structures and process that can effectively and efficiently address any of the anomalies. The fact that policy implementation can delay due to the requirement that the management committee/board of directors need approval from membership, is not sufficient to further deteriorate service delivery. Hiring, firing, promotion, etc of employees should be transparent and pre-understood. Getting the right persons on-board is as important as maintaining them as a knowledgeable workforce is a valuable commodity.

Saccos also need the ‘power to add, change, evolve, or self-organize system structure’ (Donella Meadows-Leverage Points-Places to intervene in a system). As I have noted earlier, the process of putting up policies and having them operational, sometimes delay and the advantages that could have been gained by having them in/on time, are lost. Saccos therefore are required to be pro-active and envisage situations or plan through strategic plans, business plans, etc. Information technology especially the internet has not been fully utilized by Saccos. I believe there is no single Sacco where a member can access his/her account online and transfer savings from one account to another or pay loans online through use of Visa Cards, etc. Is there? “Any system, biological, economic, or social, that becomes so encrusted that it cannot self-evolve, a system that systematically scorns experimentation and wipes out the raw material of innovation, is doomed over the long term on this highly variable planet” Donella Meadows.

Leadership is another area of great import for Saccos to effectively compete with other financial institutions. Leadership is a process of social influence, which maximizes the efforts of others, towards the achievement of a goal. It is said that leadership stems from social influence, not authority or power. Co-operatives elect their leadership from the membership. Sometimes elected leaders are not elected solely based on the quality of leadership they offer the society but other attributes like tribalism, nepotism, etc. Membership should be sensitize on importance of electing credible, accountable, honest, etc. leaders and be reminded of what is at stake when things go wrong because of the leadership they elected.

…………………………………………………….TO BE CONTINUED……………………………………………………..

I AM A SACCO MEMBER AND I CAN’T GET GUARANTORS

The issue of members who qualify for loans and not being able to get guarantors within the society membership is emerging as one of the most challenging issue faced by Sacco Societies. It follows that such members are frustrated and withdraw their membership from the society as they cannot get loans when they apply for them. Membership withdrawal affects society’s cash flow and other operations and consequently profitability.

This problem is now being faced by Saccos with check-off-systems as it was/is mostly reported in Saccos that do not have check-off-system. Saccos with check-off-systems are Saccos that receive the members’ monthly contributions/loan repayments/interest/savings from the employer(s) through a single cheque paid to the Sacco Society’s account. Saccos without check-off-systems, are Saccos that do not have a common bond as a single employer or more than one employer and these Saccos are mainly formed by business people, farmers, matatu operators, church members, women groups and youth groups. They are sometimes referred to as Rural Saccos and those with check-off-systems are called Urban Saccos.

The rural Saccos and some Urban Saccos have circumvented this challenge through the formation of “cells” within the society. These cells are groups of between 10-30 members. The members in a cell guarantee one another and are all responsible for loans advanced by the society to individual members within the cells. This means that, if there are 20 members in a cell, then an individual taking a loan has to be guaranteed by 20 guarantors! It also means that if one or more members in a cell defaults on his/her obligations, then the whole cell is taken to account.

How are these cells formed, managed and grown?

If a society has each cell with minimum of 15 members, the cell is allowed to recruit new members until the cell membership reaches 30 where it is split into two. The split cells now will have 15 members each and allowed to recruit more members and the cycle continues. Cells are formed and given names like Nairobi, Nakuru, Pamoja, Tumaini, etc. Each cell has a cell coordinator and a cell secretary where all issues are discussed, recorded and some solved within the cell and those that need the attention of management committee are presented to them by the various coordinators. All members of the society must belong to a cell for them to qualify for a loan. The normal loan application process applies.

Another important aspect of these cells is that of membership recruitment. All new members of the society, must be endorsed by the cells for them to be accepted by the society. New members are introduced into the cells by a member and supported by two witnesses who attest that they know him/her. The person is interviewed by the cell and if by majority votes they agree, then that member is endorsed. The management committee then will accept the new member after ensuring that he/she meets all other qualifications for membership.

Through meetings of the cells, which can be every month or when need arises, members socialize with one another and therefore it becomes easier to accept guaranteeing new members of the society. This is unlike where cells are not available, where one is not able to attend annual delegates meeting or any other meetings organised by the society. Also societies hold one or two general meetings in a year which is not sufficient for members of the society to socialize and know one another sufficiently so as to act as guarantors.

One of the major challenge of cells is that management committee/board of directors and supervisory committee have to belong to the cells and therefore act as guarantors and therefore contradicting the policy that states “No executive officer, management and supervisory committee member shall act as endorser, guarantors for borrowers from the society.” In cells, the management committee/board of directors and supervisory committee are not allowed to be coordinators or secretaries of the cells. They are in the cells as members of the society and not management committee/board of directors or supervisory committee members. It will be difficult for these committee members to be guaranteed within the cell given the cell rules if this policy was to be enforced. It is therefore important that these committees members be allowed to act as endorsers or guarantors only through the cells.

It is high time Saccos must become innovative and introduce cells or come up with other ways of assisting their members access their products. It will be useless for one to belong to a Sacco and not being able to get a loan more that his/her shares and deposits. I am a member of a Sacco and I went through this and I almost immediately withdrew my membership and move to another Sacco within my “area of operation” where I know I could get guarantors easily. It is a world of competition out here, you can no longer sit in your cocoons offer the same services the same way and expect to grow in membership and surplus. IT CAN’T HAPPEN.

Ask yourselves, what happens when I am transferred to another region where I am not known? What happens when I am the only member of the society in a whole sub-county/district? Can society allow me to scan my filled loan application form to members of the society that I know who can act as guarantors and who can send to Sacco the forms on my behalf or send me back for me to forward to the Sacco? These must be answered….probably 🙂

If Saccos are wondering why their membership is not growing, then look no further.

 

GUARANTORSHIP/LOAN SECURITY IN SACCO SOCIETIES

 

Most of us are aware of the following in our various Sacco Societies concerning loan security:

1. All loans must be secured by at least three guarantors. All guarantors should be members of the society, must have a good track record of repaying their own loans and not be guarantors of another outstanding loan which is in default.
2. The total deposits of the guarantors should be equal to or more than the loan applied for.
3. A borrower or guarantor may apply to the credit committee for a change of guarantors.
4. The obligation of the guarantors shall cease when the loan granted has been repaid to equal or less than the loanees total deposits.
5. The obligation of the guarantor may also cease upon alternate guarantors acceptable to the society being substituted.
6. No executive officer, management and supervisory committee member shall act as endorser, guarantors for borrowers from the society.
7. The committee may refuse to accept as a guarantor a person who is himself in receipt of a loan, and may decline to grant a loan subsequently to a member while he remains liable as a guarantor.
8. Other than the usual deposits of a member, certain loan categories or loan amounts shall be secured from pledges in form of articles as share certificates, land title deeds or insurance policy up to their surrender value may be accepted.  The Society must deposit such articles in a bank for safe custody but must be handed back to the members immediately the loan balance equals the deposits.  Confirmation as regards the validity of the articles so pledged from the issuing authority must be obtained before such documents can be admitted as security for the loan.  Mortgage in real estate can be taken as a security for a loan not exceeding two thirds of the mortgage value.
9. Upon the death of a guarantor, the loanee is required to find a replacement within a period of 30 days.
10. Loanees who do not contribute their deposits through check-off system shall seek guarantors from members within the check-off system. However, where the loanee fails to get guarantors and the loan applied for is below his or her deposits, the loan shall be granted.
11. A member’s deposits pledged as security for another member’s loan shall not be surrendered to offset his/her outstanding loan unless the former provides and alternative guarantors.

So what happens when you cannot get guarantors for one reason or another?

 

CUSTOMER SERVICE IN SACCO SOCIETIES

What is customer service?

This is a broad term which refers to those activities which are deliberately undertaken by the service or goods provider with the objective of satisfying the current customers and also attracting potential customers.

Generally it is a concept which explains all those activities undertaken by an organization to satisfy a customer.

The customer can only be satisfied if their perceived expectations of needs and wants are met by the organization.

Reasons for customer service in co-operative societies:

• a customer who is cared for and satisfied will always become a loyal customer
• a customer who is satisfied will tell other people
• a satisfied customer will become your agent recruiting others
• to be able to cope with competition
• the customer makes the organization survive
• the customer is the organization’s life
• the customer is the voice of the organization
• the customer makes the organization become proud of its business
• the customer is the organization’s future
• a dissatisfied customer will tell other people about his dissatisfaction and this will spoil the image of your Sacco.

Employees of Sacco Societies must possess the following qualities for effective customer service:

• Communication skills. It calls for the use of right word when talking to a customer. Avoid phrases that may be offensive to the customer.
• Personal presentation. You must be clean and appropriately dressed (in all ways). Avoid talking to a customer when smoking or eating unless you know him/her.
• You should have an idea of the type of customer you are dealing with. These are his/her requirements, needs and priorities, his concerns, etc.
• Product knowledge. You must have a sound (technical) knowledge of the type of product/service you are offering. The is only way you can confidently answer a customer.
• Respect. Respect a customer for what he/she is. He/she may appear boring, proud, poor, uneducated, etc, but you must respect him/her. If you respect a customer, he will value you and will be ready to listen to you.
• Mental ability. This is the ability to think quickly, to handle questions quickly and to respond with sensible answer.
• Dependability and honesty. You must keep promises. Keep appointments. If you cannot, explain this in advance.
• Self-Control. Avoid showing irritation, impatience, temper, open rudeness, fear, hesitation and other such negative behavior.
• Sociability. Be a sociable and cheerful person. Leave your troubles at home but do not take them to your customers. It is necessary to know the names of the customers you are dealing with.
• Courage, determination and perseverance. Have confidence in yourself and the value of the services you are offering.

How can your Sacco participate in customer service?

• offering quality services to the existing customers
• efficient handling of customer inquiries
• quick and effective handling of customer complaints
• professionalism when dealing with customers, both current and potential
• competitive pricing of your service or product
• seeing the customer as an integral (and indispensable) part of you business
• greet the customer with enthusiasm and smile
• thank the customer for transacting business with your Sacco and invite him/her back
• heighten his/her wish to return soon
• be positive.

In conclusion the customers’ perceived expectations must be met by your organization in order to have a satisfied customer. Customer care is not responsibility of one individual but everybody in the organization must participate. The customer is the king and he/she pays your salaries and must therefore be taken care of. A customer is not an outsider, but part of the business.

 

CO-OPERATIVES SOCIETIES ACT ON AMENDMENT OF BY-LAWS

Co-operative Societies Act CAP 490 Section 8 states:
(1) A co-operative society may, subject to this Act, amend its by-laws, including the by-law which declares the name of the society.
(2) No amendment of the by-laws of a co-operative society shall be valid until the amendment has been registered under this Act, for which purpose a copy of the amendment shall be forwarded to the Commissioner in the prescribed manner.
(3) If the Commissioner is satisfied that any amendment of the by-laws of the Co-operative society is not contrary to this Act and any rules made thereunder, he may register the amendment.
(3A) The Commissioner may, if he is satisfied that an amendment under this section was effected pursuant to a misrepresentation or concealment of a material fact by the person applying for registration, cancel the amendment.
(4) An amendment which changes the name of a co-operative society shall not affect any right or obligation of that society or any of its members, and any legal proceedings pending may be continued by or against the society under its new name.
(5) When the Commissioner registers an amendment of the by-laws of a cooperative society, he shall issue to the society a copy of the amendment certified by him, which shall be conclusive evidence of the fact that the amendment has been duly registered.
(6) In this section, “amendment” includes the making of a new by-law and the variation or revocation of a by-law, but excludes the variation of the registered address of a co-operative society where this forms a part of the bylaws of such a society.

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• Mergers or Amalgamation of Co-operatives (funnyardstick.wordpress.com)

 

CO-OPERATIVE REGISTRATION PROCEDURE

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Investment by SACCO Societies

The core business of a SACCO society is to receive savings contributions from members and to provide them with credit facilities.  This is in form of revolving fund from the members’ savings. The law does not encourage co-operative societies to invest funds in non-core business.

If money doesn’t grow on trees, why do banks have branches? 🙂

The first investment that a SACCO Society should invest its funds in is in its members in the form of loans.  Here, the society can introduce as many loan products as is practicable.  Members should be able to apply and utilize as many loan products as they may qualify for.  This should be subject to the regulations in place for loans in general, and for each loan products.

When the members’ loan demand has been fully met and there are no pending loan applications due to inadequate funds for lending, the society can invest any surplus funds in financial instruments. this is because the funds can be recalled within short notice when the need arises.

The probable areas that SACCO Societies can invest surplus funds in include; purchase of shares in companies and other institutions, investing in Government treasury bills, putting money in fixed deposit accounts. Surplus funds should first be determined and should be invested in institutional funds or other SACCO.

Before the officials decide to invest any surplus funds and where, they should properly analyze the funds position and ensure the excess liquidity is not temporary and that the core business will not be affected.

Any investment of society funds outside the core business should be able to conform with and promote the basic goals and objectives of the society.  the society should be able to get maximum return on the investment for the benefit of the members.

For SACCO Societies that qualify and are able to open and operate Front office Service Activity (FOSA), surplus funds can be invested in that activity and be utilized by members through various products that may not be offered through the back office.  Such products include short term loans and advances and loan clearing for the back office.  These products have become very popular with members and are a good source of income for SACCO Societies.

Where a society wants to invest in a building for own accommodation, or enter into long term investment, then it should use institutional capital and not members funds.   Where a society invests in real estate other than for its own accommodation, it shall not hold more than 20% of the equity in the investment.  It should also not expend a sum exceeding 25% of its share capital in such venture.

SACCO Societies should not enter into the business of acquiring land or buildings for members. Members can form separate housing co-operatives for such activities.   Members should also be sensitized and encouraged to get individual loans from their societies and join with like minded friends to acquire property.  they can later decide on what to do with the property jointly acquired.

Any involvement in non-core business should get the approval of the Commissioner and general meeting through a special resolution.

How can mobilization of member funds be improved?

Cooperatives need to find ways to increase member funding, since this provides the lowest cost, lowest risk form of capital for operations and investment. As government and donor support continues to decline, increasingly this also becomes the only practical source of funding for cooperatives. Even where outside support is still available, the advantage of increased reliance on member funding is that it gives greater autonomy to the cooperative and lowers the risk of eventual withdrawal of outside funding.

The strategy for increasing member funding depends on the particular circumstances of the cooperative, the type of activity it is engaged in and its scale of operation. Among the strategies to consider are:

Improving operating efficiency

Improving efficiency can be important for the mobilization of funds. It enables a cooperative to offer more competitive prices, securing and keeping member loyalty.

Funding and efficiency are related. Cooperatives with sufficient funds are able to invest in training and technology to reduce costs, and to increase or improve production. Well managed, technologically efficient cooperatives are generally more likely to accumulate capital.

Promoting patronage

The more members use the cooperative’s services – that is by taking loans and saving with the the cooperative – the more funds the cooperative will receive. It is therefore important for the cooperative to promote patronage. This is most easily achieved when cooperatives provide services valued by members, offer competitive interest rates and prompt payments.

Giving priority to mobilizing member funds

Most cooperatives will have to rely on member generated funds to finance their operations. Members’ financial stakes in the cooperative enforce greater accountability of the cooperative to members, build member participation in decision making and strengthen cooperative financial self-reliance and operational autonomy.

There are a number of ways in which member funds are obtained. In many cases, increased levels of funding can be achieved through adjusting these methods:

· Non-refundable membership fees upon joining/entrance/registartion fees

These fees are often small, but they need not necessarily be so if new members are buying into a successful business that provides valuable services.

·          Member shares

All members are required to purchase shares, which are usually the primary source of member capital. Shares purchased should earn dividends and are transferable to other members upon withdrawal from membership or given to his/her heirs in the event of the member’s death.

·         Member deposits

Co-operatives can also consider increasing minimum monthly contributions.

Products

     Other than loan products, co-operatives can introduce saving products e.g. holiday savings, withdrawable savings scheme, etc. Major source of affordable loans/credit. Why?

1)      Core objective and best form of saving

2)      Prerequisite for investment

3)      Saving for retirement

4)      Members earn GOOD returns at the end of the year

·          Retention of surplus.

Surplus can either be retained by the cooperative as institutional capital, or paid out in patronage refunds to members following the close of each year. In practice, cooperatives often offer interest rates more favourable than those prevailing in the market, creating little surplus and making it impossible to offer patronage refunds. Whenever possible, these practices should be altered either to build up surpluses or increase patronage refunds and attract new members.

 

·          Deferred payments

A surplus creates two opportunities for increasing capital available to a cooperative. One is the surplus retained, and the other is the patronage refund that is allocated but not immediately paid out in cash. During the period between the realisation of the surplus and the cash pay-out of patronage refunds, the cooperative has the use of the cash. Pay-out may take the form of a share or of an obligation to pay the member in the future.

Consider use of outside funding

In simple terms, the higher the institutional capital and member deposits, the more outside lenders such as banks and suppliers will be willing to loan funds to the cooperative. Care should be taken in borrowing, however since the higher the outside funding as a proportion of funds used, the higher the risk if something goes wrong.

Too much institutional capital?

For the majority of cooperatives in developing countries, the possibility of accumulating too much institutional capital any time soon is small. However, members should be aware that it is actually possible for the original purpose of the cooperative to be lost if the amount of institutional capital becomes too large.

This may result in the exclusion of new members, because present members do not want others to benefit from the services provided and surpluses produced by the capital accumulated.

Member financing builds the sense of member ownership

Cooperatives have always been referred to as “member-owned” organizations, yet in countries where cooperatives have depended too heavily on outsiders for financial support, that sense of ownership and personal financial stake has been lost. It is not uncommon to hear members and shareholders refer to their cooperative as the “government’s cooperative” instead of their own cooperative. This is largely because the financial stake or contribution of the membership of the cooperative is small relative to the non-member stake. In spite of the one-member-one-vote principle, the major suppliers of capital, in this case non-members, have the largest say and tend to determine the main priorities of the cooperative business. Cooperative member participation drops and the cooperative promise is weakened.

Conclusion

It is important to build the membership’s financial stake in the cooperative. This increases the sense of collective ownership, makes the cooperative’s management more accountable to serving members, strengthens member commitment and loyalty and thus provides a true and sustainable basis “or cooperation.

Adapted from http://www.fao.org/docrep/003/w5069e/w5069e07.htm

 

Factors to be considered when borrowing a loan

1.       Business concept
It is the duty of member to put together details of the investment to be undertaken- the purpose of the loan i.e. the loan for increasing stock, purchase of machine, purchase of building materials, purchase of land, etc.

2.       Character of borrower

Assess your character- how do you behave when you have money and when you don’t?

-put in safety measures to ensure you use the loan for the purpose intended/wisely.

-why are you borrowing? Is it because you need the loan or is it because the money is available?

-are you a trustworthy applicant? Hardworking?

3.       Capacity to pay

This is the ability to repay credit if extended. Assess your own ability to repay the loan in line with society’s loan policy and your personal financial position.

Consider your capital standing or financial strength i.e. monthly financial obligations not on the palsy that may hinder you from repaying the loan or make you suffer pecuniary embarrassment.

4.       Own contribution

This is the amount of funds borrower is willing to invest in the business. Do not expect your society to finance your project 100%

5.       Collateral for loan

These are details on security put forward by the borrower in good faith as a guarantee that money borrowed will be repaid.

In co-operatives this is basically a guarantor. However, members should use other forms of security e.g. share certificates and insurance policy, in case the society loan policy allows.

6.       Interest rate

Consider the interest rate of the loan to be borrowed and its effect on your income for the whole period of the loan repayment.

Members should concentrate on development loans for their own development and take school fees loan where necessary.

They should avoid unnecessary emergency loans at all cost because mostly one cannot do much and they reduce member’s ability to take a development loan.

RULES GOVERNING LOAN APPLICATION

An applicant shall be considered or accepted for the processing upon a members meeting the following conditions:

1.       Must have been an active member of the society for a period f not less than six months

2.       Must be consistent saver with the society for a period of not less than six months

3.       Must be willing to conform to all rules, by laws and co-operative societies act

4.       Must be a Kenyan citizen with a valid identity card and be a person of sound mind who has not been declared bankrupt or barred to contract for any reasons

5.       Must be earning regular income either from business or employment

6.       The loan application must be for prudent purposes and application must justify its legality by stating its purpose

7.       Must be willing to make all necessary disclosures of information necessary to facilitate loan processing and guarantorship

SPEECH BY HON. ADAN MOHAMED, EBS, CABINET SECRETARY FOR INDUSTRIALIZATION AND ENTERPRISE DEVELOPMENT DURING THE 91ST INTERNATIONAL COOPERATIVE DAY CELEBRATIONS ON 6TH JULY 2013

Co-operative Leaders

Distinguished Guests

Ladies and Gentlemen

It gives me great pleasure to join you today to celebrate the 91^st International Co-operative Day, locally known as Ushirika Day. This is a special day that enables co-operators to reflect on the importance of the co-operative movement in Kenya and the rest of the world. I am glad to note that the theme of this year’s event is “Co-operative enterprise remains strong in times of crisis”.This positions co-operatives as strong and sustainable enterprises that are able to survive even during hard economic times. This is because the Co-operative Business Model ensures full participation of members across all cultures, social and ethnic groups, as well as economic strengths.

Cooperatives generally mobilize both human and financial capital from their members.  It further explains why cooperative in both developed and developing economies were not adversely affected by the global economic meltdown which affected major economies.

Fellow Cooperators

The Cooperative Movement in Kenya continues to contribute enormously towards the socio-economic welfare of our people.  As you are aware, the activities of the Movement cuts across all sectors of our economy, and it impacts greatly areas such  as Finance, Agriculture, Transport, Health, Education, Housing , Youth  among others.

The Cooperative Movement in Kenya is rated 1^st in Africa and 7^th globally, according to the International Cooperative Alliance.  It continues to grow impressively as an alternative model of doing business.  To date the Cooperative Department has registered slightly over 15,000 cooperative societies .

The Sacco sub-sector continues to play a key role in the development of our economy through provision of financial access to many Kenyans are unbanked.  The sub-sector has currently mobilized domestic savings to the tune of Ksh.400 billion that is 33% of national savings and boasts an asset base of Ksh.300 billion.  It is projected that the savings will reach Kshs.700 billion mark with the registration of Saccos for Kenyans in the diaspora.  The department last year registered two such Saccos in the United States of America and the United Kingdom.  We are also targeting to register more Saccos in countries with high concentration of Kenyans.  This initiative will assist Kenyans in the Diaspora to make structured remittances and facilitate investment at home.

In understanding the role the movement plays in delivery of vision 2030, the Saccos mobilize savings, finance economic activities and bring together people hence meeting all aspects of the economic, social and political pillars under vision 2030.

Ladies and Gentlemen

The core mandate of the ministry of Industrialization and Enterprise Development that is incharge of Co-operatives is to promote the growth and development of the Co-operative Movement in all sectors of the economy. It is gratifying to note that the co-operative philosophy has been inculcated in virtually all economic and social enterprises countrywide.

In conformity to the requirements of the constitution, my ministry has already posted County Co-operative Commissioners and County Co-operative Directors of Audit to all the 47 counties. I urge co-operative leaders to engage these officers in the revitalization of County Co-operative unions to play the vital role in farm input supplies and distribution. This will make farmers enjoy the economies of scale while at the same time ensuring availability of inputs on time and stabilizing prices. Besides these efforts, we have also registered the Kenya Farmers Co-operative union whose main agenda is to support farmers through the supply of affordable farm inputs such as fertilizers and animal feeds.

The Ministry has also promoted the formation of County co-operative Development Committees to coordinate the cooperative agenda in the various Counties.

Distinguished Guests

Value addition to agricultural produce has been prioritized by the Government in Vision 2030. The future of our agricultural co-operatives lies in aggressively undertaking value addition of various produce including coffee, tea. Cotton, pyrethrum, horticultural crops, livestock and fisheries.

It is no longer feasible to continue marketing our produce in their raw form as has been the case over the years. The success in value addition has been more pronounced in the dairy sector where dairy co-operatives like Githunguri have increased returns to farmers more than ten-fold. Value addition therefore remains the best option for enhanced service delivery to our farmers and overall success of the agricultural co-operatives.

Ladies and Gentlemen

The Co-operative Development Policy explores measures aimed at empowering young people to rise from unemployment to entrepreneurship and enterprise development. To achieve this, we aim to empower the youth especially through promotion of youth cooperatives, capacity building and financing of projects managed by youth. The government offers financial support to these projects through the Youth Enterprise Fund. Apart from these the department of co-operatives has made specific interventions in the following areas:-

·        Linking Women and Youth to Youth and Women Enterprise Development Funds from which they can access credit at affordable interest rates

·        Due to limited involvement of Youth in leadership positions, the department has undertaken to promote the formation Youth led Co-operatives as an affirmative action

·        The bicycle and motorcycle transporters known as Boda Boda operators have been encouraged to form SACCOs and other types of cooperatives from where they can access credit

·        The department of Co-operative Development in partnership with the Ministry of Transport has endeavored to instill some order in the Matatu industry by promoting and registering matatu saccos

·         Through the partnership and in collaboration with our Youth Desk office, the 25 registered Youth Bunge SACCOs have been taken through three levels of training covering the importance of co-operatives, Management and Governance of SACCOs and Credit Management

Ladies and Gentlemen

As you are aware, the United Nation General Assembly declared the year 2012 as the International Year of Co-operatives in recognition of the importance of the Co-operative movement globally. The Government acknowledges that co-operative organizations help this country to revitalize the agricultural, financial sectors and  the  rural  economy. It  is clear  that, while  Co-operatives  may  not be  the only  solution  to   Kenyans problems, they  are  certainly  part  of the  solution. Kenyans are expected to fully embrace the culture of savings through SACCOs and to work together on the basis of the International Co-operative Principles and Values, as well as their objectives and goals. Ladies and gentlemen, Let me now turn my attention to the role of the Government. You are aware that the Ministry has promoted a vibrant and co-operative sector through an enabling Policy and Legal framework for the growth of a sustainable socio economic development in Kenya. In this regard the Department has in the past realized achievements which include: ·        The establishment of  the  Sacco  Societies Regulatory  Authority (SASRA)  to regulate the  large  financial Saccos; ·        The establishment of the Ethics Commission for Co-operative Societies (ECCOS) to address governance matters. ·        Revitalization of the  Co-operative Alliance of Kenya (CAK), the  Apex body of  co-operatives,  to enable  it play a more  critical  role  in modernization  of the  co-operative  sector including  participation  in serious  investments; ·        Promotion and registration of Matatu Saccos ·        Promotion and registration of County Youth Bunge Saccos ·        Promotion and registration of Sharia compliant co-operatives ·        Promotion of and registration of Diaspora co-operatives ·        Revitalizing key commodity co-operatives in areas such as dairy, coffee, cotton and horticulture. ·        Formulation of Guidelines for Co-operative Development Fund ·        The Government is also in final stages of developing the Human Resource Policy for Co-operative Movement.

Ladies and gentlemen:

As you are aware some co-operatives are faced with a few challenges as they struggle for survival. Some experience deficiency in their management, leadership and governance not to mention lack of ethics and integrity.  Similarly some of them lack adequate resources to provide quality services, as well as invest in modern technology.

However I am happy to note that a lot of improvement has been made and notable progress continues to be made in these areas.

Finally, I wish to assure the co-operative movement of the Government’s commitment in providing an enabling environment for the sector, to enable it continue playing its vital role not only in serving the members but also in the economic development of our country.

With these remarks, I wish the cooperators successful Ushirika celebrations.

 

Message of the International Co-operative Alliance (ICA)

91st ICA International Co-operative Day

19th UN International Day of Co-operatives

6th July 2013

“Co-operative enterprise remains strong in time of crisis”

 

This year’s International Co-operative Day celebrated July 6, 2013 has the theme “Co-operative enterprise remains strong in times of crisis”. It is an apt theme when one considers how other forms of business measure up when faced with current global economic struggles.
Investor owned business models currently suffer from a crisis of unsustainability in economic and social and environmental terms while the co-operative model has demonstrated time and again that it is resilient in times of crisis.
The financial crisis was an epic example of the perils of valuing short term gain over longer term viability. The global crises we have faced derive from a business model that puts financial return ahead of human need; a model that seeks to privatise gains and yet socialise loses. There is considerable evidence that a diversity of ownership models contributes to a more stable financial sector as a whole. By placing human need at their core, co-operatives respond to today’s crises of sustainability and deliver a distinctive form of “shared value.” Furthermore the co-operative model does not fall victim to the lure that has afflicted capitalism for more than twenty years in which financial performance is the central indicator of good business. Quite simply a co-operative is a collective pursuit of sustainability for it seeks to “optimise” outcomes for a range of stakeholders without seeking to maximize the benefit for any one stakeholder.
This also means that as times become more difficult the entire workforce is viewed as vital to the well-being of the co-operative, not just a few people at the top.
Certainly another area in which the global public has been buffeted is in the practices and ultimately the closing of many big banks. What were considered venerable institutions safe for investment and deposits too often have been shown to be weak and poorly run. Financial co-operatives however have often fared far better.
Savings and credit co-operatives, co-operative banks and credit unions have grown; kept credit flowing especially to small and medium sized enterprises, and remained stable across regions while indirectly creating employment. It is their unique combination of member ownership, control and benefit that is at the heart of their resilience and that provides a series of advantages over its competitors. With financial co-operatives representing an astonishingly large slice of the global banking market, it is important to better understand the model.
A recent report distributed by the International Labor Organization (ILO) and written by Professor Johnston Birchall, examines financial co-operatives from their origins in Germany in the 1850s to the global movement they represent today.
Birchall explained in an interview with ILO how before the crisis, economists said financial co-operatives were bound to be less efficient than investor-owned banks because they did not reward their managers with shares. However, the crisis has proved that financial co-operatives were less likely to risk as much as PLC banks, particularly because their managers did not receive a share of the profits.
“Stability and the aversion to risk are built into the DNA of financial co-operatives. They make surpluses and they need to, otherwise they wouldn’t be businesses. But what they do with those surpluses is put them into the reserves, which means they are very strong financially and they don’t tend to have problems with the capital requirements of the regulators.
“In credit unions in other parts of the world you can see that they didn’t even face a drop in 2008. They didn’t notice the banking crisis; they just kept on growing slowly, regularly, not dramatically.”
Another benefit of co-operatives in times of crisis should also not be overlooked: its social dimension. As economies shrink and pressure is put on governments to reduce social benefits, co-operatives often provide an invaluable lifeline. In short co-operatives contribute to the social capital in ways that investor owned businesses do not. Co-operatives may also be critical in delivering services such as health care centres that would otherwise come from private insurance or the state or may not be provided at all as state budgets shrink.
And of course one should not overlook a key benefit of consumer co-operatives: the ability to offer the public lower costs for food and other essentials – so vital when consumers’ paychecks are shrinking or they have none.
This International Day of Co-operatives July 6, 2013 gives us an opportunity to reflect on all that co-operatives have done in hard times and in good times and to redouble our resolve to ensure that this values based business model continues to draw more attention and support globally. It is a model that works time and again.

 

Understanding a Co-operative Society

What is a co-operative society?

A co-operative society is an association of persons who have come together with a common purpose of pooling their resources together for mutual economic and social benefit.

Types of co-operatives societies in Kenya

a) Savings and credit co-operative societies

These are formed to provide financial support to members. They accept deposits from members and grant them loans at reasonable interest rates in times of need.

b) Housing co-operatives societies

These are co-operative societies formed to provide residential houses to members. They purchase land, develop it and construct houses or flats and allot the same to members. Some societies also provide loans at low rates of interest to members to construct their own houses.

c) Consumer co-operative societies

These societies are formed to protect the interest of general consumers by making consumer goods available at reasonable price. They buy good directly from producers or manufacturers thereby eliminate middlemen in the process of distribution.

d) Agricultural/marketing/farmers co-operatives

These are formed by small farmers to work jointly in marketing their produce and thereby enjoy the benefits of large-scale farming.

e) Producer co-operative societies

These societies are formed to protect the interest of small producer by making available items of their need for production like raw materials, tools and equipment, machinery, etc..

f) Multipurpose co-operative societies

These are co-operatives that deal with more than one activity. The Ministry of Co-operative Development and Marketing discourages the formation of such co-operatives as their overall performance has been found wanting.

What are the objects of a co-operative society?

The main object of a co-operative society is to organize and promote the economic interest of its members in accordance with the Co-operative Principles and Values. The specific objects include:-

• promotion of thrift among members-opportunity for accumulation of savings/deposits; loans at fair and reasonable rates of interest
• to provide opportunities for members to improve their economic and social conditions
• perform those functions and exercise powers designated for Co-operatives Societies under applicable by-laws.

The Co-operative Values:

• Self-help
• Mutual responsibility
• Equality
• Equity
• Honesty
• Openness
• Social responsibility

The seven universal co-operatives principles:

• Voluntary and open membership
• Democratic member control
• Economic and participation of members
• Autonomy and independence
• Education, training and information
• Co-operation among co-operatives
• Concern for community

Structure of co-operative movement in Kenya

The co-operative movement in Kenya is divided into four distinct divisions namely:-

a) The National Apex:

Kenya National Federation of Co-operatives Ltd (KNFC)- defunct, was formed on 28th April 1964 as the Apex Co-operative organization of the Kenya Co-operative Movement with the mandate to lobby, advocate for, network, collaborate and unite all co-operatives in Kenya. It has been replaced by Co-operative Alliance of Kenya that was inaugurated in 2010.

b) National Co-operative Organizations:

• The Co-operative Bank of Kenya
• The Co-operative Insurance Company of Kenya CIC
• Kenya Union of Savings and Credit Co-operative KUSCCO
• Kenya Rural Sacco Societies Union Limited KERUSSU
• National Co-operative Housing Union Ltd NACHU
• Co-operative Collage of Kenya
• Kenya Planters Co-operative Union KPCU-registered both as a company and a co-operative society
• New Kenya Co-operative Creameries Ltd KCC

Secondary Co-operative Societies:

Comprises of all co-operatives unions countrywide.

Primary Co-operative Societies:

Comprise over 12,000 primary co-operative societies registered countrywide.

Registration of Co-operative Societies

Pre-requisites

The co-operative Societies Act, Chapter 490 of the Laws of Kenya, states that for a society to be registered with or without limited liability, it:

• has to have its object as the promotion of the welfare and economic interest of its members and
• has incorporated in its by laws the co-operative principles

Essentials for registration of a co-operative societies

For a society to be registered under the Act, it must:

• in the case of the primary society, consist of at least ten persons all of whom shall be qualified for membership of the co-operative society
• in the case of a co-operative union, it consists of two or more registered primary societies
• in the case of an apex society, consist of two or more secondary societies

Procedure for registration

• an application is made to the commissioner for co-operatives development in the prescribed form and signed by at least ten would be members
• the application is 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 such application is made, shall furnish such information with regard to the society as the commissioner may require
• if the commissioner for co-operatives development is satisfied that a society has complied with the Act and any rules made there under and if the proposed by-laws are not contrary to the Act, he may register the society and its by-laws.

Registration Documents 

• The proposed by-laws in four copies
• Filled application for registration form in four copies
• Supplementary information form in four copies (if any)
• Economic appraisal in four copies
• In case of salaried workers with check-off agreement with employer, a letter from the employer is needed.

Model By-Laws:-xxxxxxxx SAVINGS AND CREDIT CO-OPERATIVE MODEL BY-LAWS