Dairy society eyes new products for growth (Business Daily story)

When 31 disgruntled dairy farmers decided to contribute Sh1 each for every litre of milk sold and register a co-operative in 1961, there was no telling that they were laying the foundation for a multi-billion-shilling business.

The enterprise that became Githunguri Dairy Farmers Co-operative Society last year grossed Sh6 billion in annual turnover and has attracted a couple of buyout bids.

Originally, the idea was to find a lasting solution to the persistent milk price volatility. But the more they pushed on, the deeper they sank into financial difficulties, forcing them to increase their contributions from one to two shillings.

Although this did not unlock their expected success, it hardened their resolve to push on.

“At that time, our credit-worthiness was nearly zero and no bank was willing to finance our business plan. Nearly all our applications for loans were turned down,” says Charles Mukora, the society chairman.

“The problem with Kenyan banks is that they present themselves as very close to potential customers but, practically, are very far from that reality.”

Unbowed and with no clear capital outlay to set up a processing plant, the membership enrolment went up, as did milk supply.

The society decided that they would supply the milk to the then market leader — the Kenya Cooperative Creameries (KCC) — and a local hotel.

“It was a desperate move and we had to start working with what was readily available. The profits were not forthcoming yet this was the only source of livelihood for most members,” says Mr Mukora.

Then the worst happened when KCC collapsed in the early 1990s, sending the society back to the drawing board.

“This was our lowest moment and we decided to raise capital and set up our own milk plant,” says Mr Mukora, who became a member of Githunguri Dairy while a student at Kenyatta University.

“We had no collateral but successfully approached Oikocredit International for possible funding and got Sh90 million.”

Oikocredit is a global co-operative and social investor that provides funding to small and medium enterprises to enhance business growth and development.

In 2004, Githunguri Dairy Farmers Co-operative Society went commercial with the first processing plant that produced Fresha whole milk, its flagship product.

It produced 18,000 litres of milk daily, selling it in Nairobi and its environs. That capacity has since increased to 220,000 litres currently from a workforce of 8,000.

Read more here http://www.businessdailyafrica.com/Corporate-News/Githunguri-Dairy-plots-to-cement-its-place-in-big-league/-/539550/2383882/-/mibs19/-/index.html

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2014 in review

The WordPress.com stats helper monkeys prepared a 2014 annual report for this blog.

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 44,000 times in 2014. If it were a concert at Sydney Opera House, it would take about 16 sold-out performances for that many people to see it.

Click here to see the complete report.

Letter from Standard Chartered Bank to Co-operatives and other Financial Institutions

These are words of a letter written by SCB to co-operatives and other financial institutions titled “Closure of Financial Institutions’ Accounts.”

“Standard Chartered Bank Group (“SCB”) has, as part of a comprehensive strategic review of its business and client segments in multiple countries, taken a strategic decision to discontinue banking relationships with certain client categories managed within its Commercial and Business Clients segments formerly SME Segment. One of the affected client categories is Financial Institutions (FI), within which you are classified as one.

The decision to cease banking the affected client categories in Commercial and Business Clients, including FI, has resulted from increased burden of complying with regulatory requirements for banking such clients. Key regulators under whose supervision SCB falls requires higher levels of client due diligence to be conducted on such clients, both at the time of commencing the banking relationship and on an ongoing basis. Satisfying the regulatory requirements for such clients imposes a significant cost and compliance burden on SCB.

In line with the above, we regret to inform you of our intention to close your account(s) with us effective 15th December, 2014. This notice is to enable you make alternative arrangements for your banking needs and minimize any disruption to your business.

We wish to state that this initiative has nothing to do with the standing or conduct of your operations. Upon closure, a bank draft for the balance in your account (if any) will be issued. Please pick up the draft at the branch where your account is domiciled. Cheques on the account(s) will not be honoured after the account closure. Do not hesitate to contact the undersigned for any assistance. “

We all remember when some banks locked out civil servants and teachers some years back through raising minimum account balance to 10 or 20k? Now those/that bank(s) are hawking loans in the streets and offices. Same story here. In this country people save and invest through co-operatives. By locking out these people, this bank is telling us Kenyans it does not need us. But thank God, we have banks that are still eager to serve everybody including co-operatives because they know wanjikus run this country however small their savings in co-operatives are!! Many of us will not have gone to schools/collages were it not for co-operatives which paid our school fees (school fees loans), they also provided homes we live in (development/normal loans) and paid medical bills whenever we were sick courtesy of emergency loans or even buried our dead through Benevolent Funds.

Banks should be investing in this sector instead of citing regulations and cost of complying with those regulations…it will be interesting to find out how much SCB spent on co-operatives in trying to satisfy the regulators given they posted 14% rise in 9-month pretax profit which is Kes 11.2B ($124.51 million).

Registering a Co-operative Society

There are so many people asking about co-operative registration. I have already put up information regarding co-operative registration on this blog. To summarize it all, the maximum number of people required to register a primary co-operative, is ten. Primary co-operatives are like Githunguri Dairy Farmers Co-operative Society, Stima Savings and Credit Co-operative Society Limited, Urithi Housing Co-operative Society, Safaricom Investment Co-operative Society Limited, etc. The secondary co-operatives are the co-operative unions like KUSCCO (Kenya Union of Savings and Credit Co-operatives), Meru Central Dairy Co-operative Union, etc and they require only two primary co-operatives to register them.

The ten people must qualify to be members i.e. they must have attained the age of eighteen years; their employment, occupation or profession falls within the category or description of those for which the co-operative society is formed; and they are residents within, or occupy land within, the society’s area of operation as described in the relevant by-law.

Preferably, start as a self help group and slowly build on the membership numbers and savings. This way it will be easier to convince the co-operative officer that your group is viable and can easily break even once registered. As a group, you would have interacted and known one another well before thinking of a co-operative. Its easier promoting a self-help group that has been existence for awhile to be registered as a co-operative than people who have just met. I am saying this because people expect miracles once their society is registered. If you cannot keep working on it, then expect membership withdrawals and subsequent death of the society.

There are people who have also been promised by politicians that they will be ‘helped’ once they form a co-operative. STOP. No money is free. Freebies will not take you anywhere. There is a story where a group of motorcycle operators were instructed to form a boda boda Sacco by a politician and as soon as they were given seed money, they distributed the money among themselves. Society became dormant.

A co-operative is about people not capital. Without people, there is no co-operative. The requirement of ten people aught to be amended if I was asked. The Co-operative Societies Act clearly states that if the membership of a co-operative society falls below ten, then its registration is cancelled.  A co-operative management committee has a minimum number of five and a maximum of nine members. A supervisory committee of a co-operative has three members. No executive officer of a co-operative society should be in the credit sub-committee. So, if you do the math, a ten member co-operative society will have difficulties in fulfilling the requirements of the Act.

Message of the International Co-operative Alliance

92nd Alliance International Co-operative Day
20th UN International Day of Co-operatives
5th July 2014
“Co-operative enterprises achieve sustainable development for all.”
This year, International Co-operative Day, to be celebrated on 5 July, will have the
theme of “Co-operative enterprises achieve sustainable development for all.” Concern
for the community is one of the co-operative movement’s founding values and, as
such, the need to sustainably safeguard favourable living conditions for communities
underpins all co-operatives’ operations and vision.
In a general sense, sustainability is the capacity to support, maintain or endure. Since
the 1980s, the concept of sustainability has evolved to mean the integration of
environmental, economic and social dimensions. Co-operatives here again are the
forerunners of modern sustainability. By placing human need at their centre, they
respond to today’s crises of sustainability and deliver a distinctive form of “shared
value”.
One of the goals of the Blueprint for a Co-operative Decade is to “position cooperatives
as builders of sustainability.”1 The co-operative sector needs to explain and
show to the world that sustainability is part of its intrinsic nature, and that cooperative
enterprises make a positive contribution to sustainability.
As part of this, the Alliance commissioned a scan of co-operatives from different
sectors and regions around the world to see how closely linked they are to
sustainability. Launched at our global conference in Cape Town in November 2013, the
report concluded that co-operatives embed sustainability into their operating model
and values, and that the United Nations can and should recognise this. Indeed, in a
resolution adopted in December 2001, the UN urged governments to encourage and
facilitate “the establishment and development of co-operatives, including taking
measures aimed at enabling people living in poverty or belonging to vulnerable groups
to engage on a voluntary basis in the creation and development of co-operatives”.2
The United Nations is currently setting ambitious new targets for the period after 2015
and these will be called the Sustainable Development Goals. The co-operative
movement touches one billion people worldwide and through our vision of sustainable
development for all, we can be key partners in this.
We would like to urge co-operatives around the world to use 5 July to showcase how
co-operatives are the best-placed enterprise model to develop and build sustainability
in the 21st century.

Enabling Environment for effective financial management

Key areas that provide an enabling environment for effective financial management and therefore analysis include; good governance, good leadership, proper integration of staff with in the financial management
function and appropriate financial policies and procedures.
Governance
 The governance structure should be appropriate and the governing body active.
 The vision and mission should be clear and consistently stated, known and shared.
 The organisational core values should be clearly stated, known and shared.
 Clearly defined strategy that helps planning and implementing activities. Minutes of board and management meetings should be kept including action points which are followed up.
Leadership
 Board and management exercise effective leadership.
 The leadership should set priorities and provide a clear direction for the SACCO
 The leadership directs, motivates and manages staff well
 The organisational structure is clear and appropriate for effective leadership
 The SACCO should have adequate infrastructure, facilities and technology to carry out its activities
Financial policies and procedures
 The SACCO should have an appropriate and documented financial policy and procedures
 Staff should be aware of and comply with the stated policies and procedures

Objectives and Users of Financial Statements

The primary objective of Financial Statements is to communicate in general terms the financial performance and position of the institution and how well the institution is achieving its stated objectives. The following are the typical SACCOs‟ stakeholders and the broad areas of analysis that interests them:
 Board members: The board members would like to interpret /analyse financial statements and operational statistics to better
perform their key duty of monitoring management performance and steering the SACCO towards attaining its institutional objectives, which usually includes financial sustainability.
 Management: They measure their performance with a view to improving it. They would also like to study, identify and address areas of good, average and poor performance.
 Membership: These assess the prospects of receiving dividends and capital growth and the overall safety of their investment and savings in the SACCO.
 Regulatory bodies: These would like to be convinced that the SACCO is run professionally. They would also like to know whether
the institution is financially and operationally sound and that it is run in such away as to maintain the soundness and safety of assets, for continuity.
 Creditors: The creditors would like to be assured that the SACCO will be able to pay both interest and principal. They are concerned with short term liquidity (ability to meet current financial obligations as they become due) long term solvency (ability to generate enough cash to repay long term debts as they mature) as well as the levels of debt in relation to equity.
 Donors: The donors would like to know whether the SACCO will be able to provide the service on a sustainable basis and create impact while meeting grant or loan requirements and conditions.
Various SACCO stakeholders require information to assess the extent to which the institution objectives have been attained. Accounting through financial statements provides most of this information. Best practice in microfinance stipulates that good financial management and financial analysis is the basis for successful and sustainable microfinance operations.
The quality of financial analysis depends on the quality of the information that has been recorded for analysis and this information is derived largely from the accounting system.

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