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.

managing change is saccosIn 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.



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.





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


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


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.






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 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


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