UNIVERSITY OF KABIANGA

UNIVERSITY EXAMINATIONS
2019/2020 ACADEMIC YEAR
FOURTH YEAR FIRST SEMESTER MAIN EXAMINATIONS
FOR THE DEGREE OF BACHELOR OF SCIENCE
IN
AGRICULTURAL ECONOMICS AND RESOURCE MANAGEMENT

ARE 414: CO-OPERATIVE MANAGEMENT AND DEVELOPMENT

MARKING SCHEME

Q1 (i) Rationale of forming SACCOs

 Through the activities of agricultural co-operatives, socio-economic changes as well as
enhancement of wellbeing of members can be achieved.
 Co-operatives alleviate problems of lack of funds
 It serves as a means of transferring technological innovations to farmers.
 Co-operative facilitates savings.
 Resources can be pooled together to procure inputs and sell outputs in bulk. These
allows for achievement of economies of scale.
 Contributes to rural development.
 Socio-political development of members is enhanced through co-operatives.
 It fosters national unity and contributes to world peace.
 Through Co-operatives, adult literacy programmes could be facilitated.
 Facilitates job creation and rural employment.

(ii) Qualifications for membership to a co-operative society

 One must have attained the age of eighteen years
 The member’s employment, occupation or profession falls within the category or
description of those for which the co-operative society is formed
 The member must be a resident within, or occupies land within, the society’s area of
operation as described in the relevant by-law.

(iii) Rights of a co-operative society members

A right is what a member of a co-operative deserves to be given, or is entitled to get, enjoy or
feel. In order to enjoy these rights, a member must have paid the necessary membership fees and
purchased at least one minimum share and also have deposits in the Sacco Society.

These rights are:-

 to attend and participate in general meetings.
 to elect and be elected to the organs of the society subject to this by-laws.
 to enjoy the use of all facilities and services of the society subject to the by-laws.
  to receive periodically and regularly or upon request a statement of account in respect of
transactions with the society.
 to access all legitimate information relating to the society including: internal
regulations, registers, minutes of general meetings, annual accounts, inventories and
investigation reports at the registered office of the society subject to any regulations in
force.
 to transfer shares.
 to share in the profits of the society, if any.
 to vote on all matters put before the general meeting of the society.
 to appoint a nominee.
 to ask for a special general meeting subject to the rules and the society by-laws.

Members Obligations
The conferment of rights to a member also demands that a certain obligations be fulfilled. A
member’s obligation is what the society expects from a member. As much as a member enjoys
rights from the society, he has an obligation to:-
 attend and participate in passing resolutions at general meetings.
 observe and comply with all the society’s by-laws and decisions made by organs of the
society in accordance with the by-laws.
 buy and pay-up for shares or make any payments as provided for in the by-laws of the
society.
 patronize the society’s products.
 attend members’ education meetings.
 repay loans as per the agreement.
 promote the society and its service or products.
 pay for the debts of the society at the time of liquidation where the assets are insufficient
to meet liabilities.
 support projects of the society approved by the relevant authority.

(iv) Principles of co-operatives

(i) Voluntary and open membership;
Cooperatives are voluntary organizations open to all persons able to use their services and
willing to accept the responsibilities of membership, without gender, social, racial political or
religious discrimination.
(ii) Democratic member control
Cooperatives are democratic organizations controlled by their members, who actively
participate in setting their policies and making decisions. Men and women serving as elected
representatives are accountable to the membership. In primary cooperatives members have
equal voting rights (one member one vote), and cooperatives at other levels are also organized
in a democratic manner.
(iii) Member economic participation
 Members contribute equitably to, and democratically control, the capital of their cooperative.
They usually receive limited compensation, if any, on capital subscribed as a condition of
membership. Members allocate surpluses for any of the following purposes: developing
their cooperative enterprise, possibly by setting up reserves, part of which at least would be
indivisible; benefiting members in proportion to their transactions with the cooperative and
supporting other activities approved by the membership.
(iv)Autonomy and independence
Cooperatives are autonomous, self-help organizations controlled by their members. If they
enter into agreements with other organizations, including governments, or raise capital from
external sources, they do so on terms that ensure democratic control by their members and
maintain their cooperative autonomy.
(v) Education, training and information
Cooperatives provide education and training for their members, elected representatives,
managers, and employees so that they can contribute effectively to the development of their
cooperatives. They inform the general public -particularly young people and opinion leaders-
about the nature and benefits of co-operation.
(vi) Co-operation among cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement
by working together through local, national, regional and international structures.
(vii) Concern for community
Cooperatives work for the sustainable development of their communities through policies
approved by their members.

(v) SACCO Societies Regulatory Authority (SASRA) is the national government agency
mandated to license and regulates all SACCOs operating front office savings activities
(FOSA) in Kenya.

(vi) a) Directly from members

Members help finance the operations and growth of the cooperative through:
 one-time or annual membership fees
 member contributions with no individual ownership attached, such as service fees
 member share capital
 individual member deposits with the cooperative which may be used for business
 deferred payment to members for part or all of their produce delivered to the cooperative
b) From cooperative business surpluses
Funds created through the retention of cooperative business surpluses that are not directly
allocated to members are another important source of cooperative capital. This is a long term
source of funds since most cooperatives’ rules allow these funds to be distributed only when a
cooperative is liquidated. Unlike loans, or individual member deposits, the cooperative does not
have to pay interest to use these funds. Of course, retaining such funds by the cooperative also
represents a cost to the individual members who otherwise would have had that portion of the
surplus allocated to them. Members willingly accept this cost when the benefits it creates for
them are clear and worthwhile.
This source of funds from retained surpluses is often called “institutional capital” and represents
the collectively-owned wealth of the cooperative.

c. From outsiders
External funding may be provided in different ways:
 as a grant
 as a short-term loan
 as a long-term loan
 as trade credit offered by a supplier.

Q2. (a) Challenges facing the co-operative societies in Kenya

The main challenges agricultural and other cooperative societies include:

a) Low savings culture. The prevailing low savings culture among cooperative members
hinders development of financial cooperatives
b) Poor infrastructural development. Most fresh produce are destroyed because of lack of
quick access to markets because most members of cooperatives have farms located far from
the trading centers, with undeveloped feeder roads where they face transportation challenges
and high costs that affect profitability
c) Huge debts Cooperative enterprises especially those involved in commodities and agricultural
produce have over the years accumulated huge debts with financial institutions, and other
government financial institutions. This has slowed the growth and development of such
cooperative enterprises, discouraged members from patronizing them and caused some of
them to collapse
d) Lack of experienced human resource. Many cooperative enterprises lack sufficient trained
and experienced ICT personnel to effectively deliver ICT solutions
e) Use of obsolete equipment and machinery. Most commodity based cooperative enterprises
such as those involved in marketing, production or processing have been and are using
obsolete equipment and machinery in bulking, milling, processing and marketing their
commodities that increases the cost of processing and of the final product
f) Competition. Many cooperatives enterprises have not been able to fully cope with intense
competition precipitated by economic liberalization
g) Lack of information and research. One of the major challenge facing cooperative
enterprises is the inadequate research in emerging cooperative products and services.
Additionally, there is lack of reliable sources of information and data pertaining to
cooperative enterprises in Kenya
h) Inability to adapt new technology. The cooperative membership is comprised of an aging
population. Majority of the members are in their late 60s and have not been able to adapt to
new technology and modern business practices
i) Poor management. Many of the cooperative enterprises are unable to employ and retain high
caliber management staff; the burden of due diligence is left to the cooperative members
 through the directors of the management committees, who are often have limited education
on cooperative operations.

NB: A mark for any reasonable corresponding solution to the challenges discussed.

(b) Roles of County Governments

The roles of County Governments in management and administration of Co-operatives include:
a) Formulation of county specific co-operative policies in line with national goals and policies
b) Promoting registration of co-operatives
c) Carrying out impromptu inspections into the affairs of county co-operatives
d) Provision of audit services and enforcement of audit requirements and standards
e) Promoting value addition and adoption of appropriate technology by co-operatives
f) Establishing and maintaining county co-operative information centers
g) Enforcing compliance with co-operative legislation
h) Facilitating collaboration and linkages with various stakeholders for the benefit of the
movement
i) Enforcing good governance in the management of the co-operative societies within their
jurisdiction
j) Undertaking co-operative education and training

Q3. The co-operative movement in Kenya is organized into four-tier system consisting of;
Apex, Tertiary, Secondary and Primary co-operatives.

(i) Primary Co-operatives

These co-operatives restrict their membership to individual persons and are mainly formed by
individuals within a given locality or common bond. Most of them are single-purpose or
single product enterprises. They group individual members for their economic thrift and
cut across all sectors of the Kenya economy such as; Marketing Co-ops, Savings and
Credit, Housing, etc.
(ii) Secondary Co-operatives
These co-operatives restrict their membership to primary co-operative societies. They
include the County/District Co-operative Unions which serve the primary co-operatives as
service agencies. They are managed by an executive committee whose members are elected
from the primary co-operatives.
(iii) Tertiary / National-Co-operative Organizations (NACOs)
These are countrywide co-operative organizations whose membership is drawn from
secondary and primary co-operatives. Examples include; Co-operative Bank of Kenya Ltd,
New Kenya Co-operative Creameries (KCC) Ltd,
(iv)Apex Co-operative Organization
The apex co-operative organization today in Kenya is the Co-operative Alliance of Kenya
(CAK).
 (b) Co-operative Alliance of Kenya (CAK) endeavors to;
 promote co-operative development
 unite the co-operative Movement
 represent the co-operative interests on all matters of policy and legal framework and
 be the spokesperson of the Co-operative Movement in Kenya

(c) Annual general meeting

Every co-operative society is required to hold AGM within four months after the end of the
society’s financial year.
Special general meeting
This is a meeting that a co-operate society may convene whenever special circumstances
arise necessitating for it to be convened. The special circumstances will depend on the
circumstances of the society in question. It may include something that has arisen and is
urgent and cannot wait for the next annual general meeting. It may be convened at any time
during the lifetime of the cooperate society and it may discuss any agenda that may have
necessitated its being convened.

(d) Annual general meeting

Every co-operative society is required to hold AGM within four months after the end of the
society’s financial year. During such AGMS, the members are required to;
(a) consider and confirm the minutes of the last general meeting
(b) consider any reports of the Committee or the Commissioner
(c) consider and adopt audited accounts
(d) determine the manner in which any available surplus is to be distributed or
invested
(e) elect the co-operative society’s office bearers for the ensuing year;
(f) determine the maximum borrowing power of the society
(g) appoint an auditor for the ensuing year; and
(h) transact any other general business of the co-operative society of which notice
has been given to members in the manner prescribed in the by-laws of the co-
operative society.

(e) Amalgamation of cooperative societies

Co-operative Societies Act Cap 490 provides that any two or more societies referred to as the
amalgamating societies may by preliminary (special) resolution resolve to amalgamate as a
single society.

Division of Co-operative Societies
A co-operative society may also by special resolution resolve to divide itself into two or more
co-operative societies.
Q4. (a) Forms of Agricultural Co-operatives
(i) Agricultural Producer Co-operatives
(ii) Agricultural Produce Marketing Co-operatives
(iii) Agricultural Thrift and Credit Co-operatives
(iv)Agricultural Consumer Co-operatives
(v) Multipurpose Co-operative Societies

(b) Special/extra-ordinary general meeting

This is a meeting that a co-operate society may convene whenever special circumstances arise
necessitating for it to be convened. The special circumstances will depend on the circumstances
of the society in question. It may include something that has arisen and is urgent and cannot wait
for the next annual general meeting. It may be convened at any time during the lifetime of the
cooperate society and it may discuss any agenda that may have necessitated its being convened.
The power to convene special general meeting is vested in the management committee but it may
also be convened by board of representatives or by the commissioner.
If the Committee fails to convene a meeting within fifteen days of receiving the
notice signed by a number of members, the members demanding the meeting may
themselves convene the meeting by giving notice to the other members of the co-operative
society, stating the objects and reasons for the meeting and the fact that the Committee has
failed to convene the meeting.

(c) Qualifications to be a member of the management committee

For any member to be a member of the management committee will have to satisfy the
following:
a.       Be a member of the society
b.      Be literate
c.       Must not be someone who has been adjudged bankrupt
d.      Must not have been named adversely in an enquiry report that has been adopted at the
society’s general meeting.
e.       The person must not be a member of the management committee of more than two other
corporative societies
f.       He must not be a person who is engaged in business or activities that may be considered be
running into competition with the business of the cooperative society. For example, if the
society is trading in agricultural produce then he must not himself be trading in agricultural
produce in his own right.
g.      He must not be a person who has been convicted of fraud or mismanagement under the act
h.      Must not owe any debt to the society other than ordinary loan.

Q5. (a) Procedure for registration of a co-operative society

Step 1: Organize yourselves as a group with a an intent of forming a cooperative

  Coordinate people to form up a cooperative society. The start-up cooperative members
must be at least enough to form a Society Board in a full cooperative.
 Essentials for registration of a co-operative society are as follows:-
 In the case of a co-operative union, it must have at least two registered societies as
its members
 In the case of registration of a primary society, it should consist of at least ten
persons all of whom shall be qualified for membership of the co-operative
society.
 Qualification for membership to a co-operative society are as follows
a) One must have attained the age of eighteen years
b) The member’s employment, occupation or profession falls within the category or
description of those for which the co-operative society is formed
c) The member must be a resident within, or occupies land within, the society’s area of
operation as described in the relevant by-law.
Step 2: Write letter of intent
 Write a letter to the Province Cooperative Officer (PCO) through the District Cooperative
Officer (DCO) requesting to be registered as a pre-cooperative society
 The letter should state who the cooperative is made of and what they plan to accomplish.
 The following information should also be sent to the cooperative office
(i) The organization’s contact people (2)
(ii) A list of members – not less than 15 with their ID numbers and signatures
(iii) The amount that is to be contributed monthly
Step 3: Meeting with cooperatives officer
 After receiving the letter of intent, the District Cooperative Officer (DCO) will meet the
group to verify whether the group is viable to register or not.
 If the DCO finds the group viable for registration, he will give the group an approval for
registration.
Step 4: Hold meeting to form a formation board and elect a chairman and secretary
 It’s important to have these positions occupied for accountability and organization
purposes of the group.
Step 5: Drafting of the cooperative’s constitution, objects and by-laws by the Formation
Board.
 After election, the Formation board should decide on the type of society to be formed,
prepare by-laws for the society and assess founder members level of business.
 A constitution is the cooperative’s guide which should be drafted. Once this has been
drafted and approved, every member should get a copy which they sign and commit to
the terms and conditions. The constitution identifies the cooperative’s mission, goals, and
objectives.
Step 6: Make application of registration with the Ministry of Industry, Trade and
Cooperatives
  Visit the Provincials/District cooperatives offices to make the application for registration.
Application for registration forms are provided at these offices
 The following document should be attached and submitted together with the registration
application.
(i) Name of the Proposed Society
(ii) Proposed by-laws of the society
(iii) A Draft Constitution
(iv) Names of a minimum of ten proposed members
(v) Names of a minimum of three officials – Treasurer, Secretary General and
Chairperson
(vi) The postal and physical address (Location) of the Society
(vii) Minutes of the meeting seeking registration and showing elected officials
(viii) Copies of National Identity Cards of all group members
(iv) Application fee proof of payment receipt (Ksh 500 is charged for the registration)
Step 7: Obtain letter of recognition as a pre-cooperative society
 After assessment and satisfaction of the application, the registrar will issue a letter of
recognition which will allow the group to operate as a pre-cooperative society for three
(3) years.
 During the given three (3) years members of the formed pre-cooperative society must
fulfill the conditions required to become a full cooperative society.
Step 8: Obtaining Registration Certificate and a Certified Copy of by- laws
 When all requirements are fulfilled at the end of the three years, the society shall then be
registered as a full cooperative society. However, if at the end of the three (3) years the
pre-cooperative society has not fulfilled the conditions, the letter of recognition will be
cancelled.
 Upon full registration, the registrar issues a Registration Certificate and a Certified Copy
of by- laws.

(b) Duties of a registered co-operative society in Kenya

Every cooperative has a duty to;
a) Have a registered address through which it shall send notices
b) Keep a copy of the co-operative Act, its own by-laws and a list of its members at its
registered office. The cooperative also has a duty to keep these documents open for
inspection by any person, free of charge during business hours
c) Cause to be prepared estimates of the society`s income and expenditure including
recurrent and capital estimates for approval by the general meeting at least three months
before the end of the preceding financial year. This is done through the committee.
d) Keep proper accounts prepared in accordance with international accounting standards
reflecting the true and fair state of the co-operative society`s affairs
e) Keep the books of accounts at its registered office or at such other place as may be
determined by the co-operative society. These books of account shall at all times be
available for inspection by members of its supervisory committee and the auditor
f) Cause its accounts to be audited at least once in every financial year by an auditor
appointed in the AGM
g) Produce all moneys, securities, books, accounts and documents belonging to or relating
to the affairs of such society required by the commissioner or by a person authorized in
writing by him to do so