sof Chapter Two THE ORGANIZATIONAL STRUCTURE OF CO-OPERATIVES Introduction This chapter is concemed with the structure of the co-operative movement. It highlights the objectives and functions of the various societies in the structure and supervision of co-operatives. by the Department of Co-operatives. The movement has links with intemational co-operative organizations and various donor agen- cies. ‘The structure of the co-operative movement ‘The structure of the movement is a four-tier structure as illustrated on the following page. ‘The Co-operative Societies Act recognizes three specific categories of societies, namely, the primary, secondary and apex societies. However, for convenience, there has developed a fourth category in the form of countrywide co-operative societies ‘whose membership comprises primary societies, countrywide unions and in some cases non-co-operative organizations and individuals. 7‘AP SOGERY ® (CO-OPERATIVE. SOCETY @ COMPRISING SOCIETIES @ (COMPRISING INDIVIDUALS a The primary society ‘The term, ‘primary society’ has been defined by the Act to mean a registered society the membership of which is restricted to ‘¢ individual persons. ‘Primary’ signifies something that leads in fonder, time or development. In keeping with this meaning, the primary society is created by individuals at the lowest level ‘of the structure of co-operatives. It is formed by individuals who have common economic interests and are desirous of pro- moting those interests by pulling their resources togelher and working as a team in onder 10 minimize the cost of doing © the same thing as individuals. Artisans may find that as a group organized formally rather than as. separate individuals, they are in a better position 10 buy inbulk materials necessary for their trade since bulk purchases attract discounts. ‘They may also find they are better able to organise reliable marketing outlets easily as a group since they will produce more than if they worked as individuals. They may form a ‘primary’ co-operative to enhance their objectives. Individuals may also form a savings and credit society which will enable them pool their money from which they can borrow in time of need. People of humble means who have formed savings and credit co-operative societies have found out that they are able to borrow money from theirsocieties at more reasonable terms than they would otherwise get from commer- 18cial banks. Similarly, individual farmers_may form a society ‘which will enable them to market produce collectively and to Share facilities such as cattle dips or factories which can serve all of them. A savings and credit society formed by individuals and a farmers’ co-operative are ‘primary’ societies. Primary societies are the backbone of the co-operative movement in Kenya. Examples of these co-operativesare the giant Harambee Co-operative Savings and Credit Co-operative Society formed mainly by employees of the Office of the Presi- Gent, and the Afya Savings and Credit Co-operative Society formed by employees of the Ministry of Health. These two societies have branches in the districts and provinces as their members are spread out in various parts of the country. ‘The secondary society The word ‘secondary * refers to something that comes after what is ‘primary’. It follows therefore that inthe organization of co-operatives, the term is used to refer to a co-operative union which is formed by primary societies. The Act has defined a co- operative union as a registered society whose membership is re- stricted to primary societies. "A group of primary societies. within a distsict_can form a district co-operative union to serve them. The offices of the union would nomally be situated inthe headquarters of the district. Examples of districtunions are the Nandi District Co-operative Union and the Kilifi District Co-operative Union. ‘The former serves Nandi District and its registered office is in Kapsabet. The latier serves primary societies in Kilifi and has its registered office in Kilifi Town. ‘But a district may have more than one union depending on the specific activities engaged in by each union or on _ geographical areas of the district served by each union. The Kiambu Coffee Growers Co-operative Union and the Kiambu Dairy Marketing Co-operative Union both of which have their registered offices in Kiambu Town deal with different activities in the district. In 19‘Mem, there are three unions, namely, the Meru Central Co-operative Union Ltd., Meru North Co-operative Union Ltd., and Meru South Farmer's Co-operative Union Ltd. The first and second have their registered offices in Meru Town while the third has its registered office in Chuka Town. The unions serve different areas of the same district. A.union serves primary societies which are affiliated to it by making it easier and cheaper for them to obtain various facilities required for efficient operation. The aim of forming a union is to ultimately benefit the individual member of the Primary co-operative society and to ensure that he is not exploited by middlemen, According to Rule 14 of the Co-operative Societies Rules, a district co-operative union must provide, organise and supervise efficient centralized services. for marketing, supplies, accounting, banking, transport and such other services as ‘may be necessary for its members. The members must accept these services. “The rules do not provide for services given by other unions, other than district unions. However, it is expected ‘that such unions will make provisions on the services they offer as outlined in their by-laws. ‘Unions have been used extensively in the past to channel development finance from the Government and donor agencies to individual members of primary societies. District unions maintain banking sections which are used by their members. If the Government advances money to a primary society through the Uunion, the latter administers the loan and ensures the recovery of the money by making deductions from payments due to members, ‘The union usually plays the important role of purchasing supplies in bulk, for example, stationery and farm: ‘inputs such as fertilizers for distribution to the societies. The intended result is that the cost of supplies will be less than what the societies would otherwise pay operating as individual societies. Unions charge fees for their services. District unions are also involved in the training and education of members of staff and in the employment of graded and trained staff of primary societies, 20 f‘There havebeenmany complaints regarding theoperation of ‘unions. They have been accused of being exploitative and inefficient, The Goverment iscurrently engaged infinding ways to restructure them so that they can serve their affiliates better. Jn the future, every union willbe expected o justify its existence by providing efficient services. ‘The Commissioner for Co-operative Development is empow- ered expressly by Section 9 of the Act to require any two or more primary societies 10 form and apply for the registration of ‘a co-operative union or a district co-operative union. He has ‘also the power to order any primary society to join a union or ‘a district co-operative union. Countrywide unions and societies ‘The most important countrywide unions in terms of active participation are: (the Kenya Grain Growers Co-operative Union Ltd. (KGGCU): (ii) the Kenya Union of Savings and Credit Co-operatives Ltd. (KUSCCO); (ii) the Kenya Planters Co-operative Union Ltd. (KPCU): (iv) the National Co-operative Housing Union Ltd. (NACHU); and; (v) the Kenya Craft Co-operative Union Ltd. (KCCU). In a number of these unions, membership is not confined to primary co-operatives as contemplated by the Act. They have special characteristics which stem from various factors and considerations. ‘There are also three countrywide societies which have peculiar characteristics. These are: (@. the Kenya Co-operative Creameries Ltd., the Co-operative Bank of Kenya Ltd., and Gii) Co-operative Insurance Services Ltd. 2‘We shall discuss these unions and societies in tum. The Kenya Grain Growers Co-operative Union Ltd. (KGGCU) The KGGCU was formed in 1984. It replaced the Kenya Farmers Association (Co-operatives) Limited. The latter asso- ciation was formed as far back as 1923 to serve European farmers in the provision of agricultural inputs and marketing of produce. It was exempted from the Co-operative Societies Ordinance in 1945, Many Aftican farmers, particularly owners of large-scale estates, joined the association after independence. In time, the Kenya Farmers Association was considered-inadequate for the purpose of meeting the needs of small-scale farmers. It was replaced by the Kenya Grain Growers Co-operative Union. ‘The union's main objectives are to provide incentives to farmers, especially grain growers. In particular, the objectives are to supply farm inputs at low prices to farmers by taking advantage of economies of scale, to provide warehouses and stores to farmers; to arrange for insurance coverto cater for crop failure; to assist farmers in the marketing of produce; to provide services such as ploughing, harvesting and transporta- tion, and to assist farmers to obtain credit facilities. Individual farmers as well as co-operative societies may join the KGGCU. The union has fifty-five branches. It handles a major proportion of Govemnment-aid fertilizers and it controls sixty per cent of commercial fertilizers. The Kenya Union of Savings and Credit Co-operatives Ltd. (KUSCCO) ‘The KUSCCO was formed in 1973. Its affiliates are savings and ‘credit societies which are found mainly in urban centres among employees of govemment ministries, parastatal organizations, companies and other organizations. Its basic objective is promotion and co-ordination of the interests of savings and credit societies throughout the country. It provides centralized 22‘accounting services, education, training, technical assistance ‘and other requirements of savings and credit societies such as stationery and accounting documents. Ithas branches in all the provinces and centres within districts. It represents savings and credit societies in intemational bodies. ‘The Kenya Planters Co-operative Union Ltd. (KPCU) ‘The KPCU is one of the earliest co-operatives formed to cater for the needs of European farmers and was registered both asa ‘company and a co-operative society. It was exempted from the ‘Co-operative Societies Ordinance by Gazette Notice No. 1095 of 1945. This position was maintained after independence. Its "affiliates are coffee growers who include co-operative societies and individual large-scale coffee farmers. ‘The union's main function isto process coffee. It isestimated coffee cams 30 per cent of the country’s foreign exchange. The union assists coffee farmers in production, processing and milling of coffee and arranges for marketing through the Coffee Board of Kenya, a statutory body, which auctions it to dealers. It provides farmers with short-term credit facilities and various farm inputs such as fertilizers, spray chemicals and farm machin- ery. ‘The KPCU handles payments to individual members of co- operatives whichare effected through co-operative unions and primary societies. Delays in payment to farmers and the general management of the industry have led to many ‘complaints necessitating the intervention of His Excellency the President. This intervention resulted inthe settingup ofa com- mittee to probe the industry and make recommendations. ‘The National Co-operative Housing Union Ltd. (NACHU) ‘The NACHU was registered in 1979 as a co-operative union in ‘order to provide technical services in the co-operative housing sector in accordance with specific\policy guidelines. It was the result of a recommendation in a study initiated in 1978 by the 23Government of Kenya and the trade union movement. It was intended that there would be active participation of both the private and public sectors in the provision of shelter. NACHU’s structure was not well defined at the beginning duc to limitations in the Co-operative Societies Act. The Act does not provide for a service organization such as NACHU. Iis role of provision of technical services in the housing sector requires accommodation in the Co-operative Societies Act. NACHU’s management committee comprises of ‘represen- tatives of housing societies and two representatives from the Kenya Union of Teachers and the Central Organization of Trade Unions. Its objectives are mainly to plan and develop low-cost housing programmes for housing societies; to procure loans and finance for the development of low-cost housing; to promote housing co-operatives in the country and to provide such housing. co-operatives. with technical assistance. Is. services to housing co-operatives. include the education ‘of members of the management committees; preparation of proj- cect design briefs; planning, developing and packaging housing projects and establishing proper book-keeping and accounting systems. Its services in assisting co-operatives in the planning of proj- fects are based on three options referred to first, as ‘turkey’; secondly, society as developer; and thirdly, NACHU as devel- oper. ‘The-‘tumkey’ involves a developer, who may be a private ‘person, who owns land and is willing to work with NACHU. He ‘may design a project and arrange for finance. NACHU would in tum organize one or more housing co-operatives to participate in the project. It may also arrange for finance. ‘The second option where the society acts as the developer involves asociety that owns or buys land and is willing to work with NACHU. NACHU assists the society in securing finance for the housing project, Ithas become the practice for NACHU to insist ‘on designing the project and charging a fec for its services. 24‘The third option where NACHU acts as developer is where it acquires land, designs a project and obtains finance for construction of houses which it will later sell to one or more co- operatives. NACHU's involvement in the provision of the above services have included recent efforts to obtain Kshs. 40 million to enable the Kenya Medical Housing Co-operative Society embark on the ‘development of 61 housing units in Nairobi South C for its mem- bers. The Co-operative Bank of Kenya, Savings and Loan(K) Lid., and The Housing Finance Company. of Kenya have been involved in the venture. ‘The greatest challenge to NACHU is the provision of shelter to low-income families through co-operatives. Already, the ‘union is busy trying to meet the challenge in collaboration with the ‘Commissioner for Lands, local financiers and donor agencies such as USAID/ RHUDO, Ford Foundation, Rooftops Canada and Canadian Co-operative Association. ‘The Kenya Craft Co-operative Union Ltd. (KCCU) ‘The KCCU was registered in 1981. Since its inception, it has, in collaboration with the Kenya External Trade Authority, been able to obtain export market outlets for some handicraft co- operatives. It should however be strengthened in order 10 provide centralized services to all handicrafts co-operatives some of which organize extemal markets on their own. ‘The handicrafts industry is assuming a great deal of importance and, if properly planned, could create employment ‘opportunities to many especially to women’s groups which have been some of the major producers of handicrafts. The official trend towards increased support for the informal sector ought to ‘boost the role of the union. The union should take full advantage of this govemment commitment by promoting handicraft co- operatives and exploring ways of strengthening the handicraft industry. 25‘The Kenya Co-operative Creameries Ltd. (KCC) ‘The KCC is one of the earliest co-operative societies formed, first of all, as a company in 1923 to assist European farmers inthe marketing of their milk and dairy products. It was later registered as a.co-operative society. It now caters for large-scale individual farmers and many small-scale farmers who deliver their milk through co-operatives. The society has had the peculiar feature of dual registration both as asociety and as acompany. It was exempted from all the provisions of the Co-operative Societies ‘Act but this was cancelled by Legal Notice No. 1042/82 thereby placing it within the operation of the Co-operative Societies Act. ‘Accordingly, the Goverment now has an upper hand in supervis- ing its affairs. Its dual registration has been one of its most unsatisfactory features with reference to determining exactly how it should be controlled. o ‘The Co-operative Bank of Kenya Ltd. (CBK) ‘The CBK was registered as a society in 1965 and later licensed to ‘operate asa bank under the Banking Act. Its main objective isto mobilize funds for loans to needy co-operative societies. It pro- vides advisory and banking services and accepts deposits from individual customers. Currently it has branches in major towns and has recently established another branch at Ukulima House, Nairobi. ‘Some of the loans granted to co-operatives have assisted in activities such as purchase of commercial and residential buildings, construction and farming. ‘The CBK serves as a channel for the financial support of the Government and donor agencies to co-operatives and small- scale farmers. Its board of directors comprises representatives from the co-operative movement and the Ministries of Finance ‘and Co-operative Development. The Co-operative Societies Act does not provide for direct goverment representation in a society, asituation that requires clarification as it contradicts co- operative ideals. 26‘The Co-operative Insurance Services Ltd. (CIS) ‘The CIS was registered as a co-operative society in 1975 ‘and was later registered as an insurance company. It provides insurance services to co-operative societies and is licensed to provide services in all classes of general, fire and personal accident liability group life insurance , marine and livestock insurance. ‘Some of its services to date include group personal accident insurance and workmen's compensation for staff; burglary and theft of property insurance; fire insurance; fidelity guarantee for seniorstaff; employee group life insurance for all staff and Joans protection, members’ savings, and funeral expenses’ insurance. ‘The society has branches in Mombasa, Nyeri, Kisumu, Nakuru, Eldoret and Embu and field offices in Kakamega, ‘Nyahunuru, Kisii, Kericho, Meru, Machakos and Thika. ‘Although its members are co-operative societies, its operation as a company undoubtedly raises the issue of the extent 10 which co-operative principles apply to it. Apex society ‘An apex society is defined in Section 2 of the Co-operative Societies Act as a registered society the membership of which is restricted to co-operative unions and includes a society established to serve the co-operative movement by the provision of banking and insurance and the supply of goods and services. ‘The Kenya National Federation of Co-operatives Lid. (KNFC), registered in 1964, is the apex society in the co-operative movement and is therefore the only society at the highest level in the structure of registered co-operatives. ‘The Kenya National Federation of Co-operatives (KNFC) ‘The main aims of forming KNPC were to promote, develop, guide and assist the co-operative movement and to uphold the ideals ofco-operation embodied in co-operative principles. It is involved in many activities intended to further these objectives. ‘These in- clude co-operative education, training and raising awareness about co-operative principles and practices, co-ordination of ‘economic activities of co-operatives and promotion of relations among various co-operatives. This has been achieved parly through seminars and courses organized in collaboration with the Ministry of Co-operative Development and the Co-operative College. ‘The KNFC produces and publishes literature and makes use of the radio, the print media such as journals, newsletters and other aids to disseminate information on co-operatives. The radio programme Mshiriki na Ushirika has been one of its achieve- ‘ments in this connection. It promotes and advises co-operatives. It is noteworthy, for instance, that the KNFC was 10 a large exient involved in the promotion and formation of the Kenya Union of Savings and Credit Co-operatives, the Co-operative Bank of Kenya and the Co-operative Insurance Services. The CIS has in tum made improvements on the insurance services which the KNFC was already offering to the movement. ‘The KNFC’s assistance to the movement also covers the establishment of accounting and auditing standards in the movement, organization of consultancy work and purchase of seeds. Its solicitations are a source of funds for co-operatives. It receives grants from the Govemment and donor agencies, especially from the Nordic countries. Last year, the KNFC entered into an agreement with the Swedish Co-operative Centre for tech- nical and financial support. This support was. intended to assist in the running of a legal and consultancy section. On the whole, however, the KNFC requires intensive local efforts to make it more effective for the reason that it represents the Kenya co-operative movement which is reputed to be the most advanced on the continent of Africa. Moreover, it acts asthe link between co-operatives in Kenya and the Intemational Co-operative Alliance. The first important step to 28boost its image is to ensure that its affiliates — especially individual members represented in it through delegates — fully understand and appreciate its role. ‘The KNFC’s main affiliates are unions and countrywide co-operatives which elect delegates to its general meeting, The delegates in tum elect the goveming body. Elections for its governing body startin the districts, move to the provinces while fn the final stages at the general meeting each province elects ‘wo representatives to the central council which govemns the affairs of KNEC. Countrywide co-operatives are represented in the council by their chairmen. The electoral procedure easily raises the issue of whether individual co-operators exercise sufficient influence on the affairs of KNFC. The movement maintains special Tinks with _ intemational__ co-operative organizations through affiliation. ‘The most important of these organizations are the Intemational Co-operative Alliance (ICA), the African Confederation of Co-operative Savings and Credit ‘Associations (ACCOSCA), and the World Council of Credit Unions (WOCCU). ‘The International Co-operative Alliance (ICA) ‘The ICA is a global co-operative organisation formed in 1895 as ‘non-govemmental organisation. Tis headquarters is in Geneva but it has regional offices. lis membership is derived from co- ‘operatives all over the world and its aims are 10 promote trading ‘and financial relations. among its members in accordance with ‘co-operative principles and to spread the ideals of co-operation through education. It provides a platform where co-operatives from allover the world or at the regional level can be heard and leam from each others’ experiences. ‘One of its most recent ‘contributions in this regard was the convening of the Third ‘African Ministerial Conference in Nairobi between the 14th and ‘exhibition which demonstrated the varicty of products and Services from co-operatives in the region. This exhibition was fied at promoting and. facilitating trade within the region among 29yrs and at attracting co-operators beyond the region. “A Aftica Region Office at Moshi, Tanzania, has been nits attempts to foster the link between it and the offices of the Preferential Trade Arca and regional bodies in Africa. The ICA is recognized by the United Nations and many other intemational bodies as the representative of co-operators throughout the world. ‘The African Confederation of Co-operative Savings and Credit Associations (ACCOSCA) ‘The ACCOSCA is an intemational, non-governmental organi- zation registered under the Societies Act, Chapter 108 of the ‘Laws of Kenya. Its area of operation is the African Continent and adjacent islands. Its headquarters is in Nairobi. Its registration as a society, as opposed 0 a co-operative society, gives it a large measure of independence from govemment con- wol. Itis affiliated tothe Intemational Co-operative Alliance through the World Council of Credit Unions of which it is a member. It therefore shares the same ideological commitment to co-opera- tive principles with the ICA. Its members are national savings and credit organizations in the African Continent, Ithas twenty-five affiliated organizations. Its aims and functions include promotion of savings and credit societies and national credit societies such as KUSCCO; provision of technical and financial assistance to foster growth towards self-reliance among the African co-operative savings and credit movement; provision of training and exchange pro- grammes; acting as the mouth-piece of African savings and Credit co-operative organizations in intemational forums; supplying information and assisting in the development of credit unions in Africa. s and credit co-operatives in Kenya are affiliated to ACCOSCA through the Kenya Union of Savings and Credit Society (KUSCCO) which has received invaluable technical and financial support from ACCOSCA. KUSCCO’s affiliation to 30 ‘