Role of Cooperative Management in National Development

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              No. …

            OF 2004



            IN KENYA

   31ST   AUGUST       2004
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                                                 TABLE OF CONTENTS
CHAPTER ONE: NATIONAL GOALS AND OBJECTIVES........................................ 1
   Structure of the Co-operative movement in Kenya .............................................................5
   Marketing of Agricultural Produce......................................................................................6
   Mobilization of Savings.........................................................................................................6
   Property Ownership..............................................................................................................6
   Agro-Processing ....................................................................................................................7
   The Role of the Co-operative College of Kenya .................................................................14
...................................................................................................................................... 16
   Co-operative Investments ...................................................................................................17
   Co-operative Ventures and Innovations.............................................................................19
   Reserve Fund.......................................................................................................................20
   Gender .................................................................................................................................21
   Co-operative Research and Development ..........................................................................24
CO-OPERATIVE DEVELOPMENT............................................................................ 25
   Information Management...................................................................................................26
   Computer Networking ........................................................................................................26

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Co-operatives play a major role in resources mobilization, agro-processing and
marketing of agricultural produce. Currently there are over 10,700 registered co-
operative societies with a membership of about 6 million with mobilized savings of
over Ksh.105 Billion. It is also noteworthy that co-operatives traverses all sectors
of the economy with about 63% of Kenyan population deriving their livelihood
directly or indirectly through co-operatives based activities.

Cooperative societies therefore have great potential for economic recovery and
employment creation. However, since 1997, the major changes in the co-operative
movement have been the liberalization of their economic activities and the
emergence of a competitive market economy. This brought about freedom in co-
operative management approach that involved the partial withdrawal of state
involvement in the day-to-day operations of co-operative societies. This resulted in
bad governance of the societies and contributed to the decline in the overall
performance of co-operatives.

This Sessional Paper analyses and seeks to address the causes of the decline with
the aim of revitalizing the co-operative movement to make them more
commercially competitive to continue playing a significant role in facilitating
economic recovery and sustainable development of the national economy. Indeed,
the Sessional Paper, whose theme is “Revitalizing the cooperative sector for
economic growth”, provides the policy framework for co-operative development
in a dynamic economic environment.

Through the Policy, the Government seeks to endeavour to create a conducive
environment for co-operative growth and expansion through formulation of
effective co-operative development policies and overseeing development and
administration of co-operative legislation. More attention is focused on improving
governance of co-operative societies and assisting them to build and strengthen
their marketing capacity. In addition, it is the wish of the Government to
consolidate the gains and facilitate faster growth of the co-operative sub-sector for
the movement to regain its lost glory and create wealth and employment. Under the
arrangement, the Government is to play a facilitative and regulatory role while
ensuring that co-operative management remain democratic and professional to
enable the movement to be autonomous, self-controlled and self-reliant.

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This policy paper has therefore been developed in line with the Government’s
development strategies spelt-out in the current National Development Plan (2001-
2008), Poverty Reduction Strategy Paper (PRSP), the Economic Recovery Strategy
for Wealth and Employment Creation (ERSWEC) and the Strategy for
Revitalization of the Agricultural Sector (SRA). The Sessional Paper is a
culmination of a series of stakeholder consultations that were held between the
Movement and the Government.

Hon. Peter N. Ndwiga; MP.

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1. At independence the Government embarked on Africanization of the
   economy whose major policy thrust was contained in the Sessional Paper
   No. 10 of 1965 on “African Socialism and its Application to Planning in
   Kenya.” Co-operatives were considered suitable vehicle with an
   appropriate framework to achieve aspirations of the majority of Kenyans in
   participating in economic development. This led to the enactment of the
   Co-operative Societies Act [CAP 490] Laws of Kenya in 1966. The
   implication of this development was that the Government would use Co-
   operatives as a medium to realize its socio-economic development agenda.

2. Sessional Paper No. 8 of 1970 on “Co-operative Development” had its main
   goal as the consolidation of co-operative activities. These included
   improvement of management of co-operative societies, intensification of
   education and training for members, committees and co-operative
   employees with provision for Government support.

3. Sessional paper No. 1 of 1986 on “Economic Management for Renewed
   Growth” emphasized the importance of unfettered private sector led
   economic development. Other Policy documents, especially, Sessional
   Paper No. 1 of 1994 on “Recovery and sustainable Development to the
   year 2010” re-affirmed the need for the private sector spearheaded
   economic growth.

4. The Government, through Sessional Paper No. 4 of 1987 on “Renewed
   Growth through the Co-operative Movement”, stated its commitment to
   indigenize the economy by participation of the members through Co-
   operatives. The responsibility of organizing and managing co-operatives
   was left to the members and their management committees with the
   Government playing an advisory role and assisting them to maximize
   member benefits. In realizing this objective, Co-operatives were required
   to fully participate in mobilizing domestic resources for investment.

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5. Through Sessional Paper No. 6 of 1997, on “Co-operatives in a Liberalized
   Economic Environment”, the Government reviewed its involvement in the
   management of co-operatives. The Sessional Paper provided a framework
   under which co-operatives were to survive in a competitive economic
   environment. This required co-operatives to adopt innovative management
   strategies that would provide a competitive edge. The policy also defined a
   new relationship between the Government and the Movement. The role of
   Government became that of creating a conducive environment for growth
   and development of cooperatives through formulation of effective co-
   operative development policies, overseeing the development and
   administration of the co-operative legislation and regulation.

6. As a result of Government’s withdrawal of its direct involvement in the
   management of the cooperative societies, the movement has experienced
   poor management, weak marketing structures; increased splits of societies
   into uneconomic units and increased litigations. Consequently, Co-
   operative performance has been declining, membership has been
   impoverished and there has been loss of markets and patronage.

7. On coming to power the NARC Government committed itself to achieving
   various National goals among them;

   (i) Rehabilitation of the National Economy
   (ii) Reduction poverty on sustainable basis
   (iii) Empowering the electorate to make and execute the decisions that
        affect their lives.

8. In an effort to address the problems facing the Agricultural and Rural
   Development Sector, the Government undertook to take the following
   (i)   Institute a sector review to facilitate the development of a conducive
         sector-wide development strategy.
   (ii)  Complete withdrawal of Government from production and marketing
         of goods and services

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   (iii)      Design a programme for rehabilitation of producer organizations
   (iv)       Develop a national strategy for the promotion of technology
   (v)        Design a sector Research strategy that addresses the entire product
              chain to encourage processing and value addition.

9. Through the Economic Recovery Strategy for Wealth and Employment
   Creation (ERS) (2003-2007) the Government has committed itself to the
   maintenance of a stable macroeconomic framework through various
   objectives that include increasing domestic savings to enable higher levels
   of investment for sustainable development.

10 Most agricultural crops are produced and marketed through co-operative
   societies. The ERS proposes to strengthen farmer-based institutions and
   associations in order to reduce cost of inputs and improve access to

11.    In the Strategy for Revitalizing Agriculture (SRA)(2004-20014) the
       Government proposes to revamp the Agriculture and Rural
       Development Sector through actions aimed at;

       (i)          Promoting and enhancing good governance in co-operative
       (ii)         Increasing the farmers’ income by encouraging innovativeness
                    and value addition.
       (iii)        Promoting of domestic processing of agricultural produce in
                    order to provide increased opportunities for value adding, and
                    foreign exchange earnings.

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12.      A co-operative is an autonomous association of persons united
         voluntarily to meet their common economic, social, cultural needs
         and aspiration through a jointly owned, democratically controlled
         enterprises. Co-operatives are economic units for mobilization of
         resources for national development. They are characterized by the
         intrinsic values and principles on which they are founded.

13.      Co-operatives are based on the values of self-help, self-
         responsibility, democracy, equality, equity, and solidarity. In the
         tradition of their founders, Co-operative members believe in the
         ethical values of honesty, openness, social responsibility and caring
         for others.

14.      The co-operative principles are guidelines by which co-operatives
         put their values into practice.

         These are:

             i.   Voluntary and open membership
            ii.   Democratic member control
           iii.   Member economic participation
          iv.     Autonomy and independence
            v.    Education, training and information
          vi.     Co-operation among co-operatives
          vii.    Concern for community.

         In order for co-operatives to play their role in national development,
         they should operate efficiently and effectively. This is because there
         is nothing in co-operative principles to exempt them from operating
         within the general management principles.

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Structure of the Co-operative movement in Kenya

  15.     The Co-operative Movement in Kenya is organized in a system
          consisting of primary, Secondary Co-operatives and the Apex

  16.     Co-operatives by their very nature contribute to the improvement of
          living conditions of their members especially the low income earning
          segments of the population. Due to the co-operative ability to
          harness group synergy they have been recognized as an integral
          part of the development of a national economy.

  17.     The government recognizes the co-operative movement as a vital
          instrument for the mobilization of human and material resources for
          economic development. As at 31st December, 2003 registered co-
          operative societies were 10,297 with a membership of approximately
          5.9 million. Over 63% of the Kenyan population derive their
          livelihood either directly or indirectly from co-operative based
          economic activities. By the same time, financial services’ co-
          operatives had mobilized over Kshs.74 billion, representing over
          30% of the National savings.

  18.     The movement cuts across all sectors of the economy including
          finance, agriculture, livestock, housing, transport, construction, and
          manufacturing. There are also consumer co-operative societies.
          The concentration is however within agricultural sector and finance.

          The role of co-operatives in national development is unlimited as
          they may venture in any field of economic activity. However, in the
          past, they have been active in the following key areas: -

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Marketing of Agricultural Produce

  19.     Co-operative societies provide an important framework for
          production and marketing of agricultural produce. For a long time,
          agricultural marketing co-operatives formed the backbone of co-
          operative growth, as they had been successful in bulking,
          processing, transporting and marketing of commodities like coffee
          (over 70%), cotton (over 95%), dairy products (over 76%) and
          pyrethrum (over 90%). As at December 2003, of the registered co-
          operative societies, 40.5% were agricultural, 40.8% were SACCOs
          and 18.7% others.

Mobilization of Savings

  20.     Co-operative financial intermediaries are currently the most active
          segment of the Co-operative Movement. These societies are
          organized on employment, commodity, trade, Jua Kali, Small-scale
          industries, transport and community basis. Their primary objective is
          to afford members an opportunity to accumulate savings thereby
          creating a pool from which members can access credit on favourable
          terms. By providing such savings and loan facilities, Cooperative
          financial intermediaries make a significant contribution towards
          providing developmental capital.

Property Ownership

  21.     Co-operatives provide appropriate Savings and Credit facilities to
          their members at competitive interest rates. Thus accessibility to
          credit on affordable terms has enabled members to participate
          effectively on the acquisition of property such as land, decent
          shelter, transport facilities, unlike other financial institutions whose
          interest rates are relatively higher.

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  22.    Processing and value adding of agricultural output prolongs shelf life
         and enhances packaging with increased member earnings. The
         ability by agricultural marketing co-operatives to go beyond their
         basic role and invest in agro-processing business is a major step in
         industrial transformation. The major agro-processing industries
         owned by co-operatives are in coffee, cotton, milk, fish, forest
         products, flourmills and brick making factories.

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23.   Most of the problems bedeviling co-operatives arise from bad governance
      and poor economic management. While leaders direct and control the
      organizations, and managers run them, members have authority to
      demand and enforce good governance in their organizations. Corporate
      governance principles seek to ensure that leaders act in the best interest
      of the organization that they lead in order to achieve the objectives for
      which they were founded. As the world moves towards this governance
      approach, co-operative societies are no exception. If co-operatives have to
      remain commercially viable and sustainable enterprises for socio-economic
      development, they must embrace good corporate governance.

24.   Co-operatives are governed and managed by elected committees. These
      committees are entrusted with the management of societies on behalf of
      members and employ managers and staff to carry out the day-to-day
      functions of the societies. In such instances, the leadership provides the
      guidance and delegates the powers of implementation to the staff, leaving
      them to act as members’ agents. Since the co-operative agents are
      custodians, trustees and stewards of the societies, they are accountable
      and answerable to members, and are expected to be efficient, effective,
      responsible, responsive, honest, faithful, diligent and prudent.

25.   In the management of co-operatives there has been an overlap of duties
      between the management committee and management staff. This reflects
      poor leadership and non-adherence to good management practices. For
      co-operatives to be efficient and productive, they should apply good co-
      corporate governance practices framed on the pillars of:

         (i)      Accountability
         (ii)     Efficiency and effectiveness
         (iii)    Probity and integrity
         (iv)     Responsibility
         (v)      Transparency and open leadership

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      There should be an effective body responsible for co-operative governance
      that is separate and independent of management to promote these pillars
      of corporate governance.

26.   There should be an all-inclusive approach to governance that recognizes
      and protects the rights of members and stakeholders. Co-operative
      societies will be governed and managed in accordance with the mandate
      granted by the members in a general meeting.

27.   The goals of economic recovery and sustainable development cannot be
      achieved without creating the necessary enabling environment. Hence
      those charged with responsibilities to make decisions on the use of both
      human and financial resources must embrace a high degree of
      accountability, commitment and discipline. In order to promote, improve
      and strengthen co-operative governance, all arms of the public service and
      the co-operative movement, must be non-partisan in the discharge of their
      duties. As cooperative members increasingly become aware of their rights
      and obligations, they will demand good corporate governance in their co-

28.   The Government is committed to zero-tolerance to corruption and
      unethical behaviour in the management and operation of co-operatives.
      This will be achieved by ensuring that best management practices like
      strategic planning are applied both in the Ministry and Co-operative
      Societies. Operational guidelines on Ethics and integrity including the code
      of conduct and ethics for co-operative societies will be formulated.

29.   In order to strengthen this position, the Ethics Commission for co-
      operative societies has been established to oversee and ensure effective
      adherence to the code. Capacity will be built to enhance the operations of
      this commission.

30.   Whereas co-operative societies are expected to make provisions for the
      settlement of disputes in their by-laws, the Government has established a

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      Co-operative Tribunal to arbitrate such disputes when the internal
      mechanism fails. The arbitration by the tribunal is intended to be faster,
      accessible and affordable.

31.   The Government as a shareholder on behalf of the public shall protect,
      preserve and actively exercise the supreme authority to ensure that;

               a. The legal framework establishing and determining the
                  operations of co-operatives is clearly defined.

               b. Authority of the management committee is exercised in
                  accordance with the law and in the best interests of members.

               c. The legislation is in place to ascertain that only competent and
                  reliable persons who can add value are elected to the
                  management committee.

               d. That the management committee is constantly held
                  accountable and responsible for efficient and effective
                  governance of the co-operative so as to achieve corporate
                  objectives, prosperity and sustainability.

               e. ICT is adopted to enhance capacity to monitor and evaluate
                  societies performance.

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32.   Many of the problems afflicting the co-operative movement in Kenya can
      be traced to lack of appropriate management skills and knowledge among
      cooperative members and employees. Co-operative education is aimed at;

      (i)     Developing an enlightened and responsible leadership capable of
              directing and effectively controlling co-operative enterprises for the
              benefit of members, thereby upholding ideals and values of co-
              operation for continued prosperity of the Co-operative Movement;

      (ii)    Imparting relevant management knowledge, business and
              entrepreneurial skills needed by committee members and public
              officers to enhance efficiency and effectiveness in the services
              rendered by co-operatives; and,

      (iii)   Creating awareness to the general public about the nature of co-
              operatives and the benefits that can accrue to members as a result
              of co-operation.

33.   Over the years, education and training of the co-operative movement has
      suffered due to lack of clear policy guidelines. There has not been a single
      comprehensive policy document to uniformly guide training activities
      across the co-operative movement.           Consequently, a multiplicity of
      education and training providers have been operating independently and
      according to their own rules and regulations.

34.   Critical training needs assessments have been neglected and training
      programmes have become supply driven without due consideration to
      relevance and quality.

35.   It has therefore become necessary to urgently provide a comprehensive
      and unified training policy guidelines to provide the framework for effective
      training and human resource development across the co-operative sector.

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      The policy guidelines will be developed in consultation with the relevant
      bodies in order to standardize co-operative Education and Training.

36.   The youth in Kenya constitute about 60% of the national population.
      However, currently legal barriers continue to inhibit their participation in
      co-operatives both at membership and leadership levels. This has denied
      co-operatives the invaluable contribution by this large group. There is
      therefore need to integrate legally acceptable youth activities in co-
      operative programmes so as to initiate the youth into cooperatives for
      posterity. In an effort to encourage participation of youth in co-operative
      activities, the Government will;

      i.      Sensitize co-operatives on the need to recognize the potential in the
              youth and integrate them in their Programmes.

      ii.     Through Education and Training, empower the youth to participate
              in co-operative development programmes; and,

      iii.    Promote youth participation in co-operatives through extension

37.   To achieve perpetual succession in the co-operative movement, the youth
      must be prepared to take over future membership and leadership roles in
      co-operatives. This will be achieved through: -

      (i)    Integration of co-operative education at all levels of the school

      (ii) Provision of advisory and material support to young people in the
            informal sector to initiate self-help group and income generating
            activities that later on can be transformed into co-operative

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      (iii) Development of cooperative programmes aimed at providing skills and
             creating employment for the youth by the Government and the
             movement in collaboration with workers organizations, and
             vocational training centers;

      (iv) Sponsoring cultural activities involving the youth where co-operative
            messages are underscored; and,

      (v) Encouraging youth participation in co-operatives through formation of
           co-operative youth clubs in schools and vocational training centers.

38.   It is incumbent upon each co-operative within the principle of education,
      training and information to give men members gender sensitive education
      in order to change their attitudes towards women. Co-operative members
      and leaders will be sensitized on the importance of gender balance while
      making key appointments and electing committee members. In doing so,
      quality leadership and professionalism that is necessary for a successful
      and competitive movement should not be compromised.

39.   Co-operative societies will be expected to intensify co-operative education
      programmes on gender issues in order to encourage social integration and
      enable members participate effectively. The Government will systematically
      sensitize HRD institutions to design programmes that will empower women
      in order to enhance their participation in co-operative development and
      encourage gender initiatives that are targeted to both men and women.
      Specific programmes will be designed and implemented with the purpose
      of building confidence and assertiveness among women in co-operatives
      related issues.

40.   The impact of HIV/AIDS is increasingly being felt in the co-operative
      sector. It is recognized that the most vulnerable group to the HIV/AIDS
      pandemic are those aged between 19 – 49 years, which is also, the most
      economically productive segment of the population. This age group
      provides labour for production processes and economic earnings for

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      households. For co-operatives the mortality and morbidity from HIV/AIDS
      continue to result in a substantial decline in membership and loss of
      income and savings. For those affected it means the application of
      productive resources towards medicare, defraying of funeral expenses and
      upkeep of the increasing number of orphans and dependants.

41.   The Government has established close-working relationships with national
      AIDS prevention programmes, NGOs and other agencies and will continue
      to use the co-operative infrastructure to distribute materials, and
      disseminate information on preventive measures. The Government will
      further provide support and counseling to persons living with HIV/AIDS
      and integrate HIV/AIDS information in member education programmes
      targeting co-operators.

42.   To address the problem of inadequate human capacity training will be
      provided according to identified needs. Towards this end the Government
      will develop the human Resource base with the requisite skills needed to
      develop, maintain, manage and utilize ICT programs, projects and systems

The Role of the Co-operative College of Kenya

43.   The Co-operative College of Kenya is a Government Training Institution,
      which was established as a Semi-autonomous Government Agency (SAGA)
      of ministry of co-operative Development and Marketing through an Act of
      Parliament of 1995 and is charged with the following responsibilities

      (i)    Providing co-operative education and training for various categories
             of personnel for the co-operative movement and the Government
             officers, and to serve as a center of academic excellence in the co-
             operative movement in Kenya;

      (ii)   Promoting the development and expansion of opportunities for
             continuing education in co-operative management and finance
             approved by it’s Academic Board;

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      (iii)    Providing consultancy services in co-operative management and in
               other development areas relating to co-operatives;

      (iv)     Undertaking research in disciplines related to co-operative
               management either directly or through approved institutions;

      (v)      Conducting examinations, and to award diplomas, certificates and
               make other academic awards of the college;

      (vi)     Developing syllabuses and curricula for co-operative education and

      (vii)    Examining and make proposals for the establishment of constituent
               training centers, departments and faculties; and,

      (viii)   Collaborating with other national and international co-operative
               colleges, and universities, and institutions in the field of co-operative
               education and training, in research and consultancy services and
               exchange programmes.

44.   However, the capacity of the college to develop curricula and syllabi and to
      conduct national examinations has not been realized. Consequently, the
      Government will ensure that development of appropriate curricula and
      syllabi for training of the co-operative movement and syllabi and setting of
      examinations for the award of Diplomas and higher academic awards
      remain vested in the relevant National Institutions charged with this

45.   ICT will be integrated in the curricula of the Co-operative College of Kenya.

46.   As a center of academic excellence in co-operative education and training,
      the Government will regularly review the composition of the college
      governing council to ensure it is suited to the challenges of a dynamic co-
      operative movement.

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47.   The co-operative financial structure consists of members who provide
      capital and the society, which collects and appropriates the funds. Savings
      and credit societies (SACCO) alone have been able to mobilize over
      Kshs.78 billion, which money has been devoted into servicing members’
      credit needs for provident and productive purposes.

48.   As presently organized and structured, Kenya’s primary and secondary co-
      operatives are not versatile enough to avail themselves of the
      opportunities available in the local capital market. They have continued to
      rely on their traditional sources of operational and development finances
      i.e. share capital of members, statutory reserves and surpluses, and
      Government and international aid agencies.

49.   One of the major problems within the co-operative movement is that
      majority of the members have low levels of education. This reflects itself
      in the type of unrealistic budgets prepared by committees. Proper books
      of accounts have not been kept. In view of this, the Government will
      develop appropriate training programmes to address this problem.

50.   As business oriented organizations operating in a free market economy,
      co-operatives are expected to formulate their financial policies aimed at
      achieving both short and long-term financial goals desired by the
      members. With regard to marketing co-operatives, the financial policies
      should primarily aim at paying the members the highest possible
      proportion of the price their produce fetches in the market.

51.   For savings and credit co-operative societies, their financial policies should
      aim at raising as much savings as possible from the members in order to
      increase the amount of loanable funds and to finance as many loan
      requests as possible from the members. The financial policies should also
      aim at maintaining a prudent debt to equity ratio and a firm capital base to

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      ensure corporate survival and independence of co-operatives for the
      benefit of its members. The pricing policies and budgets of all co-
      operatives should reflect and be consistent with their financial policies.

52.   In order to enhance competitiveness in a liberalized economy, co-
      operatives will have to strive to minimize their operating costs and
      maximize returns to their members. To survive as business entities , co-
      operatives will aim at generating income with minimum costs and cut a
      competitive edge over the other forms of business organizations. Their
      financial management will therefore have to be prudent, cost effective and
      devoid of waste and misuse of resources.

Co-operative Investments

53.   For quite a long time, co-operatives      confined themselves to primary
      production of agricultural commodities   and Savings and credit activities.
      Recently however, co-operatives have     diversified their undertakings and
      have invested their resources in such    ventures as banking, real estate,
      manufacturing, and tourist hotels.

54.   These are only modest beginnings of the movement’s participation in the
      modern sector of Kenya’s economy. The Government will continue to
      encourage co-operative investments in Kenya’s modern sector so long as
      the investments serve the primary objective of co-operatives, are viable
      and the benefits derived there from accrue to members.

55.   Upto now most of the investments in the modern sector have been
      undertaken by agricultural marketing co-operatives whose initial objectives
      might not have included such ventures. Moreover, when a commercial
      investment is undertaken in the name of a marketing or Savings and
      Credit society it entails exposure of members’ funds and other assets to
      the risks inherent in such secondary ventures. In order to minimize such
      exposure and problems of managing new commercial investments, co-
      operatives members will be encouraged to set up investment co-operatives

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      through which large commercial investments could be undertaken and
      managed. Shareholding in these investment entities will be limited to
      individual members who have contributed to the investment and who will
      be entitled to reap the benefits from the investments. This approach
      would provide adequate protection of members’ savings, deposits and
      payouts from attachment by creditors because of debts arising from
      secondary commercial activities carried out by subsidiary or associated

56.   All co-operative investment programmes with or without Government
      participation will continue to be appraised and approved in accordance
      with the co-operative legislation and the by-laws of the co-operative
      concerned. The Government will ensure that members’ funds are invested
      only in economically viable projects and that funds from marketing and the
      SACCO societies will be invested in new projects only with the approval of
      members and after the necessary requirements have been met.

57.   A number of co-operatives have invested their funds in real estate in the
      major urban areas. Although the return on such investments could be
      high and therefore financially attractive, their developmental effects and
      benefits to the members of the co-operative concerned might be less
      favourable compared to capital projects like coffee factories or cotton
      ginneries, etc. In their choice of projects therefore, co-operatives will be
      encouraged to give preference to those projects that will enhance their
      productivity and at the same time yield maximum benefits to their
      members. With regard to short-term investment of liquid assets, co-
      operatives will be discouraged from investing in or entrusting such assets
      to finance companies or other organizations whose status and reputation is
      not well established in financial markets. Co-operatives will be encouraged
      to invest liquid assets in sound financial institutions.

58.   Investments are usually riddled with challenges. These Challenges include,
      lack of transparency, improper feasibility studies, inadequate funding, lack
      of qualified personnel to man the investment and lack of professionalism.

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      The government will ensure that right procedures are observed and only
      encourage investments that contribute directly to the core business of the
      co-operative society. The Government will therefore not allow investments
      that divert the society from pursuing its mission, does not enhance service
      delivery to members and that does not improve the financial status of
      society. The Government will therefore ensure that before a society
      undertakes any investment, proper feasibility studies are carried out;
      members are consulted to give approval and participate through equity

Co-operative Ventures and Innovations

59.   Co-operative societies have by necessity ventured into new economic
      activities in order to meet the members’ ever changing needs. To survive
      in this competitive environment, cooperatives require new ventures that
      involve creativity, innovativeness, and new business ideas through
      formation of new organizations and strengthening of the existing ones in
      order to meet market demands. It is a recognized fact that cooperatives
      operate in most sectors of the economy; therefore efforts will be made to
      take advantage of the backward and forward linkages through their
      activities. This calls for the Cooperative movement to form strategic
      partnerships with development partners, and the private sector in
      promoting diverse agricultural processing, housing, credit and finance

60.   Co-operatives have not explored the investment opportunities that can add
      value to their products. The investment opportunities for value adding
      activities through processing and packaging of commodities has not been
      exploited to increase farm incomes and off-farm employment.

61.   Each co-operative society operates around a specific economic activity.
      However, some of the co-operatives have diversified into multi-sectoral
      activities. Such diversification is normally justified by indirect benefits that
      accrue through profits generated by such activities. Experience has shown

                                                                 Revised Draft

         that such diversification sometimes overburdens the society management
         and in a large number of cases, has resulted in business inefficiency.
         Diversification will only be justifiable if the activity directly benefits
         members through their core activity. The Government will encourage
         implementation of such activities only where there is positive
         recommendation through a detailed feasibility study of management
         capability, social and institutional acceptability in addition to, economic,
         technical, commercial and financial viability.

62.      To promote investment towards value addition and to ensure that the
         products are more competitive. The Government will support the
         development of technical, commercial and financial linkages to enhance
         exchange of experience and the sharing of risks and benefits.

         For marketing co-operatives, the government will:

  (i)          Promote processing for value addition and marketing functions
  (ii)         Encourage co-operatives to venture into provision of farm inputs and
               equipment, and chemicals
  (iii)        Encourage co-operatives to venture into divesture programmes of
               the Government
  (iv)         Encourage pooling of resources to ensure there is sustainable
               funding for co-operative production processing and marketing of
  (v)          Assist the restructuring of the co-operative sector to achieve
               business efficiency.

Reserve Fund

 63.      Every co-operative society, which does or can derive surplus from its
          transactions shall maintain a reserve fund to be invested in the manner
          provided for in the Co-operative Societies Act.

                                                              Revised Draft


64.    As a body corporate, a co-operative society is liable to taxation under the
       law. Tax is however levied on the income accruing to it and is
       determined in accordance with the tax laws. During the societies’
       operations, the income that is society specific has to be distinguished
       from individual members’ incomes, which the society handles. Members’
       funds must be clearly set aside from society income as the treatment can
       cause the society to be liable for unfair taxation. The Government will
       continuously review taxation laws relating to co-operatives in order to
       bring co-operative taxation in order to eliminate aspects of double


65.    Gender issues involve equity and not equality in the treatment or
       involvement of men and women in socio-economic development issues.
       However, gender imbalance in co-operatives remains a matter of
       concern. This is despite the fact that co-operative development policies
       advocate for equal participation of both men and women at all levels of
       co-operative leadership. This is attributed to the fact that women have
       not sufficiently lobbied and strongly campaigned for leadership positions,
       while cultural and religious norms also have continued to inhibit their
       participation. One of the roles of the co-operative movement will be to
       design, support and develop new strategies aimed at increasing the
       involvement of women in income generating activities through which
       they can become members of co-operatives.

                                                              Revised Draft


66.   The marketing and processing of agricultural produce has largely been
      done through co-operative societies. The co-operative societies have also
      played an important role in providing credit and supplying inputs to small-
      scale farmers as well as introducing new technologies.

67.   Lack of markets for Kenya’s products has been cited as serious constraint
      to the development of the cooperative sector The Government will
      spearhead the development of sustainable markets by supporting efforts
      towards enhancing capacity building in cooperative societies for them to
      appropriately perform the marketing function. The Government will thus
      support efforts towards the development of viable marketing infrastructure
      and will fully support Cooperative initiatives for value addition.

68.   Promotion as a marketing tool makes consumers aware of the existence of
      the goods and services. The challenge today is that, there is very little
      emphasis on promotion done by cooperatives. However, promotion has
      become more important now due to the liberalization of the economy
      where there is stiff competition. This has led to most primary marketing
      cooperatives becoming dormant due to; -

      (i)     Weak marketing structures;

      (ii)    Weak capital base;

      (iii)   Loss of monopoly and protection previously offered by the

      (iv)    Inadequate trained personnel to deal with modern ways of

      (v)     Limited value addition initiatives;

  (vi)        Poor and delayed payments for produce; and,

                                                               Revised Draft

  (vii)         Rampant corruption and mismanagement of co-operatives leading to
             the poor image of the sector.

69.   In order to be competitive in the market place, co-operatives need to
      adopt modern methods of production, processing and marketing. The
      Government will continue to put in place macro-economic policies that will
      enable it to divest from carrying out business ventures, create a conducive
      environment and provide a level playing ground for cooperative
      participation in business enterprises. In this endeavour the Government
      will support Co-operatives: -

      (i)      To acquire capital to invest in product development and value
               addition activities;

      (ii)     To identify competitive market outlet for co-operative products and
               services; and,

      (iii)    To build capacity in International Trade.

70.   The Government has implemented a variety of reforms to create an
      economy that is market oriented with less controls, and has encouraged
      the private sector to play a major role in the economy.

      To promote co-operative marketing the Government will:-

      (i)         Facilitate build capacity of co-operatives to take up service
                  delivery roles efficiently.
      (ii)        Promote good governance in co-operatives to allow member
                  representation on issues regarding input and output marketing
                  and form a basis for group marketing.
      (iii)       Update and enforce marketing legislation to facilitate greater
                  stakeholder participation and self-regulation.
      (iv)        Facilitate development of marketing systems and use of e-
                  commerce information

                                                                Revised Draft

Co-operative Research and Development

71.     The Government and the movement have not undertaken adequate
        research on co-operative sector growth and expansion. Indeed, only
        sporadic surveys have been undertaken to address situational needs.
        However, for sustainable growth of the sector, there is need for research
        and development to be undertaken on a continuous and sustainable basis.
        The need for this is however more pronounced now in the face of current
        global trends. Thus cooperation and collaboration amongst cooperatives
        and promotion of strategic alliances with private sector-based institutions
        is crucial for the continued growth of the cooperative sector.

72.     For sustainable growth of the sector, there is need to research into
        cooperative movement’s Product development and Marketing in order to
        revitalize the co-operative movement. For this to take root, there are many
        challenges that the movement must address. These include:-

(i)     Continuous allocation of adequate funding from within the sector;

(ii)    Creating suitable research teams in collaboration with stakeholders; and,

(iii)   Establishing linkages and networking with other research institutions.

73.     The Government is committed to supporting research and development
        initiatives through budgetary provisions and strategic alliances with other
        stakeholders in order to build capacity in this critical area for the
        cooperative movement. The research findings will be published and
        disseminated to the co-operative sector and other stakeholders. A
        databank will be established to provide information on membership in
        terms of age, gender and occupation including location to help in decision
        making and planning for market segments.

                                                                Revised Draft


74.   Information and Communication Technology (ICT) has been identified as a
      catalyst for globalization and is turning the world into a global village. The
      ICT advances continue to impact heavily on all sectors of the economy and
      the co-operative sector is not an exception. Effective and quick response
      to this technological challenge will facilitate the Co-operative Movement to
      reap maximum benefits from the fast growing ICT industry. The other
      challenges brought about by globalization, such as electronic commerce,
      electronic communication and corporate governance, dictate that if the Co-
      operative Movement in Kenya is to remain relevant and make meaningful
      contribution towards socio-economic development, it must institutionalize
      ICT in it’s operational systems, structures and management.

75.   The Government has recognized ICT as an essential tool in present-day
      management of cooperatives. However, the rate of ICT adoption and its
      overall application in both the Government and the cooperative movement
      has remained low. Most societies that have managed to automate their
      operations have done so on individual basis. This approach has brought in
      challenges of integration, compatibility and coordination. However, there
      is a definite digital divide between rural and urban co-operative societies
      with a bias in favour of urban co-operatives

76.   While Cooperative societies continue to make progress, the digital divide
      between Government and the movement in terms of capacity building and
      resource allocation continues to widen. This disparity is caused mainly by
      inadequate investment, inadequate education and training, over-reliance
      on external assistance and lack of guidelines. Consequently, there is need
      to take a national approach in the adoption of ICT in order to effectively
      address the digital divide taking into account the different institutional
      requirements. The Government is committed to supporting cooperatives
      adopt ICT in improving their management and service delivery systems
      and will play a central leadership role.

                                                              Revised Draft

      Information Management

77.   An integrated Management Information System (MIS) is important to
      ensure accuracy, timeliness and accessibility of data and information
      required for the growth and development of the co-operative movement.
      Cooperative societies will be encouraged to acquire modern standardized
      ICT hardware and software to enable them improve their management
      and interlink with others.

78.   The Government will endeavour to establish an ICT management
      framework for both the Ministry and the Movement in order to ensure
      sound and consistent ICT management practices across the sector. The
      Government, in collaboration with the Apex societies will develop and
      provide standards and guidelines for the acquisition, development,
      management, support and use of ICT hardware and software in co-
      operative processes and service delivery.

Computer Networking

79.   Lack of networking and inadequate telecommunication networks especially
      in rural areas has seriously hampered communication and information
      exchange. Even though some societies and institutions are operating Local
      Area Networks (LANs), they are not linked among themselves or with their
      grassroots and regional stations. The Government will promote investment
      and training on networking to enhance local and wide area networks. The
      setting up of computer networks will enable the co-operative movement
      linkup with national information systems, have access to other members’
      information systems and international co-operative organizations. This will
      facilitate access to the worldwide web (Internet) and online services such
      as electronic mail in addition to the sharing of information with relevant


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