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6. Cooperatives/Joint Liabilites
A cooperative is “an independent association of women and men, united voluntarily to meet their common, social, economic and cultural needs and aspirations through a jointly owned and democratically controlled enterprise” '(ILO, Recommendation 193: Promoting Co-operatives, 2002).' Cooperatives unify people with a common bond, which could be the same occupation, living location, or religious affiliation. The main goal of Agricultural cooperatives` is to increase agricultural production and the income of its members by bringing food producers together which enables them to obtain economic and financial advantages that individual farmers would not be able to obtain. Cooperatives are non- for- profit organizations, therefore they adopt a development financial model.
Financial services are provided from specific branches called Savings and Credit Cooperatives (SACCOs). Every person, sharing the common bond, which characterizes that specific SACCO can become a cooperative member after payment of the registration fee.
Normally, agrarian cooperatives are financed by banks, governmental and international development programs or voluntary deposits from its members. Each member of the SACCO is a partial owner, receives dividends and has the right to vote (with the 1 man - 1 vote principle). The board is formed by unpaid volunteers elected from the cooperative members.
SACCOs, thanks to their non-profit status, are able to offer their members competitive loans with reasonable interest rates. Cooperatives normally obtain a loan from a classical financial institution and then divide it among their members. A loan for the purchase of a SPIS does not normally require collateral. If the farmer fails to repay the loan, the solar pump will be given to another member or the amount of the loan will be deducted from the dividends of the farmer. Group loans are also possible: members co-guarantee for each other- if one of the borrower defaults, the other members are forced to assume the debt obligation.
SACCOs offer innumerable types of loans which most of the time work with multipliers. This means that if a member has contributed 200 EUR to the cooperative fund and the SACCOs uses a multiplier of 2, then he/she can obtain a maximum loan of 400 EUR. The Kenyan Waumini SACCO for example, offers a development loan with a multiplier of 3, an interest rate of 12% and a maximum repayment period of 60 months fully secured. In the same SACCO, it is also possible to get a group super flex loan in which group members co-guarantee for each other. Insurance is required at 1% interest and the loan can stretch between KSh. 10,000 to KSh. 3,000,000. Another SACCO in Kenya called Hazina offers a normal loan with a multiplier of 4, and a maximum loan of KSh. 3,000,000 repayable in 72 months.
The condition to become a member of a Cooperative are the following:
- Identification documents.
- Common bond with the other cooperative members.
- Photograph taken from the cooperative branch.
- An account opened at that specific SACCO.
- A one-time non-refundable entrance fee (KSh. 500 at Waumini SACCO).
- A one-time minimum deposit contribution (KSh. 300 at Waumini SACCO).
- Share capital that can be paid altogether or in different rates (KSh. 15,000 at Waumini SACCO).
- Sometimes a risk insurance is required to be paid monthly (KSh. 50 at Waumini SACCO).
A cooperative’s member in order to be eligible for a loan need to:
- Fill an application form.
- Find other members who can guarantee for him, in case it is a group loan.
- Cooperative (SACCO)
- Financial Institutions
- Cooperative members
The main differences between banks and cooperatives are the following:
- Anyone can join a bank, but only people with specific characteristics are allowed to become a cooperative member and therefore apply for a loan.
- Cooperatives are normally smaller institutions with one or two branches and a limited number of ATMs.
- SACCOs offer the same service as banks do, but the interest rates at SACCOs are lower, the loans are customized, the customer service is better and the system is based on trust rather than collateral.
- Cooperatives are less attractive for big players since they have lower capital incentives.
- Sometime cooperatives have difficulties in getting loans for their members, since they first need to apply for a loan from a larger financial institution.
- In cooperatives the decision-making process is slower and not as effective since every member has the right to vote.