Republic of Uganda
Ministry of Trade, Industry and Cooperatives
GUIDELINES
FOR STARTING UP SUCCESSFUL, STRONG, VIABLE AND MODEL
COOPERATIVES IN UGANDA
Prepared by
Department of Cooperative Development
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Republic of Uganda
Ministry of Trade, Industry and Cooperatives
GUIDELINES
FOR STARTING UP SUCCESSFUL, STRONG, VIABLE AND MODEL
COOPERATIVES IN UGANDA
Prepared by
Department of Cooperative Development
TABLE OF CONTENTS
Content Page
1.1 What is a co-operative? ................................................................................................ 2 1.3 Characteristics of co-operatives. .................................................................................... 2 1.4.1 The seven Co-operative Principles. ............................................................................. 2 1.7 Why form Co-operatives? ........................................................................................... 4 1.8 Essential Conditions for the Success of a Co-operative .................................................... 4 i) The co-operative needs to produce visible and tangible (economic and social) benefits for its members, which should outweigh the costs involved in co-operation. ................................ 4 1.9 Legal Basis of Co-operatives ........................................................................................ 5 3.0 STEPS IN THE FORMATION OF A CO-OPERATIVE ............................................................................. 5 Step 1. Developing the Idea ........................................................................................... 5 Step 2. Conducting a feasibility and viability study of the proposed co-operative .............. 5 Step 3. Recruiting members .......................................................................................... 6 Step 4. Registration of a co-operative ............................................................................ 9 3.0 CO-OPERATIVE LEADERSHIP / GOVERNANCE AND MANAGEMENT STRUCTURE. ....................... 10 3.1 Model Leadership/Governance and Management Structure of a Co-operative ............. 10 3.2 Duties and Responsibilities of the different organs in the leadership/governance and management structure. .................................................................................................... 11 General Assembly ...................................................................................................................... 11
Board/Committee .......................................................................................................................... 11 Composed of 5 - 9 members with women and youth representatives. .......................... 11 Supervisory/Audit committee .................................................................................................... 11 Composition: Two or three people elected by the AGM. The members must not be members of other committee(s)or any of its sub-committees nor members of the management staff. They must have strong financial skills with a deeper understanding of the co-operative and its business. The Audit Committee members should preferably include one woman and youth. 13 3.3 Importance of Separating Duties and Responsibilities of Leadership / Governance organs 14 3.4 Qualities of a good co-operative leader ...................................................................... 14 3.5 Indicators of good governance in a co-operative. ........................................................ 15 3.6 Tools for Effective and Efficient Leadership and Management of a co- ......................... 17 operative ........................................................................................................................ 17 4.0 THE ROLE OF GOVERNMENT. ................................................................................................ 19
setting up reserves part of which would at least be indivisible, and supporting other activities as approved by the membership.
- Autonomy and independence; Co-operatives are autonomous, self-help institutions 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 and conditions that ensure democratic control by their members and maintain their co-operative autonomy.
- Education, training and information to promote member’s education and awareness; Co-operatives provide education and training for their members, elected representatives, managers and employees so that they contribute effectively to the development of their co-operatives. They inform the general public particularly young people and opinion leaders about the nature and benefits of co-operation.
- Cooperation among co-operatives; Co-operatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
- Concern for community development; co-operatives work for the sustainable development of their communities through policies approved by their members. While values are:
1.4.2 Values Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity.
1.5 Types of cooperatives
There are many types of co-operatives e.g. marketing, consumer, producer, financial, service and workers co-operatives, housing, etc.
Marketing co-operatives market farmers’ produce such as coffee, maize, beans, matooke, livestock, etc. Members sell their produce through their co-operative and benefit from the economies of scale. By so doing, they get a better price for their produce.
Consumer co-operatives provide goods and services to their members at competitive prices.
Producer co-operatives are where members work together to produce or manufacture a product and sometimes market it together.
Financial co-operatives such as savings and credit co-operatives, co-operative village banks, co-operative insurance societies, co-operative banks, etc. provide financial services Service co-operatives provide services such as housing, health care, funerals, day care, water, power and energy and many other services. Usually people go for services from such co-operatives in order to benefit from lower prices, better quality or when existing services
are inadequate. Under this, there is no limit as to the kind of services that people can provide themselves with under a co-operative arrangement.
Workers co-operatives are co-operatives which are owned by the people who also work for the same organization. This type of co-operatives is relatively new globally but is gaining popularity as co-operatives under it have proved quite successful.
From the above, one can appreciate why the co-operative model is often called “ one solution to numerous problems”. It is this characteristic with its flexibility that makes the co-operative model a very powerful tool for empowerment of its members.
1.6 Sustainability test In order for the cooperative to be sustainable, it has to pass the 4 basic criteria test:
i) It has got to be Member owned ii) It has got to be Member used iii) It has got to be Member controlled iv) It must benefit members.
1.7 Why form Co-operatives?
Co-operatives are one way a group of people can work together to solve problems facing them. These may include:
- To meet certain needs such as financial services and many others.
- To fight exploitation by the powerful individuals or institutions by pooling their own resources to meet their needs.
- To fight unemployment.
1.8 Essential Conditions for the Success of a Co-operative
i) The co-operative needs to produce visible and tangible (economic and social) benefits for its members, which should outweigh the costs involved in co-operation.
ii) The co-operative should have motivated, experienced and dynamic managers who are able to plan and implement business policies. They must be able to provide the services and goods required by members, taking into account both interests and needs of members as well as entrepreneurial goals of the co-operative. iii) The structure and management of the co-operative should correspond to the capabilities of its members. iv) Members should participate both as members and users. Members have both rights and obligations of participating in goal setting, decision-making and control or evaluation processes of their co-operatives. Members should decide upon the
b) Determine how the running and operating costs of the co-operative will be met c) Find other people who share into the idea and therefore would be willing to join the co-operative and whether they would meet the entry requirements including paying membership fees and share capital d) Determine which area the proposed co-operative would operate in (preferably a sub-county level) e) Check on other players in the area dealing in similar business to the one being proposed for the co-operative to find out how they are operating f) Consulting with the district co-operative office or Uganda C-operative Alliance district branch for guidance and refinement of the idea
Step 3. Recruiting members
Once the group promoting the co-operative has completed step 2 above, it will have to embark on the exercise of recruiting more members. The following will be the main activities involved in this exercise:
a) The people initiating the idea / promoters form a Taskforce to propagate and sell the idea to many other members of the community. The Taskforce should register the people interested in joining the co-operative ( but should not collect their money yet ). All activities executed should be done on voluntary basis and should be properly documented. For instance all minutes of preparatory meetings should be written and signed.
The main areas to be explained to potential members by the taskforce committee include the following:
- The purpose of the co-operative,
- The activities/business of the co-operative,
- The common reasons/interests of members in forming a co-operatives,
- The expected requirements for one to become a member of the co-operative,
- The advantages of one becoming a member of the co-operative,
- The roles and powers of members in the proposed co-operative,
b) The Taskforce mobilizes other members of the community and enlists their support and willingness to participate in the formation of the co-operative. This exercise may take a period of 1 – 2 months. c) When a fair level of mobilization has been made, (judging from the number of people who have expressed their interest to become members of the co-operative) a public meeting (sub-county-wide) should be convened to deliberate on the idea of forming a co-operative. The meeting should involve all people, local and opinion leaders, area MP, local institutions, community development agencies, other types of co-operatives operating in the area, etc.
d) During the meeting, the people gathered should be sensitized on the idea and need of forming a co-operative. Invite the co-operative officers; Uganda Co-operative Alliance staff in the area should perform the task of explaining the technical details of forming and operating a co-operative to the people. Furthermore the local leaders, institutions and major community players should actively be involved to demonstrate commitment and support to help build the peoples’ confidence in the co-operative to be established. e) The taskforce should carry out more mobilization for the co-operative this time listing all people who express their commitment to becoming members of the co- operative. f) The Taskforce should, with assistance from the district co-operative officers draft by-laws for the co-operative. The task force may use the model bylaws, which have been prepared by the or by the Co-operative Department or Uganda Co-operative Savings and Credit Union; Uganda Co-operative Alliance In addition, the taskforce should prepare proposals for the name of the co-operative, the location of its head office, minimum share capital for members and membership fees, explore possible premises, etc. g). Once the taskforce has mobilized a reasonable number of people (their membership fees should be sufficient to cover the running costs of the co-operative before it starts earning income from its operations) wiling to become members, a meeting of all the listed potential members should be convened to do the following:
- Elect an interim committee (leaders) made up of the Chairman, the Vice Chairman, Secretary, Treasurer and Committee Members who should include representatives of women and the youth. The interim committee shall be responsible for steering the process of forming the co-operative. The Interim Committee Members will hold office until the co-operative’s first General Meeting (within 3 months after registration) at which the members will elect a new and substantive Committee. The committee may be 5 – 9 members but for efficiency, effectiveness and cost considerations, a small committee is recommended.
- The area to be covered by the co-operative’s operations, which should be large enough to ensure a reasonable number of potential members, mass of economic activities but at the same time, maintaining the cohesiveness of the community or community spirit all of which make the co-operative feasible and viable.
- Finding a name for the co-operative
- Specifying the qualifications for membership and how to become a member
- Deciding on the membership fees, share capital.
- Deciding on the location of the co-operative society offices,
- Preparing the Bylaws
- etc.?
l). When a co-operative commences formal operations, it can start providing a range of services for which it was formed.
m ) The interim committee should follow-up on the registration of the co-operative with the relevant authorities (see Section 3 for details on Registration of co- operatives) n) When registration has been done, the interim committee should convene the co- operative’s first General Meeting to elect the leaders of the co-operative and attend to any other business in accordance with the co-operatives statute and regulations.
In this whole exercise, the Interim Committee should work closely with the co-operative officers in the area, Uganda Co-operative Alliance Field Officer and other well-established co- operatives in the area. All these should play a supportive role only. The people should be free to make their own decisions, which are in their best interests.
Step 4. Registration of a co-operative
The registration of co-operatives is a responsibility of the Registrar of co-operatives who is based in the Ministry of Trade, Industry and Cooperatives. The interim committee therefore, must follow the laid down procedures for registration of the co-operative which include the following:
i) Obtaining and completing the registration application forms (sample registration application forms are contained in the model bylaws for co-operatives)
ii) Getting at least 30 members to sign the application for the purposes of registration.
iii) Getting the district co-operative officer to prepare a recommendation letter to the Registrar (based on the co-operative’s interim operating report). Normally this report is prepared after the co-operative has been in operation for some time 6 – 9 months and it should capture what the co-operative has been able to do and achieve within that period. However, depending on how well organized the group is, registration can be done before the expiry of the minimum 6 months operating period.
iv) Forwarding the four sets of the above documents together with the registration fees (the current fee is Shs 50,000) to the Registrar as registration fees.
v) The registration exercise at the Commissioner’s office normally takes 2 – 14 days. The Registrar will then issue a registration certificate to the co-operative and endorse its bylaws.
In addition to the recommendation, a bank account and registration fees, the co- operative should submit 3 copies of its By-laws After it has been registered by the Registrar, it becomes a registered Co-operative Society Ltd.
3.0 CO-OPERATIVE LEADERSHIP / GOVERNANCE AND MANAGEMENT STRUCTURE.
3.1 Model Leadership/Governance and Management Structure of a Co-operative
After the members have formed their co-operative, the next task for them is to make it work or operate in such a way that it will meet their expectations and fulfill the objectives for which it was formed. This task falls into two main parts; leading or guiding or directing the operations, and handling the day-to-day operations/activities of the co-operative. If it was possible, members would all perform this task but realistically, they cannot. Imagine all members of a co-operative handling its day-to-day activities! To avoid the chaos that would ensue, the members have got to set up a leadership/governance and management structure which would enable their co-operative to operate efficiently and effectively and do so in their best interests.
In trying to develop a leadership/governance and management structure for their co- operative, the members may be guided by the following model, which also shows the reporting arrangements between the various organs.
The basic structure of co-operative leadership and management has three parts or organs.
- The members of the co-operative society
- The board/committees put in place by the members to lead their co-operative
- The staff who are hired by the board/committee to handle the day – to – day operations.
Model Leadership/Governance and Management Structure of a Co-operative
Composition : All fully paid up members of the Co-operative.
Duties and Responsibilities
- Approves the mission /vision and objectives of the co-operative,
- Protects the rights of members,
- Provides overall direction of the co-operative’s operations through provisions in the governance documents,
- Elects the committee and the audit / supervisory committee,
- Approves accounts of the co-operative,
- Approves business plan, annual plans, and budgets proposed by the committee,
- Approves operating and lending policies,
- Approves interest rates policies proposed by the board,
- Approves appointment of auditors and their pay,
- Undertakes any other general business deemed necessary for the good of the co-operative,
ii) The Committee
The Committee is the principal leadership / governance organ of the co-operative. As it is not practical for all the members of the organization to keep oversight, the Committee directs the affairs of the co-operative on behalf of its general membership.
Composition: The Committee’s composition is determined by the Annual General Meeting, which elects its members.
Duties and Responsibilities:
- Defines mission /vision, strategic objectives, and policies of co-operative, and ensures that plans conform to them
- Reviews and approves business plans & budgets before presenting to AGM
- Supervises management in the execution of approved plans
- Mobilizes resources for the co-operative on behalf of the members
- Appoints, appraises and disciplines management
- Determines rate of interest, on management’s advice.
- Monitors the activities of committees
- In some cases, draws up long term and annual plans
Depending on the size of the co-operative and the nature of its business, the committee may with the authority of the AGM create a number of sub-committees
like Loans, Planning/Evaluation, Human Resource; Business Development and Disciplinary sub-committees to enable it do a better job.
iii) Audit / Supervisory Committee
For purposes of ensuring good governance, it has become necessary to have another organ known as The Audit /Supervisory Committee which consists of two to three people who are charged with the responsibility of checking on the consistency of the actual operations of the co-operative, and to ensure they support its vision, mission and strategic objectives. The Audit / Supervisory committee is also charged with ensuring that the financial affairs of the organization are handled with prudence, due care and transparency.
Composition: Two or three people elected by the AGM. The members must not be members of other committee(s)or any of its sub-committees nor members of the management staff. They must have strong financial skills with a deeper understanding of the co-operative and its business. The Audit Committee members should preferably include one woman and youth.
Duties and Responsibilities
- Checks for consistencies in the co-operative’s financial and operating records
- Authenticates the co-operative’s financial reports
- Ensures that the co-operative’s operating policies and procedures, and expenditure controls are followed
- Ensures prudent Asset and Liquidity controls
- Regularly inspects books, records and transaction documents of the co- operative
- Monitors operations, especially the related financial documents and records.
- Checks operations of all co-operative’s departments, managers and officers for compliance with the set policies, rules and standards.
iii) Management Staff
Composition: Professional people hired by the Committee and paid a salary or commission for their services.
Duties and Responsibilities:
Appointed and supervised by the board/committee, the Management Staff performs the following duties and responsibilities:
3.5 Indicators of good governance in a co-operative.
These are the guidelines that will ensure good governance by the leaders of a co-operative if it is to achieve its objective and most importantly, serve in the best interests of its members:
a) Participation:
Members’ active participation in their own development is central for good, effective and efficient leadership and management. All women and men who are shareholders in any co-operative should have a voice in the decision-making process either directly or through the organs that represent them. Such participation should be fair and free of intimidation, duress or undue influence.
b) Transparency:
All processes, decisions and relevant information should be conducted in a transparent manner and should be accessible to all those concerned.
Leadership/Governance and management organs should hold regular meetings to direct the affairs of their co-operative. The committee and its sub-committee (if any) should meet at least once a month and the while the Annual General Meeting must be held once a year and in any case not later than 3 months after the close of the co-operative’s financial year. For issues that require a special resolution, like changing the Bylaws, all members should be invited and there has to be a joint resolution. Being the supervisory organ of the co-operative, the Audit Committee should meet regularly to provide close and effective supervision of the co- operative’s operations and general business.
c) Accountability:
All decision-makers; Committee members (including the loans committee members), Audit Committee and Management Staff must be accountable to their immediate supervisors or higher organs and ultimately, to the members (through the AGM) and their communities. d) Consensus Orientation:
There is bound to be differing interests, views and opinions by different people in a co-operative. It is therefore important to reach a broad consensus on all matters critical to the co-operative’s operations. This will best be achieved through an all- inclusive participatory approach, transparent systems and operations, and full accountability to the shareholders. People in positions of power, like chairpersons, should be open to differing viewpoints.
e) Efficiency and Effectiveness:
The governance and management organs of the co-operative must have policies, processes and procedures, which produce results. The results should meet the needs of members. In doing all this, the co-operative governance organs should make the best use of the resources available.
f) Equity (fairness to all)
All members should have equal opportunities to benefit from the co-operative’s services in order to improve their economic status and share in the vision of the co- operative. They should therefore, be equally accorded the co-operative’s opportunities and services. The basis for equitable participation could either be a combination of the members’ share capital and patronage use of its services or any one of them as it may have been agreed upon. In the governance and management organs, none should be suppressed, ignored or shut up when they have suggestions.
g) Respect for Rules, Policies and Regulations:
The legal framework and policies under which co-operatives are regulated and operate should be respected, strictly and impartially enforced. They should be made known to all members at all times. The co-operative’s Bylaws and any other operating policies and regulations should always be complied with.
h) Strategic and Visionary Leadership:
The co-operative must have leaders and managers who have a vision for and commitment to the organization. The leaders and managers should seek and improve their institutions and do all that is necessary to satisfy the needs of their members and the communities in which they are based. Their character and past record should be free of any unprofessional reputation. Such leaders and managers need to have strategic thinking so that the affairs of the co-operative are managed with a sense of purpose.
i) Knowledge and Skill in Leadership and management:
The members of the governance and management organs should be knowledgeable and trainable in the matters of the co-operative’s governance, management and operations. It would be good if all members of the governance and management committees (the committee, audit and management staff) were holders of Uganda Certificate of Education or higher professional qualifications.
j) Organizational Growth
- Goals – these are medium and long-term aspirations that the co-operative wants to achieve, based on its mission statement and driven by its vision.
- Objectives are specific quantified targets that the co-operative has set to be achieved in a short-term or medium term period, which will move it in the direction of achieving its goals. Examples of co-operative objectives may include the following:
To be good, the co-operative’s goals and objectives must be specific, measurable, attainable, and realistic and time bound.
ii) Co-operative Business Plan, Work Plans and Annual Budget
- Business Plan
Every co-operative must have a Business Plan. Once the co-operative has decided on its Mission, Goals and Objectives, which give it the direction and reason for its operations, it should develop a business plan. The business plan presents the future desired achievements and activities of the co- operative in a wholesome way. The effect of the business plan is to enable those charged with its governance and management to think ahead and determine how and when the co-operative will achieve its objectives. The Business Plan may be for anything from 1 to 5 years. A one-year plan is also an annual business plan while longer term (e.g. 5-year) are called strategic plans. Implementation of strategic plans is done through annual plans and budgets.
A co-operative’s business plan will typically include the following:
- General Description of the co-operative
- Statement of Mission, Goals, and Objectives
- Marketing Plan
- Operational Plan
- Organizational Plan
- The Financial Plan
- Action Plan
- Work plan and annual budgets This is a step-by-step approach in timing and scheduling the implementation of the various activities envisaged in the business plan for actualizing the co- operative’s mission, goals and objectives. Management should be guided in its day-to-day operations by approved annual work plans and budgets drawn in line with the co-operative’s 3 – 5 year business plans. These should lead to the overall attainment of the co-operative’s objectives, goals and mission.
ii) Operating Guidelines, Policies and Procedures Manuals Manuals that set out the policies and procedures for each major aspect of the co- operative’s operations are excellent leadership and management tools. They help the co-operative members, leaders and management staff on how to participate in or guide/direct or handle its operations. They also assist the Committee and Audit Committee monitoring and supervising the co-operative’s operations. For example, the key manuals for SACCOs would include the following (most of which are in stock at Uganda Co-operative Alliance):
- Accounting and Operating Policies Procedures Manual.
- Expenditure control and management.
- Internal Control Policies and Procedures Manual.
- Staff Policies and Procedures Manual.
- Committee Manual.
- Lending Policies and Guidelines Manual.
- Performance Standards Manual.
- Expected Reports and Reporting Formats.
Each co-operative must have a reporting system, which ensures timely production of accurate periodical operating and financial reports. Such reports can be used in the regular and effective supervision, monitoring and evaluation of the co-operative’s performance. In the case of a Savings and Credit Co-operative, such reports may include:
- Daily Till and Waste Sheets
- Monthly Loan Tracking Reports
- Monthly, quarterly and annual Trial Balance, Profit and Loss Accounts, and Balance Sheet.
- Other operating highlights like number of members, borrowers and amounts lent, cumulative operating and performance figures, etc.
- Savings reports
4.0 THE ROLE OF GOVERNMENT.
The role of government is to create a conducive environment that will promote the growth of co-operatives, which are autonomous, self-financing, and self-reliant. More specifically, the role of government in developing co-operative is to create a good legal framework, good public policy on co-operatives, mobilize people to form or join co-operatives without promising any financial or material incentives, register co-operatives, strictly enforce the law and provide support for capacity-building purposes. Government should also support co-operative human resources development activities.