CO-OPERATIVES SOCIETIES ACT ON AMENDMENT OF BY-LAWS

Co-operative Societies Act CAP 490 Section 8 states:
(1) A co-operative society may, subject to this Act, amend its by-laws, including the by-law which declares the name of the society.(2) No amendment of the by-laws of a co-operative society shall be valid until the amendment has been registered under this Act, for which purpose a copy of the amendment shall be forwarded to the Commissioner in the prescribed manner.
(3) If the Commissioner is satisfied that any amendment of the by-laws of the Co-operative society is not contrary to this Act and any rules made thereunder, he may register the amendment.
(3A) The Commissioner may, if he is satisfied that an amendment under this section was effected pursuant to a misrepresentation or concealment of a material fact by the person applying for registration, cancel the amendment.
(4) An amendment which changes the name of a co-operative society shall not affect any right or obligation of that society or any of its members, and any legalproceedings pending may be continued by or against the society under its new name.
(5) When the Commissioner registers an amendment of the by-laws of a cooperative society, he shall issue to the society a copy of the amendment certified by him, which shall be conclusive evidence of the fact that the amendment has been duly registered.
(6) In this section, “amendment” includes the making of a new by-law and the variation or revocation of a by-law, but excludes the variation of the registered address of a co-operative society where this forms a part of the bylaws of such a society.

How can mobilization of member funds be improved?

Cooperatives need to find ways to increase member funding, since this provides the lowest cost, lowest risk form of capital for operations and investment. As government and donor support continues to decline, increasingly this also becomes the only practical source of funding for cooperatives. Even where outside support is still available, the advantage of increased reliance on member funding is that it gives greater autonomy to the cooperative and lowers the risk of eventual withdrawal of outside funding.

The strategy for increasing member funding depends on the particular circumstances of the cooperative, the type of activity it is engaged in and its scale of operation. Among the strategies to consider are:

Improving operating efficiency

Improving efficiency can be important for the mobilization of funds. It enables a cooperative to offer more competitive prices, securing and keeping member loyalty.

Funding and efficiency are related. Cooperatives with sufficient funds are able to invest in training and technology to reduce costs, and to increase or improve production. Well managed, technologically efficient cooperatives are generally more likely to accumulate capital.

Promoting patronage

The more members use the cooperative’s services - that is by taking loans and saving with the the cooperative - the more funds the cooperative will receive. It is therefore important for the cooperative to promote patronage. This is most easily achieved when cooperatives provide services valued by members, offer competitive interest rates and prompt payments.

Giving priority to mobilizing member funds

Most cooperatives will have to rely on member generated funds to finance their operations. Members’ financial stakes in the cooperative enforce greater accountability of the cooperative to members, build member participation in decision making and strengthen cooperative financial self-reliance and operational autonomy.

There are a number of ways in which member funds are obtained. In many cases, increased levels of funding can be achieved through adjusting these methods:

· Non-refundable membership fees upon joining/entrance/registartion fees

These fees are often small, but they need not necessarily be so if new members are buying into a successful business that provides valuable services.

·          Member shares

All members are required to purchase shares, which are usually the primary source of member capital. Shares purchased should earn dividends and are transferable to other members upon withdrawal from membership or given to his/her heirs in the event of the member’s death.

·         Member deposits

Co-operatives can also consider increasing minimum monthly contributions.

Products

     Other than loan products, co-operatives can introduce saving products e.g. holiday savings, withdrawable savings scheme, etc. Major source of affordable loans/credit. Why?

1)      Core objective and best form of saving

2)      Prerequisite for investment

3)      Saving for retirement

4)      Members earn GOOD returns at the end of the year

·          Retention of surplus.

Surplus can either be retained by the cooperative as institutional capital, or paid out in patronage refunds to members following the close of each year. In practice, cooperatives often offer interest rates more favourable than those prevailing in the market, creating little surplus and making it impossible to offer patronage refunds. Whenever possible, these practices should be altered either to build up surpluses or increase patronage refunds and attract new members.

 

·          Deferred payments

A surplus creates two opportunities for increasing capital available to a cooperative. One is the surplus retained, and the other is the patronage refund that is allocated but not immediately paid out in cash. During the period between the realisation of the surplus and the cash pay-out of patronage refunds, the cooperative has the use of the cash. Pay-out may take the form of a share or of an obligation to pay the member in the future.

Consider use of outside funding

In simple terms, the higher the institutional capital and member deposits, the more outside lenders such as banks and suppliers will be willing to loan funds to the cooperative. Care should be taken in borrowing, however since the higher the outside funding as a proportion of funds used, the higher the risk if something goes wrong.

Too much institutional capital?

For the majority of cooperatives in developing countries, the possibility of accumulating too much institutional capital any time soon is small. However, members should be aware that it is actually possible for the original purpose of the cooperative to be lost if the amount of institutional capital becomes too large.

This may result in the exclusion of new members, because present members do not want others to benefit from the services provided and surpluses produced by the capital accumulated.

Member financing builds the sense of member ownership

Cooperatives have always been referred to as “member-owned” organizations, yet in countries where cooperatives have depended too heavily on outsiders for financial support, that sense of ownership and personal financial stake has been lost. It is not uncommon to hear members and shareholders refer to their cooperative as the “government’s cooperative” instead of their own cooperative. This is largely because the financial stake or contribution of the membership of the cooperative is small relative to the non-member stake. In spite of the one-member-one-vote principle, the major suppliers of capital, in this case non-members, have the largest say and tend to determine the main priorities of the cooperative business. Cooperative member participation drops and the cooperative promise is weakened.

Conclusion

It is important to build the membership’s financial stake in the cooperative. This increases the sense of collective ownership, makes the cooperative’s management more accountable to serving members, strengthens member commitment and loyalty and thus provides a true and sustainable basis “or cooperation.

Adapted from http://www.fao.org/docrep/003/w5069e/w5069e07.htm

BUDGET AND BUDGETARY CONTROL

Budgeting

A budget is an estimate of income and expenditure for an immediate future period. in co-operative societies, a budget is normally prepared to cover one financial year. there are two types of budgets. They are:

•   the operational budget which shows the income and expenditure of the daily business
operations of the society.

•   the cash budget which shows how money will be raised and how it will be used to finance the items which are not expenses.

Does running out of money count as exercise? :-)

The Annual Operational Budget

This budget is prepared according to the activities that the society is dealing in. The core activity in SACCOs is savings and credit.  The core activity is the activity that the society was established to handle.  It has got direct dealings with members.

Secondary activities are those that are established, normally later, to support the main activity and to offer more services to members.

STEPS

•   The society should have decided on what activity or activities it wants to handle during the year.

•   Always start by budgeting for the expected income. income is the money that the society  earns from its operations.  It includes; interest from loans to members, sale of stationery, interest from bank, any fines etc.

•   The budget for expected expenditure.   this is the money that the society will pay out for expenses in the course of its operations.  the items of the expense may include; purchase of stationery, office rent, salaries, sitting allowance, bank charges, interest on borrowed money, education and training, travel and subsistence, audit fees etc.

•   The expected income should be more than the budgeted expenditure. this is to avoid the society operating at a loss. the excess of income over expenditure will be the surplus/profit for the year.

•   Budgeted figures should be as realistic as possible and income should not be inflated in
order to justify expenses.

•   Past performance and any future expectations will assist to arrive at more realistic budget figures.

•   The annual figures should be broken down into quarterly figures. This will later assist the management in comparing budgeted amounts with actuals. But income and expenditure can vary according to the trend of operations during the year.

•   When expected income is less than expenditure, expenses should be reduced accordingly. Never budget for a loss in income generating activity.

The Cash Budget

A cash budget shows how the society intends to get finance and how it will use the funds mainly for capital items and other cash outflows.

The source of funds in SACCOs will include; entrance fees, members shares and savings, repayment of members loans, disposal of assets, sales of investments, external borrowings etc.

The application/uses of funds will include; issuing loans to members, refund of shares, acquiring fixed assets, investments, repayment of external loans.

STEPS

While pre-preparing the cash budget, the society should have decided and identified, probably from its long term plans, what developments and other cash outflows will fall within the year.   it should also list down the liabilities that will be repaid during the year.

Budgeting for Cash/Sources of Funds

•   Start by getting the figure for the cash that will be available both in hand and bank at the start of the year.

•   Get the figure for any surplus expected from the previous year and which will be available at the start of the year.

•   Get provision for depreciation during the year as part of the funds that will be available.

•   Get all other monies that you expect to flow in during the year, including loan repayments from members, members’ savings contributions/shares, entrance fees and any borrowed funds.

•   The total of all these will be the funds/cash available.

Budgeting for Cash Outflows/Uses of Funds

•   Get the money that will be used to pay loans and to settle other liabilities

•   Indicate the amount you intend to lend to members

•   Indicate the money that will be used to refund members who are withdrawing membership

•   Indicate the money that will be used for investments

•   Budget for any dividends related to the year and that will be paid to members

•   The total will be cash needed during the year

•   the figure for cash available should be higher than the cash needed

•   the annual figures for cash budget should be broken into quarters to show what will be
available and what will be used during each quarter

OTHER IMPORTANT STEPS

After the committee is satisfied that the budget is exhaustive and proper, it should be presented to the members in a general meeting for their approval before use.

After approval by the general meeting, the final draft should be typed and enough copies produced for distribution to relevant offices. the society copy should be filed for use in budgetary control.

The budget should be signed by the officials authorized to sign documents on behalf of the society.

It is the duty of the committee to ensure that the society budget has been prepared and approved by members in a general meeting at least three months before the start of the year in which it is going to be used.

Budgetary Control

This involves comparing budgeted amounts with actuals and noting the differences.    the differences can be either favorable or unfavorable.

When actual income is more than what was budgeted for, the difference is favorable. the society is doing well. But when actual income is less than budgeted, then the society has not achieved its expected target.

When actual expenditure on any item is more than what was budgeted for, then the difference is unfavorable.   But when the actual expenditure is less, the difference is favorable. the society has been able to save money on that item.

Budget figures are found in the society’s annual operational budget prepared for that year.  Actual figures are found in the society’s trial balance prepared from the books of accounts. the trial balance shows the actual income and expenditure of the society on each item as at a particular period from the start of the financial year.

Comparison between the actual and the budgeted figures and noting the differences is called variance analysis.  Management should get reasons for the unfavorable differences on every item of income and expenditures.

The analysis of differences above and the reasons for the unfavorable ones is then presented and discussed in the society management committee meeting.  this is in form of an economic report.

The management committee should then discuss the report and make decisions on how the negative situations will be addressed and turned to positive conditions.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (by Swiss Contact and Department of Co-operatives)

THE ROLE AND RESPONSIBILITIES OF SUPERVISORY COMMITTEE

MANAGEMENT COMMITTEE

o   They make decisions regarding the day- to-day management for operations of the society.

o   They arc directly responsible to the share- holders for giving accurate and dependable accounting information in investment decisions without a doubt of its reliability or validity,

o   Management committees are responsible to the general public, government etc on behalf of the shareholders.

o    In other words, they are the responsibilities of the society to the outside world.

SUPERVISORY COMMITTEE/INTERNAL AUDIT 

·         The supervisory committees are the watchdog of the members on the work performance of the management committee.

·                  The committee is answerable to the members.

·                  Their main duty is to ensure that the society is run according to the directions given at the AGM/SGM and in accordance with the co-operative laws and regulations in force. The supervisory committee is not an alternative management body but complimentary to the functions of the management committee.

·                  It serves the same purpose as an internal Audit department in an organization.

WORK PROGRAMME

The supervisory committees meet at least once every quarter to review the activities of the preceding quarter and then report its findings to the management committee. The report covers administrative and financial performance.

   The quarters are:

Jan   -    March        -      1st   Quarter.

April -   June           -      2nd Quarter.

July   - September  -     3rd  Quarter

Oct   -    Dec                -  4th  Quarter

DUTIES

Their duties include checking if the acquisition of assets, recruitment of the staff, record keeping and the general management of the society is done in a manner that would best serve the interest of the members and no loss accrues that could be avoided.

SPECIFIC DUTIES;

o   Periodically evaluate the programme of the society as to their cost effectiveness, Impact on the members’  income, compliance with the AGM/SGM directions and Cooperative Societies Act,  Rules and the By-Laws of  the society.

o   Check the effectiveness of the management committee, e.g. recording and filling of the minutes of AGM/SGM and committee's.

o    Compliance with the cooperative principles.

o    Regularity of committee and general meetings.

o   Check whether cash is regularly verified and bank reconciliations done.

o   Regularly check the performance ratios of the society, e.g. cash ratios, solvency ratios.

o   Check whether members' personal Accounts (shares) arc regularly and accurately updated.

o   Verify whether investments are properly accounted for e.g. Share Certificates are securely kept.

o   Ensure that adequate accounting policies are in place and are working.

o   Check on the presence and the effectiveness of the internal controls in the society.

o   Take note and inform the Management Committee of complaints from the

        members which might be channeled through the committee.

o   Ensure and verify that theeconomic report is prepared and discussed.

o   Check whether the Management Committee is taking any remedial action on any shortcomings revealed.

o   Liaise with the external auditor in areas that the committee would need assistance in carrying out their duties.

o   Ensure that the Management Committee adequately acts on any observations and notes raised by the external auditor.

RELATIONSHIP WITH THE MANAGEMENT COMMITTEE

The supervisory committee and the management committee play a complimentary role in the management of the society and  to ensure that harmony is maintained in between the two committees, the following is to be adhered to: -

o   Work schedules are prepared and presented to the management committee early.

o    Request documents required and working space in time and in writing.

o   Carry out the work expeditiously bearing in mind that the documents are still

o   in use.

o   Prepare written reports detailing the shortfalls noted, the progress made since the last report, and the steps that can be taken to rectify the shortfalls.

o    Always avoid confrontations

o   Never report on unverified information.

o   Report to the management Committee first.

o   Report only those areas not implemented in an AGM/SGM.

o   Do not interfere with the day to day running of the society as this is the

responsibility of the management committee of the society.