Factors to be considered when borrowing a loan

1.       Business concept
It is the duty of member to put together details of the investment to be undertaken- the purpose of the loan i.e. the loan for increasing stock, purchase of machine, purchase of building materials, purchase of land, etc.

2.       Character of borrower

Assess your character- how do you behave when you have money and when you don’t?

-put in safety measures to ensure you use the loan for the purpose intended/wisely.

-why are you borrowing? Is it because you need the loan or is it because the money is available?

-are you a trustworthy applicant? Hardworking?

3.       Capacity to pay

This is the ability to repay credit if extended. Assess your own ability to repay the loan in line with society’s loan policy and your personal financial position.

Consider your capital standing or financial strength i.e. monthly financial obligations not on the palsy that may hinder you from repaying the loan or make you suffer pecuniary embarrassment.

4.       Own contribution

This is the amount of funds borrower is willing to invest in the business. Do not expect your society to finance your project 100%

5.       Collateral for loan

These are details on security put forward by the borrower in good faith as a guarantee that money borrowed will be repaid.

In co-operatives this is basically a guarantor. However, members should use other forms of security e.g. share certificates and insurance policy, in case the society loan policy allows.

6.       Interest rate

Consider the interest rate of the loan to be borrowed and its effect on your income for the whole period of the loan repayment.

Members should concentrate on development loans for their own development and take school fees loan where necessary.

They should avoid unnecessary emergency loans at all cost because mostly one cannot do much and they reduce member’s ability to take a development loan.

RULES GOVERNING LOAN APPLICATION

An applicant shall be considered or accepted for the processing upon a members meeting the following conditions:

1.       Must have been an active member of the society for a period f not less than six months

2.       Must be consistent saver with the society for a period of not less than six months

3.       Must be willing to conform to all rules, by laws and co-operative societies act

4.       Must be a Kenyan citizen with a valid identity card and be a person of sound mind who has not been declared bankrupt or barred to contract for any reasons

5.       Must be earning regular income either from business or employment

6.       The loan application must be for prudent purposes and application must justify its legality by stating its purpose

7.       Must be willing to make all necessary disclosures of information necessary to facilitate loan processing and guarantorship

RELEVANT POLICIES FOR CO-OPERATIVE SOCIETIES

Societies are expected to carry out certain business operations according to their established policies.  the purpose of policies is to establish procedures for carrying out certain aspects of the business of the society. the by-law of the society should normally provide and give power to the society officials to formulate such policies as may be necessary from time to time.   Some of the policies relevant to co-operative societies include:

The Loan Policy-this is an internal regulation document that guides and regulates loan granting and loan administration.   The loan policy should be known, understood and adopted by members, as it affects them.

The Investment Policy-A document that guides that society on areas of investment of society’s and members funds

The Human Resource Policy-this is a document that guides the society on issues of administration of human resource, right from recruitment stages to promotion and exit stage..

The Education and Training Policy-this is a document that guides the society on issues of education to members and training of committee members and members of staff.

The Public Procurement and Disposal Policy-this is an internal document that establishes procedures for procurement and disposal of goods and services.   it should be prepared in conformity with the Public Procurement and disposal Act and the regulations made there under.

MERGERS OR AMALGAMATION OF CO-OPERATIVES

The Sacco Societies Regulatory Authority (Sasra) has asked 65 co-operatives to merge so as to raise their capital levels to 10 million as required by law so as to continue offering Front Office Savings Activities (FOSA). Amalgamation is a complicated process and more so as the said Saccos some were mismanaged and probably some are still refunding past members their deposits or have other debts. Saccos should not rush to have FOSAs and should concentrate on back office services until such a time they have the membership and financial capabilities to do so.

The following is an excerpt from the Co-operative Societies Act Cap 490 on amalgamation/mergers of co-operative societies:-

Section 29 Amalgamation of co-operative societies

(1) Any two or more co-operative societies (hereinafter referred to as amalgamating societies) may, by special resolution (in this section referred to as the preliminary resolution), resolve to amalgamate as a single society
(hereinafter referred to as the amalgamated society).

(2) A copy of the preliminary resolution shall be sent to all the members and creditors of each of the amalgamating societies, and to all other persons whose interests in any of the amalgamating societies will be affected by the amalgamation.

(3) Any member of any of the amalgamating societies may, notwithstanding any by-law to the contrary, by notice in writing given to his society at least one month before the date specified as the date of amalgamation, intimate his intention not to become a member of the amalgamated society.

(4) Any creditor of any of the amalgamating societies may, notwithstanding any agreement to the contrary, by notice in writing given to such society at least one month before the date specified as the date of amalgamation, intimate his intention to demand the payment of any money due to him.

(5) Any other person whose interest will be affected by the amalgamation may, by notice in writing given to the concerned amalgamating society, not less than one month before the date specified as the date of amalgamation, object to the amalgamation unless his claim is satisfied.

(6) Not less than three months after the date of the meeting at which the preliminary resolution is passed, a further special general meeting of each of the amalgamating societies shall be held to consider the preliminary resolution and any notices received under this section.

(7) At the special general meeting held under subsection (6) provision shall be made by a further resolution of the society (in this section referred to as the secondary resolution) for—
(a) the repayment of the share capital of any member who has given notice under subsection (3);
(b) the satisfaction of any claims by creditors who have given notice under subsection (4); and
(c) the satisfaction of the claims of such other persons who have given notice under subsection (5) securing of their claims in such manner as determined or directed by the Commissioner. Provided that no member or creditor or other person shall be entitled to such repayment or satisfaction until the preliminary resolution is confirmed as provided in subsection (8).

(8) Each amalgamating society may, by further resolution passed by a two thirds majority of the members present and voting, confirm the preliminary resolution.

(9) (1) If, within such time as the Commissioner considers reasonable, the Commissioner is satisfied that the secondary resolutions of each of the societies amalgamating comply with the provision of this section, he may register the amalgamated society and its by-laws and thereupon—
(a) each of the amalgamating societies shall stand dissolved and its registration cancelled;
(b) the registration of the amalgamated society shall be a sufficient conveyance to vest the assets and liabilities of the amalgamating societies in the amalgamated society;
(c) the remaining members of the amalgamating societies shall become members of the amalgamated society and will be subjected to its bylaws;
(d) any share holders of the amalgamating societies or any other persons who have claims against the amalgamating societies and whose claims were not satisfied in accordance with the secondary resolution, may pursue such claims against the amalgamated society.

(10) Where the Commissioner refuses the amalgamation of the amalgamating societies under subsection (9) such societies may appeal against such refusal to the Minister.