The need for Cooperatives and how to form cooperatives

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MODULE 12:
THE NEED FOR COOPERATIVES AND HOW TO
FORM COOPERATIVES
By
Dr. Festus Agbo

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INTRODUCTION
A cooperative society is an autonomous association of persons united
Voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly and democratically controlled enterprise (ICA, 1994).
Cooperatives have become major players in the business of countries, the world
over. For instance, in the European Union there are well over 30,000 farmer
cooperatives with well over 12million members and with very considerable share
in the agricultural product market (Skunik and Villiriala, 2008). The turnover of the
top 30 agricultural cooperatives in the EU is over £50 billion per anum. In the United
States of America the total number of all cooperatives is over 47,000 with over
120million members representing about 40% of the US population.
In Africa, cooperatives have contributed immensely to economic
development. For instance in Benin Republic, cooperatives provided well over
$180million in rural credit in 2012. In Cote d’ Ivoire N260million equivalent was
invested by cooperative societies in community development in schools, rural
roads an maternity clinics (Agbo 2010). In Kenya, 10million out of about the
40million population of the country are members of cooperatives with
cooperatives employing well over 400,000 persons (Ngabe, 2014). The latest
statistics indicates that there are well over 800million people who are members of
cooperatives in over 100countries of the world (Ghiasy, Hosseni, Malekmuhammed
and Hosseni, 2012). It is also important to note that only cooperative businesses
were not affected by the recent international economic meltdown.
NEED FOR COOPERATIVES
Most of the times producers operate as individuals. As individuals they are usually:
 too small to acquire and use labor and machinery and thus reduce
production cost;
 too small to bargain for discounts in the input markets or ensure steady
supply of inputs;
 too small to demand better prices for their products;

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 too small to apply for and obtain loans from finance institutions;
 too weak to show the government the need to intervene in areas of service
deficit;
 too small to take advantage of economies of scale; and,
 too weak to withstand losses that may occur when nature brings adverse
conditions like drought, flood, crop failure, pest damage, fire e.t.c.
 In summary cooperatives provide members with various advantages such as
 increased opportunity for capital formation;
 improved service to members at greatly reduced costs;
 improved marketing opportunities for members;
 a stronger bargaining power for loans and other services;
 an improved dissemination of information and services through the group
approved;
 increased employment opportunities;
 increased self-reliance and motivation of individual members;
 improved acquisition of skills and educational opportunities offered through
literary programs; and
 creation of a forum for members to practice democracy and assume
collective responsibilities
STEPS IN FORMATION OF A COOPERATIVE SOCIETY
Cooperatives offer excellent opportunities for the achievement of both group
and individual economic empowerment of member-patrons. Nevertheless
cooperative activities, if not carefully introduced may lead to dire economic
consequences that may negate the objective of their introduction. For this reason
promoters of new cooperative societies need to operate with caution to avoid
some booby traps on the road to success for cooperative societies. Such booby
traps include failure of the cooperative to fill a vital service gap, lack of necessary
cooperative education, financial difficulties, legal problems, incompetent
management and other operational methods. It is therefore necessary that initial
false steps in the formative days of a cooperative society should be avoided.

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A cooperative society is more successful if the following basic steps are
followed:
a) Step one: Prior establishment of service gaps which the formation of
cooperative societies will fill.
A cooperative society is more successful if it is set up to fill identified felt needs of
the prospective members and the general public. Service gaps provide the
economic basis for a cooperative society to blossom.
b) Step two: Search for suitable project(s)/type(s) of cooperative society.
Once a service gap has been established the next step is to search for Suitable
projects to fill the service gap. Cooperatives should be built around specific projects
with clearly stated objectives
c) Step three: Conduct economic and social feasibility of the project
cooperative is to embark upon.
At this stage it is important to prepare an appropriate business plan which will
establish the economic viability and the social desirability of the project which the
cooperative is about to embark upon. The business plan will establish if the
cooperative is about to embark upon. The business plan will establish if cooperative
action will reduce costs, offer enough benefits to members, determine the volume
of goods and services to be provided by the cooperative, estimate whether the
available technical/managerial skills required are available as well as establish
sources of assistance
d) Step four: Set up an organizing committee
As soon as a good number of prospective members have bought into the proposed
project the next step is to set up an organizing committee. This committee will be
in-charge of membership drive, cooperative education, determination of sources
of finance and other facilities required and how to acquire them and conducting
regular meetings to update prospective members on progress made.

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e) Step Five: Invite all prospective members to a general meeting.
The purpose of this general meeting is to establish the actual number of
prospective members and to brief them fully about the progress already made. The
notice of this meeting should be widely publicized. During this meeting members
are expected to show commitment by paying the agreed entrance fee as well as
signing a formal document as an expression of support for the establishment of the
new cooperative. A minimum of 10 members is required to form a primary
cooperative society except in artisanal/craft cooperative societies where only a
minimum of 6 members is required by the Nigerian Cooperative Societies
Legislation.
f) Step Six: Commence regular educational programs and trial run of the
Cooperative project.
Commence membership education especially in the areas of principles and
practice of cooperation, member’s right/obligations and responsibilities,
various types of activities of the cooperative, requirements for successful
operation e.t.c.
g) Step Seven: Commence legal documentation
Arrangement for the drafting of the bye-laws of the new cooperative should be
concretized. Experts in cooperative business should be consulted at this point. The
bye-laws will specify the general rules that will govern the operations of the new
cooperative society.
h) Step Eight: Management structure of the new cooperative is confirmed and
election of officers held
At this stage the management structure of the new cooperative is agreed upon.
The issue of whether the cooperative will employ staff or use the services of
members on part time basis is settled at this point. Once this is agreed upon the
new cooperative goes into election of its officers. At times members of the
organizing committee are confirmed as officers of the society or entirely new

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officers are elected to run the affairs of the cooperative. As soon as these officers
are elected the organizing committee stands dissolved. The main officers of a
cooperative society are (i) the president, (ii) the general secretary, (iii) the financial
secretary and (iv) the treasurer. Committees maybe set up to handle special
services in the cooperative. Once all these are in place the cooperative goes into
fulltime business.
i) Step Nine: Registration with cooperative department.
As soon as the management structure of the cooperative is established the next
step is to register the cooperative with government cooperative department.
Registration confers on the cooperative a legal personality to sue and be sued.
Registration also protects the society’s business activities and assets. The
cooperative law operating in Nigeria requires new cooperative societies to submit
themselves for registration by the office of the state director of cooperative
services in the state(s) where they operate.
j) Step ten: Commence full operations.
For proper management the new cooperative needs to keep adequate and up-to-
date records and accounts. The society therefore, needs to acquire the following
books upon registration: membership/attendance register, a minute book, cash
book, ledger(personal and general), correspondent files, purchases register, sales
register and receipt books.
1.0 CONCLUSION
In conclusion it is important to emphasize that for a cooperative society to operate
successfully the following requirements must be met
1) Organization of the cooperative must be based on felt need. This is because
cooperatives are organized to provide basic economic and social needs of
their members. A cooperative society that fails to do this soon fizzles out
2) Members’ control of the security must be essential. Cooperatives must
possess appropriate organizational structure which is sufficiently practical to

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allow it to belong to its members, working for them and governed by them.
Too much outside interference kills the cooperative
3) Sufficient volume of business. Cooperatives must have sufficient volume of
business to permit economies of scale, bargaining power, and level of
profitability which will permit capital formation, growth and enough returns
to members.
4) Competent management. The management team must be skillful,
experienced and progressive. Poor management remains the greatest killer
of cooperative initiatives and must be avoided like a plague
5) Homogeneity of members. As much as possible members of cooperative
societies need to be of equal status to encourage active participation.
Variance in social status often inhibits members to freely participate in the
activities of the society.
6) Adequate audit and financial control. Fraud embezzlement or diversion of
funds is common among cooperative societies in Nigeria. Stringent financial
control is therefore very crucial for the success of the new cooperative
society.
REFERENCES
Agbo F.U (2010), Introduction to cooperative studies, kawuriz and minalas
Publishers ltd, Onitsha, Nigeria
Ghiasy, F.G, Hosseini, S.S.F, Malekmohammed, I and Hosseini, S.M (2012)
Australian journal of basic and applied sciences, 3(2):1170-1176
International cooperative alliance (ICA, 1995). Report of the centenary conference,
Geneva, Switzerland
Ngabi, F(2014), Cooperative bank accelerates the progress of Kenya’s banking
Sector. World finance
Skurnik, S and V. Parkinson(200), Role of cooperative entrepreneurship in the
Modern market economy.The finish journal of business economics. I/2008, pp. 103-124.