FARAH SALAT NOORDIN
DBM/2022/45585
DAF 1207 :COOPERATIVE AND MICROFINANCE
Question 1:
Explain the term cooperative, microfinance and the challenges of cooperatives and why
cooperatives in Kenya have failed over the years.
Cooperative refers to a type of organization that is owned and controlled by its members, who
are also its customers, suppliers, or workers. The purpose of a cooperative is to provide its
members with goods, services, or financial benefits, while promoting their economic, social,
and cultural well-being.
Microfinance, on the other hand, refers to financial services, such as small loans, savings,
insurance, and money transfers, offered to low-income individuals and groups who are not
served by traditional financial institutions. The goal of microfinance is to empower these
individuals and groups by giving them access to credit and other financial services, so they
can improve their livelihoods and build wealth.
Challenges:
One of the biggest challenges faced by cooperatives is a lack of capital, which makes it
difficult for them to invest in new products, services, and technologies, or to expand their
operations. Other challenges include poor management, lack of transparency and
accountability, and limited access to markets.
In Kenya, cooperatives have faced a number of challenges over the years, which have
contributed to their failure. Some of the most significant challenges include:
Lack of government support:
In many cases, the government has not provided adequate support to cooperatives, in terms of
funding, training, and technical assistance.
Corruption:
Corruption has been a major issue for cooperatives in Kenya, with many leaders using their
positions of power to embezzle funds and engage in other unethical practices.
Poor governance:
Many cooperatives in Kenya suffer from poor governance practices, including lack of
transparency and accountability, which has led to a lack of trust among members and a
decrease in membership.
Competition from commercial banks:
The growth of commercial banks in Kenya has made it more difficult for cooperatives to
compete, as banks are able to offer more sophisticated financial products and services.
Limited access to markets:
Many cooperatives in Kenya have limited access to markets, which makes it difficult for
them to sell their products and services, and earn a fair return on their investment.
In conclusion, cooperatives play an important role in promoting economic development and
alleviating poverty, especially among low-income populations. However, in order to be
successful, they must overcome a range of challenges, including lack of capital, poor
governance, and limited access to markets. By addressing these challenges, cooperatives can
become more sustainable and better equipped to meet the needs of their members.
Question 2:
Microfinance is said to be finance for the unmet discuss the steps for registering a
microfinance bank in Kenya.
Registering a microfinance bank in Kenya involves the following steps:
Conduct market research:
Before starting the process of registering a microfinance bank, it is important to conduct
thorough market research to ensure that there is a demand for financial services in the target
market and to identify potential competitors.
Prepare a business plan:
A comprehensive business plan should be prepared, outlining the objectives, strategy,
financial projections, and management structure of the proposed microfinance bank.
Choose a legal structure:
The microfinance bank can be registered as a limited liability company, a trust, or a non-
governmental organization (NGO).
Register the microfinance bank:
The microfinance bank must be registered with the Registrar of Companies, which is
responsible for issuing certificates of incorporation and registering companies in Kenya.
Obtain regulatory approvals:
The microfinance bank must obtain approval from the Central Bank of Kenya (CBK) and the
Registrar of Microfinance Institutions, which regulate and supervise microfinance institutions
in the country.
Meet capital requirements:
The microfinance bank must meet the minimum capital requirements set by the CBK, which
are designed to ensure that the institution is financially sound and capable of providing
financial services to its clients.
Develop policies and procedures:
The microfinance bank must develop and implement policies and procedures to ensure that
its operations are transparent, accountable, and in compliance with relevant laws and
regulations.
Hire staff:
The microfinance bank must hire qualified and experienced staff, who have the skills and
knowledge needed to manage and grow the business.
Launch operations:
Once all the necessary approvals and licenses have been obtained, the microfinance bank can
launch operations and start offering financial services to its clients.
Question 3:
Explain the principles of cooperative as per the cooperative societies Act.
The Cooperative Societies Act in Kenya outlines several principles that govern the operation
of cooperatives in the country. Some of the key principles include:
Voluntary and Open Membership:
Cooperatives are open to all persons who are able to use their services and are willing to
accept the responsibilities of membership, without discrimination.
Democratic Member Control:
Cooperatives are democratic organizations, controlled by their members, who have equal
voting rights (one member, one vote) regardless of their financial contribution.
Members' Economic Participation:
Members contribute equitably to, and democratically control, the capital of their cooperative.
At least part of that capital is usually the common property of the cooperative.
Autonomy and Independence:
Cooperatives are autonomous, self-help organizations 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 that ensure democratic control by their members and
maintain their cooperative autonomy.
Education, Training and Information:
Cooperatives provide education and training for their members, elected representatives,
managers, and employees so they can contribute effectively to the development of their
cooperatives. They also inform the general public — particularly young people and opinion
leaders — about the nature and benefits of cooperation.
Cooperation Among Cooperatives:
Cooperatives serve their members most effectively and strengthen the cooperative movement
by working together through local, national, regional, and international structures.
Concern for Community:
While focusing on member needs, cooperatives work for the sustainable development of their
communities through policies accepted by their members.
