Kenya boasts about 15,000 registered cooperatives with 12 million members. There are more than 320,000 employees and a further 1.5 million people engaged in small scale and informal enterprise funded by cooperative loans.

 About 10 years after Kenya attained independence from Britain, the cooperative movement emerged as a dominant player in the economy. The movement picked up a fast-growth path in the 1960s and 1970s. Cooperative activities were evident in almost all sectors of the economy, and indeed, co-ops had freedom to venture into any economic activity. They continued to be active in marketing of agricultural produce, agro-processing, property ownership and investments, banking and insurance.

Transport, technology and youth are among the new sectors making tremendous strides in giving enterprising Kenyans an opportunity to create wealth and jobs.

Information technology has been a major driver in the sector’s growth in recent years with the adoption of international accounting and management standards.

Research by the International Labour Organisation (ILO), indicates that about seven per cent of the African population is affiliated to the cooperative movement. In Kenya cooperatives provide two million jobs.

As a result of Kenya’s success, other countries including Uganda, Tanzania, South Africa, Malawi, Namibia, Botswana, Rwanda and Southern Sudan got inspiration and started taking cooperatives seriously.

Entrenchment of the movement

Milk-cowsIn 1908 the Lumbwa Cooperative was established and was the preserve of white settlers to develop their agriculture.

It took more than 50 years before this changed. By 1963, about 1,000 cooperatives had been registered in which black Kenyans had a stake.

This impetus motivated the Government of President Jomo Kenyatta to encourage the promotion of cooperative societies as a key strategy for national development through Sessional Paper No. 10 of 1965. As a result, the Ministry of Cooperative Development was established to strengthen and nurture the movement.

Among the controversial policies that came on board around this time was to directly link producer cooperatives with parastatals. This move made the government appear to be shielding the cooperatives from competition.

It is at this time that the Cooperative Bank of Kenya, which had been incorporated in 1965, was given a licence to operate.

The concept of a Savings and Credit Cooperative Society (Sacco) with an employer as the common bond was mooted. The Government also introduced subsidies and free access to government credit and free extension services.

Birth and entrenchment of Saccos

SMEsIn the 1970s priority was given to establishing a standardised accounting system in coffee and dairy farming, marketing cooperatives, a system popularly referred to as Members Transactions (MT).

This was followed by a savings and credit system integrated to the MT system. Under the project, a retired Swedish banker, Sven Lindkvist, was hired to study the feasibility of introducing rural credit Saccos linked to the marketing cooperatives.

The scheme assumed his name, and was known as Lindkvist Production Credit Scheme (LPCS). It was later renamed as Cooperative Production Credit Scheme (CPCS).

Lindkvist’s study revealed that although cooperatives were the main sources of deposits for banks, it was difficult for cooperatives to get credit from the banks due to stringent, and what was considered discriminatory, lending policies. Members could not open savings or deposit accounts because of unrealistic minimum balance requirements. Lindkvist recommended that cooperatives start their own savings and credit system. This is how the standardised MT system became an enabler for initiation of savings and credit system for rural Saccos.

Initially, the CPCS was to use borrowed funds to lend to individual society membership. The MT system allowed members to migrate from cash receipts for their produce to savings deposit accounts through their societies.

The plan was to introduce and encourage a culture of saving in rural cooperatives. Society members were also encouraged to deposit surplus cash from other sources to build a pool from which to borrow and diversify their activities. The cooperative unions established savings and credit (union banking) sections to manage these activities.

In many district cooperative unions, this activity developed into rural banking units, with huge savings and loan portfolios.

When these developments were taking place, the establishment of the Cooperative Bank was under way. The bank provided the momentum for the growth of the union banking units by lending to the societies.

This innovation, at the time, may be comparable to Safaricom’s M-Pesa, the world famous pioneer of mobile telephone money transfer service.