November 13th, 2024

I had the privilege of moderating a panel on behalf of FSD Kenya at the 2nd cooperative movement stakeholders’ annual conference in Mombasa held between 4th November and 8th November 2024. The event, hosted by the Cooperative University of Kenya and the Platform Cooperatives Consortium, brought together a distinguished group of experts to discuss the challenges and opportunities within the cooperative movement.

In the panel session, we focused on the role of cooperatives in supporting and financing the agricultural sector. The cooperative movement in Kenya, particularly Savings and Credit Cooperative Organisations (SACCOs), has been instrumental in pooling capital for development. But there are a number of challenges which the sector still faces in mobilising finance for the development of the agricultural sector.

Indeed, agriculture as a sector has remained largely underserved by formal finance in Kenya. According to FinAccess 2021, only 3.3% of bank lending goes to Agriculture. It is no different for SACCOs, according to SASRA’s 2023 annual report, only 16.96% of lending was made for agricultural purposes. This is in stark contrast to the fact that 42% of membership is attributed to agriculture based SACCOs.

This challenge has historical roots. This paper by the University of Durham in collaboration with FSD Kenya argues that from the late 1960s, a clear distinction was built into government development policy that farm credit was to be provided through producer cooperatives, but urban waged workers would access credit through SACCOs. SACCOs had a significant advantage over the producer cooperatives in that their members received predictable salaries and were well-informed public-sector employees. Fortunately, the idea that SACCOs were really only for urban areas was abandoned, since it became clear that – whatever their failings – SACCOs were more successful than the rural producer cooperatives. Nonetheless, the dominance of SACCOs over agricultural cooperatives in Kenya still remains unique to Kenya compared with the global situation where agricultural cooperatives are more dominant both in terms of size and contribution to GDP (World Cooperative Monitor (WCM))

Why this dichotomy? For an informal economy such as ours, the cooperative movement can do more for real economy sectors such as agriculture. Together with a panel of experts from government, the financial sector the SACCO sector and development community, I explored the challenges faced by the cooperative movement and the potential for cooperatives to drive growth in Kenya’s agricultural sector.

The panelists began by flagging key challenges facing cooperatives in Kenya: lack of financing, governance and mismanagement, lack of capacity and skills and a generation and gender gap. We went on to discuss how cooperatives could become a stronger force in driving rural development, including channelling more finance towards key sectors like agriculture.

Leveraging Technology

Rebecca Bauen, the Education and Training Director of the Democracy at Work Institute (DAWI) emphasised the critical role of technology in modernising the cooperative movement. By leveraging digital platforms, coops can improve collaboration and service delivery, making them more appealing to younger generations. Relatedly, she suggested that newer cooperative models such as worker platform coops where members contribute by offering their services would also draw in youth to interface with various sectors such as agriculture. This approach requires a sector analysis to identify where these kinds of coops can be most effective, not just in terms of size but also in terms of networks and impact.

Mr. Julius Irungu, Risk & Compliance Manager – Stima Sacco, added that cooperatives need to leverage technology and digital platforms in order to engage the youth in more relevant and meaningful ways.

The role of government

Mr. David Obonyo, Commissioner for Co-operative Development of the Ministry of Co-operatives and Micro, Small and Medium Enterprises (MSME) Development, outlined the essential role of government in creating an enabling environment for coops. This includes:

• Training and Innovation Optimization: The government recognizes the importance of coops and has identified key value chains to support, from production to marketing. Providing training and optimizing innovation are crucial steps in this process.
• Introducing Legal Frameworks: Efforts are underway to bring in deposit guarantees and shared services platforms to reduce operational costs and build trust in SACCOs. This legal framework is vital for enhancing the financial stability and credibility of coops.
• Sector-Specific Investments: Investments in sectors like dairy and coffee, through subsidies and modern equipment, are part of the government’s strategy to support the agricultural sector. These initiatives aim to reduce production costs and improve market access for farmers.

Enhancing poverty alleviation through cooperatives

Mrs. Pamela Kaburu, M&E Specialist – Global Communities, emphasised that investing in cooperatives is akin to investing in communities. Sessional paper no 4 reveals that 63% of Kenyans depend on coops for their livelihood. Through a five-year research study conducted by Global Communities, it was evident that coops enhanced the resilience of communities prone to external shocks. For example, members of coops were able to bounce back more quickly from crises such as Covid-19 or pest infestations compared to non-members. This resilience stems from the strong trust and belief in coops, which are seen as more reliable than banks in times of need.

Enhancing value for small holders through secondary cooperatives

Martin Malila, CEO, Machakos Co-operative Union, shared insights on how secondary cooperatives, like the Machakos Cooperative Union can play a role in enhancing the power and effectiveness of primary cooperatives. Machakos Cooperative Union has 35,000 members who belong to primary cooperative societies. By amalgamating cooperative societies under the union, farmers can collectively process and market their products more efficiently and access finance. For example, coffee farmers under the union market their coffee through the Nairobi coffee exchange; once the coffee is sold, farmers are paid directly in dollars, via the coffee settlement system facilitated by Coop Bank. At this point any loans outstanding are also recovered, streamlining the recovery process and lowering the risks. ‘SACCOs should not fear lending to coffee farmers!’ said Mr. Malila. This system has been successful in enhancing the financial stability of coffee farmers and could be replicated for other agricultural value chains.

Dr. Edwin Kubai from Co-operative Bank built on this point, highlighting the importance of access to markets for farmers. The direct settlement system for coffee through the Nairobi Coffee Exchange ensures that farmers receive payments promptly, enhancing their economic stability and that the loan recovery process is streamlined. He said that this model is being considered for other value chains, such as tea and sugarcane, to empower more farmers, improve their market access and access to finance. The partnership between secondary coops, the bank and the government are central in establishing these kinds of systems.

Conclusion

The panel discussion shed light on the multifaceted challenges facing the cooperative movement in Kenya’s agricultural sector. By addressing these challenges through innovative solutions, leveraging technology, and ensuring inclusive representation, coops can significantly contribute to poverty alleviation and community resilience. Specifically,

• Secondary cooperatives and shared infrastructure can play an important role in unlocking capital to real economy sectors such as agriculture;
• There is need to explore the potential for multi-purpose cooperatives to address the multifaceted needs of small holder farmers and multiple value chains they operate in;
• Including youth and women will help to unlock innovation and make the cooperative movement a more central player in fast-evolving agricultural economies;
• Technology and digitalisation will be catalytic, but must be shaped in line with institutional and local priorities for change;
• The role of government is critical in making these efforts a success

The cooperative movement remains a cornerstone of Kenya’s economic development, capable of adapting to new challenges and seizing emerging opportunities. With continued support from the government, development partners, and the financial sector, cooperatives can play a pivotal role in driving sustainable growth and development in Kenya.

 

TAGS

CATEGORIES