Government Initiates Audit on Cooperative Societies’ Billions in Debt to Farmers

The Kenyan government has set up a committee chaired by the Commissioner of Cooperatives to audit the billions of shillings owed by Cooperative Societies to farmers. This move, aimed at scrutinizing the ballooning debts in the cooperative sector, particularly in agriculture, reflects the government’s concern over financial mismanagement within these societies. The debts, which have risen steadily despite repeated government interventions, are now a priority for the Ministry of Cooperatives and Micro, Small, and Medium Enterprises (MSMEs), led by Cabinet Secretary (CS) Wycliffe Oparanya.

Rising Debts: A Growing Concern for the Government

The Ministry’s primary concern is the persistent rise in debts owed by cooperatives to farmers, despite several government waivers and debt offsetting efforts. In particular, the debts in the agricultural sector, especially in the coffee industry, have escalated significantly. The CS, while speaking at the Savings and Credit Cooperatives (SACCA) Congress 2024 in Naivasha, expressed his concerns about the rising debts, terming them unsustainable. He emphasized that government efforts to offset these debts had little lasting impact due to poor financial management practices within the cooperatives.

“The debts owed to the coffee sector, for instance, have risen from Ksh 6 billion to Ksh 7.2 billion in just a few months,” said Oparanya. He pointed out that the management of cooperatives has been borrowing funds primarily to pay dividends, further exacerbating the debt situation. This mismanagement, according to the CS, has been a long-standing issue in the cooperative sector.

Government’s New Audit Committee

In an effort to address the rising debts, the government has set up an audit committee to scrutinize the borrowing activities of cooperative management teams. The primary goal of this audit is to control unwarranted loan applications by these management teams and to provide a clear understanding of the financial status of the cooperatives. This committee, chaired by the Commissioner of Cooperatives, will be tasked with analyzing the financial practices within the societies, identifying the root causes of their debt accumulation, and proposing reforms to ensure more sustainable financial management.

“The Government has set up an audit committee to tame unwarranted loan applications by the management of cooperatives, which will help address rising debts,” Oparanya said.

This committee’s findings and recommendations will be instrumental in shaping the future policies of the cooperative sector, particularly regarding borrowing and debt management.

Introduction of the Cooperative Bill (2024)

The Ministry of Cooperatives has also introduced a new legislative framework, the Cooperative Bill (2024), designed to address the governance and management issues that have long plagued the sector. One of the key provisions of this bill is the introduction of term limits for directors within cooperative societies. According to the proposed law, directors will be limited to a three-year term, which can only be renewed once. This is intended to promote accountability and prevent the entrenchment of poor management practices.

“Cooperatives have for years been plagued by poor management and misuse of members’ savings, which this bill seeks to cure once it’s enacted into law,” Oparanya noted.

The bill also seeks to enhance transparency in the cooperative sector by introducing stricter oversight measures and ensuring that management teams are held accountable for their actions. By limiting the terms of directors, the government hopes to encourage fresh leadership and new ideas, which are crucial for the sector’s growth and stability.

The Growth of the Cooperative Movement in Kenya

Despite the financial challenges within certain sectors, the cooperative movement in Kenya remains a critical component of the country’s economic development. Kenya ranks first in Africa in terms of cooperative growth, with accumulated savings exceeding Ksh 1.2 trillion. This highlights the significant role that cooperatives play in the financial inclusion and economic empowerment of millions of Kenyans.

The sector has seen substantial growth over the years, particularly in agriculture and finance. Cooperatives have been instrumental in mobilizing savings and providing credit to millions of Kenyans, especially those in rural areas who may not have access to traditional banking services. Currently, over 15 million Kenyans are members of cooperatives, with 4 million of them belonging to financial cooperatives.

In addition to their role in savings and credit, cooperatives have also been key players in the agricultural sector, helping farmers access markets, secure better prices for their produce, and improve their livelihoods. However, the rising debts within agricultural cooperatives, particularly in the coffee sector, have raised concerns about the long-term sustainability of these institutions.

Transitioning to Manufacturing and Job Creation

Looking ahead, the government is keen to see cooperatives transition from small-sector lending to funding manufacturing, which is viewed as a critical driver of job creation and economic growth. According to Oparanya, the cooperative sector can play a pivotal role in supporting the government’s efforts to stimulate growth, create jobs, and reduce poverty.

“There is a need to transition from small-sector lending to funding manufacturing to stimulate growth and create jobs, with cooperatives being the key enabler,” said the CS during the SACCA Congress.

The shift toward manufacturing would not only help diversify the cooperative sector’s portfolio but also ensure more sustainable growth by reducing the over-reliance on agricultural loans. This transition aligns with the government’s broader economic agenda, which prioritizes industrialization and job creation as key pillars of development.

The Role of Cooperatives in Tackling Youth Unemployment

The cooperative movement in Kenya is seen as a powerful tool for addressing the high levels of youth unemployment in the country and across Africa. According to George Ombado, the CEO of the Africa Confederation of Cooperative Savings and Credit Cooperatives Societies (ACCOSCA), despite Africa’s population of more than 2.3 billion people, fewer than 100 million are members of cooperatives.

Ombado emphasized the importance of strengthening regulations within the cooperative sector to encourage growth and tackle unemployment. He believes that with more robust oversight, cooperatives can play a vital role in creating employment opportunities, particularly for young people who often face significant barriers to entering the job market.

“The growth of cooperatives through enhanced robust regulations would help cure high youth unemployment in the continent,” Ombado said.

Conclusion

The government’s decision to audit the billions of shillings owed by cooperative societies to farmers marks a crucial step in addressing the financial challenges facing the sector. With the introduction of the Cooperative Bill (2024) and the establishment of an audit committee, the Ministry of Cooperatives is taking proactive measures to promote transparency, accountability, and sustainability within the sector.

As the cooperative movement continues to grow, the government’s focus on improving governance, transitioning to manufacturing, and tackling youth unemployment will be essential in ensuring that cooperatives remain a key driver of Kenya’s economic development. By addressing the financial mismanagement issues that have long plagued the sector, the government is laying the groundwork for a more prosperous and sustainable future for Kenya’s cooperatives and their millions of members.