Streamline cooperatives to support growth

One in four adult Ugandans is a member of a cooperative, according to International Cooperative Alliance.

This is not without cause. Cooperatives play a critical role in mobilising savings, increasing credit access and facilitating activities along production and value chains.

Onen in Gulu might, on his own, struggle to access a tractor to plough his fields but as a part of a cooperative, he can access one at much better terms. 

For this reason, cooperatives have grown from 13,179 in 2012 to about 23,485 in 2020, according to International Cooperative Alliance 

Despite their potential to drive economic growth, cooperatives have been posting dismal performance, with few growing beyond probation. 

A study commissioned by Finance Sector Deepening Uganda sought to understand supervisory challenges as well as identify best practice that could be applied locally.

The study found that decentralising services, digitisation and self-regulation, have the potential to guide cooperatives’ revival in Uganda, in line with the objectives to increase and deepen financial inclusion.

Firstly, decentralising the cooperative department by creating regional offices would increase registration, supervision and inspection services across the country.

Currently, most administrative services are only available from the Cooperative Registrar’s office at the Ministry of Trade.

This has contributed to significant delays in accessing services, increased inefficiencies  and poor enforcement of regulations. 

Bringing services closer to the people would significantly increase the support cooperatives receive, reduce resolution time, and reduce costs associated with travel to and from the office.

Linked to this, the cooperative office can also streamline cooperatives’ supervision by digitising various processes such as registration, document submission and record management.

Inefficient manual processes that require physical submission of documents extend resolution time, drive up associated costs and increase the likelihood of errors.

Additionally, without the benefit of an online management system, it is challenging to provide cooperatives with the tailored support. Outdated physical repositories are also vulnerable to displacement and security risks.

Policymakers should encourage smaller cooperatives to merge and create larger entities. While the number of registered cooperatives continues to multiply, only a small proportion of them have successfully gained permanent status. Lack of the necessary leadership and knowledge to run a cooperative effectively contributes to this.

Rather than have an increasing number of new cooperatives that are unable to operate effectively, international experience has demonstrated the benefits of merging to share resources, knowledge and expertise more adequately.

The use of self-regulatory frameworks can encourage compliance and good governance.  Cooperatives operate under an apex body that provides various services, including technical advice, training, mentorship and coaching.

It also subscribes to a self-regulatory framework that requires each cooperative to uphold the principles of good governance.  Such a framework reduces government’s administrative burden and associated costs of regulation while providing the necessary checks and balances for stable cooperatives.

Based on international best practice, there are three main actionable areas where policymakers and development partners can invest time and resources to facilitate cooperatives’ growth in Uganda.

Policymakers in the cooperatives sector should use partnerships with relevant institutions in the market to streamline services provided to cooperatives.

For instance, a partnership with the International Centre for Arbitration & Mediation would be essential to manage and resolve conflicts that develop in cooperatives and often contribute to their reduced performance.

Another strategic partnership could be between the Cooperatives Department of Ministry of Trade and the Association of Microfinance Institutions of Uganda to provide training to the cooperatives.

There also needs to be an alignment between the Cooperative Department and the recently created Uganda Microfinance Regulatory Authority, which also has the mandate to regulate Saccos.

Policymakers and development partners can review the regulatory scope of these institutions to clarify the role each should play in supporting Saccos to minimise resource duplication and ease the supervision of cooperatives.

Finally, Ministry of Trace and Uganda Microfinance Regulatory Authority can collaborate by developing shared digital infrastructure to  register and supervise cooperatives. 

As mentioned earlier, digitization would substantially improve supervisory capacity, increase efficiencies and minimise costs associated with regulation. Such a collaborative approach would reduce the project resources required and streamline administrative processes.

Paelo is Intervention Manager, Business Environment, Financial Sector Deepening Uganda