By Cosmas Chidozie Nwankwo
Why do we hold money and why do we need a cooperative society? The reasons for holding liquid cash, as we were taught in secondary school economics,are for daily operational transactions and for precautionary motives.Whether this cash is kept in a home safe or in a bank is immaterial, but the bottom line is that these cash do not yield any reasonable interest to the owner or cannot be invested in a long-term project. Our ability to access this cash is a form of insurance, especially in developing economies where the insurance industries are still in their infancy. Our inability in the Nigeria economic situation to access cash for the much-needed emergency daily expense is a form of stress to the family. In the past, people rely heavily on begging from family members but with the shrinking economy that has been exacerbated by the Corona virus pandemic the average source of borrowing has been greatly reduced and, in some cases, decimated. This gap can be filled through associations with cooperative societies which could provide a form of insurance for quick funds for daily operational or precautionary motives.
A cooperative society usually is a closed association of people, for thrift and loans savings. It is usually “closed” to a properly defined group as a source of security to the society and for the protection of members funds. A cooperative society can be formed of police officers, police officers’ wives, locomotive staff workers, electricity distribution staff workers or oil mining staff of a given company. According to Wikipedia the first documented consumer cooperative society was founded in 1769, in a barely furnished cottage in Fenwick, East Ayrshire, when local weavers manhandled a sack of oatmeal into John Walker’s whitewashed front room and began selling the contents at a discount, forming the Fenwick Weavers’ Society. In 1810, Rev. Henry Duncan of the Ruthwell Presbyterian Church in Dumfriesshire, Scotland founded a friendly society to create a cooperative depository institution at which his poorest parishioners could hold savings accounts accruing interest for sickness and old-age, which was the first established savings bank that would be merged into the Trustee Savings Bank between 1970 and 1985. These two examples are sufficient for the progression of this discussion on Strategies for rural development using cooperative societies.
Cooperative operations and risk management. Cooperatives operate through regular meetings where members meet to make their regular thrift and loan savings to the cooperative society, receive cooperative education and discuss issues relating to their cooperative. Attendance to these regular meetings is encouraged but not mandatory anymore but failure to contribute to your regular savings or thrift is a serious offence that could make one loose his or her membership of such society. Since regular contribution is mandatory and since situations change most cooperatives are designed such that people can vary their contributions at most twice a year in line with their prevailing circumstances. The Favour Cooperative Society Ltd Port Harcourtis based on a fixed monthly savings and these monthly contributions are not made to the cooperative account but to a group of individuals who are programmed to receive at scheduled meetings. There are concerns that these fixed monthly contributionscould limit the number of people that are able to participate therefore limiting the ability to grow the cooperative. This arrangement of direct contribution for a group of members also carries a lot of risk that, if not properly managed could have devastating effects on the cooperative objective of pulling people out of poverty. Have you ever considered a situation where one member is, for whatever reason, unable to pay to a scheduled recipient?
One of the reasons why the first-generation banks in Nigeria are still preferred despite their low returns on investment and low penetration on financial technologies is the belief that peoples investments are guaranteed in such banks. So how do you convince the poor people to invest in cooperatives? The answer is simple:people would invest if they perceived some measure of security and or there are well established business controls against collateral mismanagement of their hard-earned savings.
The hazard and effects management process (HEMP)is a risk management process that is used to install a set of barriers to top events (incidents or accidents) and where such events have occurred uses another set of barriers to prevent escalation. HEMP is specifically tailored to a particular event after a detailed study of the process that could lead to the event’s top event which is the accident or incident itself. If we consider savings or trading through a cooperative for example and consider loss of savings as a top event, then we can consider the admission process, and guarantee process for cooperative members as a barrier. We can also consider the bye laws which, among other things would stipulate conditions and entitlement to withdrawal from savings or borrow from the cooperative as barriers. The loan guarantor assessment and liens, where applicable are also barriers.
Also, the borrower, except while withdrawing from his or her savings, is expected to demonstrate project feasibility for which a loan application is sought, be mentally stable and made all the required disclosures. However, where these set of barriers fail and the borrower is unable to repay for any reason, we depend on another set of barriers, called recovery controls, to ensure that the impact to the cooperative entity is very minimal. The recovery barriers would include civil cases in court for loan recoveries. But civil cases in Nigeria are precarious and could take a long time and so other barriers are needed to ensure that court litigations are only used as a last resort. These other barriers, which should be enshrined in the byelaws, could include limiting peoples borrowing capability to the limit of their total savings or in real emergency asking for sureties or assets for loans beyond the saving accumulated by the borrower. The major point here is that there must be a balance between lifting people out of poverty and exposing the cooperative commonwealth to unnecessary risk.
Most cooperative loans are tied to individuals and not necessarily to companies and projects so there must be serious considerations on death of loan beneficiary and how it can be recovered. Is it better to dwell more on lifting people out of poverty through training by taking calculated risks on unsecure loans or is it better to dwell on building a more virile cooperative society by only given secure loans? The latter option will not help much as people would more or less focus on more established banks and lending institutions which has not quite led to people development. Even those banks and lending societies started as cooperative societies whose stock are now publicly quoted. Can the cooperatives use insurance companies to make it easier for people to have access to unsecure loans or can they act as the required insurance companies and absorb some risks of unsecured loans. Strategies for rural development. Before delving into strategies, it will be nice to ask what the objective of the cooperative society formed are. Is this cooperative society a social club or can it benefit from some of the objectives of the early cooperative society describe above? Is the cooperative going to benefit members in proportion to whatever one is able to invest and by so doing help create some leverage to the less privileged group members of the society?Is this a very local cooperative society where people meet monthly to contribute money for members whose turn it is to receive the contributions for the scheduled month. Since this cooperative is a target group for Nanka people resident in Port Harcourt Rivers state there is a need for a form of demographic occupational study to estimate what form of cooperative is needed and how it can be used to influence Nanka rural development directly or indirectly.
Without such detailed demographicstudy, I can say that this cooperative society is made up of the cream of Nanka society in Port Harcourt. Is that really the objective of a cooperative society or can we expand to incorporate people that needed to be pulled out of poverty? Why should we force ourselves to “contribute” the same amount every month? What if I can save twice the amount stipulated every month? What if I do not want to withdraw from my savings but can make my savings available to some people to borrow, at some specified low interest rate and use that to drive their business operations? Why can’t we admit people who are able to save twenty or ten thousand Naira every month and allow people who can save two hundred thousand Naira every month in the cooperative?
To be continued tomorrow
Dr. Nwankwo was the President of The Shell East Staff Investment Multipurpose Cooperative Society Ltd 2002 – 2005.