Cooperative sector reform


The Government’s key organ for formulation and implementation of policies for the co-operatives sector is the State Department of Co-operatives in the Ministry of Agriculture, Livestock, Fisheries and Co-operatives.

This is as per the Revised Executive Order No. 1 of June 2020, that saw the transfer of the Department to the Ministry of Agriculture from the Ministry of Trade, a move that signalled the Government’s recognition of the key role that co-operatives play in supporting and ensuring food security for Kenyans.

Food security and nutrition are among the four pillars of the Government’s Big Four Agenda. The others are universal health coverage for all Kenyans, enhancing manufacturing and affordable housing.

According to Executive Order No. 1 of June 2020, the State Department of Co-operatives is expected to enforce good governance and ethics in co-operative societies, promote public private partnerships and joint ventures, and enhance foreign and bilateral relations on co-operative matters.

Co-operatives play a key role in mobilising savings for development, alongside banks and the Nairobi Securities Exchange (NSE).

The Draft Co-operative Development Policy 2019 seeks to create the proper environment for the sector’s growth while accommodating the interests of all stakeholders and the diversity of co-operative societies’ activities.

Early history

Kenya’s co-operative movement dates back to 1908, with a dairy outfit started by white colonial settlers.

After a few decades, the Government in 1931 began regulating the operations of the movement through the enactment of the first Co-operative Ordinance.

It was not until 1946 that the colonial Government allowed the inclusion of Africans in co-operatives, on realising that locals could play a big role in driving the economy through such movements.

According to the Ministry of Trade, Industry and Co-operatives, by 1969, about 1,894 co-operative societies had been registered in the country. The majority of these early societies were involved in agriculture.

The country’s co-operative movement – which is among the strongest in Africa – has over the years been a key player in the economy, controlling about 45 percent of Kenya’s gross domestic product (GDP). The co-operative societies in Kenya provide many opportunities for self-employment. Savings and credit societies (Saccos), the fastest growing sub-sector in the movement, have mobilised savings of more than Sh381.1 billion.

Co-operative development is tied closely to the Government’s aims in the rural development policy. The promotional efforts of the Government started soon after Independence in 1963 with the overall aim of using co-operatives to facilitate commercialisation of the country’s smallholder farm sector.

The Government had wide-ranging powers in organising farmer co-operatives to deliver the necessary services. By the late 1990s, the Government had largely achieved this end. Most of Kenya’s smallholders now own their farms and farmers produce a wide range of agricultural produce for the commercial market.

Examples include the Kenya Co-operative Creameries (KCC), the Kenya Planters Co-operative Union (KPCU) and the Kenya Farmers Association (KFA), started between 1922 and 1923.

Initially, they had been registered as companies but later as co-operatives in 1931 following the enactment of the first Co-operative Ordinance.

Savings and Credit Co-operative Societies (Saccos)

The main aim of Saccos is to mobilise savings and offer credit facilities to members. According to the Saccos Societies Regulatory Authority (SASRA), Kenya has two categories of Saccos – deposit taking and non-deposit taking.

Deposit-taking Saccos take deposits and offer saving accounts similar to those provided by commercial banks.

On the other hand, non-deposit-taking Saccos pool member deposits, which are strictly used as collateral for credit facilities. This means that these deposits cannot be withdrawn during the period of membership but can be refunded minus any liabilities owed by the member upon cessation.

According to SASRA, there were 174 deposit-taking Saccos licensed to operate in Kenya by the end of 2018 under its supervision.

Mwalimu National seeks to enable the teachers access affordable financial services. Mwalimu National has 18 branches in the country.

Review of key data of the sector

Data from the Economic Survey 2020 shows that the capital reserves of deposit taking savings and credit co-operatives recorded a growth of 63.5 percent to Sh175.2 billion in 2019. Loans and advances rose 12.1 percent to Sh402 billion in 2019.

For the year under review, total liabilities in form of deposits increased by 11.3 percent from Sh342.3 billion in 2018 to Sh381.1 billion in 2019.

The Sacco Sub-sector Demographics Study Report 2019, compiled by SASRA, shows that a total of 4.78 million Kenyans are members of deposit taking Saccos, making up 96.2 percent of the entire Sacco membership.

The rest, 3.8 percent of Sacco members, were corporate and institutional, mainly made up of self-help groups (chamas), joint memberships of two or more persons, private schools, churches, sole proprietorships and limited liability companies.

According to SASRA, Saccos have been traditionally grouped in five broad-based areas and aligned to where they drew their membership.

These include farmers-based, teachers-based, government-based, community-based and private sector-based deposit-taking Saccos.

According to the report, out of the 4.78 million individual Sacco members, the largest proportion of membership is in 50 farmers-based deposit taking Saccos, which account for 47.8 percent of the total individual membership of the deposit taking Saccos.

Marking the 97th International Co-operative Day last year, President Uhuru Kenyatta noted that co-operatives account for 45 percent of Kenya’s GDP and about 30 percent of national savings and deposits.

The Co-operative Bank was established in 1965 as a co-operative society. The bank, which is mainly owned by members of the co-operative movement, is the fourth-largest lender, controlling 9.63 percent of the market with 159 outlets.

Its subsidiary, the Co-operative Insurance Company of Kenya (CIC), is also one of the biggest insurers in Kenya. Some Saccos also have huge asset bases, bigger than some commercial banks.

Why Kenyans prefer Sacco loans

The majority of Kenyans source their loans from Saccos to buy land, other assets and to construct houses.

According to the Central Bank of Kenya’s (CBK) 2019 FinAccess Household Survey, the majority of loans (41.5 percent) sourced from formal financial institutions such as Saccos were used to purchase assets, while 36.7 percent were used to acquire machinery and expansion of businesses.

The vibrant and dynamic co-operative movement in Kenya – one of the strongest in Africa – is a key player in the economy, controlling about 43 percent of Kenya’s gross domestic product (GDP).

Co-operative societies in Kenya employ more than 300,000 people, besides providing opportunities for self-employment to many more. The savings and credit societies (Saccos) are the fastest growing sub-sector in the movement, and have mobilised savings of more than Sh230 billion.

The history of co-operative development in Kenya is tied closely to the aims of the Government’s rural development policy. The promotional efforts of the Government started soon after Independence in 1963 with an overall aim of using co-operatives to facilitate commercialisation of Kenya’s smallholder farm sector.

The Government was given wide-ranging powers in organising farmer co-operatives to deliver the necessary services. By the late 1990s, the Government had largely achieved this end.

The current membership of farmer co-operatives in Kenya is approximately 600,000 active members, located in two main sectors: the co-operative coffee sector, with approximately 400,000 members, and the co-operative dairy sector, with about 100,000 members.

Until the early 1990s, co-operatives in both sectors enjoyed a convenient monopoly status in the supply of raw materials and marketed their products in markets protected by the Government. The Government then selectively introduced market liberalisation reforms.

The coffee sector, which provides important foreign exchange to the country, has not yet been liberalised. Therefore, price and profitability of the coffee sector still largely depends on the fluctuating world market.

Coffee production has stagnated in Kenya, yet co-operatives represent approximately 70-80 percent of total production. The yield of co-operative coffee production has typically been only half that of private estates.

The situation within the dairy sector is somewhat different. Dairy co-operatives have traditionally had a monopoly to collect milk from producers, and KCC had a monopoly to process milk for the market. Co-operatives were allowed to sell unprocessed milk to customers and relied on KCC as a buyer of last resort.

Although all the milk collected was sold either locally or through KCC, the marketing system suffered from KCC’s financial constraints. In 1992, the dairy market was liberalised, resulting in increased competition both for raw materials and for consumers, with the emergence of milk hawkers and new private dairy plants.

This has led to a substantial increase in producer prices. Co-operatives have also realised that they cannot survive by merely relying on their traditional operating methods but need to invest in value-added production.

A vehicle registered with the South Rift transport saving and credit co-operative society limited. The Vehicles belonging to members of the Sacco ply the Nairobi – Eldoret – Litein route.

Co-operative sector reforms


Co-operatives are expected to supplement the Government’s efforts in addressing low domestic savings and investments, and the high cost of finance.

But the sector continues to face daunting challenges, including poor governance; low adoption of Information and Communication Technology (ICT) and value addition; a highly dynamic economic environment; indebtedness; inadequate co-operative education and training; poor publicity and advocacy, HIV/Aids and emerging lifestyle health challenges; ageing membership; and inadequate policy, legal and regulatory framework.

Other domestic challenges facing co-operatives, as per the Draft Co-operative Development Policy 2019, are high dependence of the country on rain-fed agriculture as a source of raw materials; low agricultural productivity; insufficient technical skills and personnel; and socio-cultural barriers to trade.

The Policy will replace the Sessional Paper No.6 of 1997 on Co-operatives in a Liberalised Economic Environment and follows legislative amendments to co-operative sector legislative and regulatory frameworks such as Co-operative Societies Act (2004) and SASRA Act (2008). Its objectives are to:

  1. Re-align the co-operative development policy with the Constitution (2010) and Kenya Vision 2030, as well as the Government’s development masterplan for greater effectiveness of co-operative regulatory framework and participation in food security and nutrition.
  2. Redefine the co-operative movement structure and strengthen the management of co-operative enterprises to encourage integration in the sector for enhanced service delivery.
  3. Promote the development and integration of ICT in co-operative operations and marketing for improved market access and marketing.
  4. Promote viable co-operative enterprise investments, value addition, processing and manufacturing, and enhance the capacity of co-operatives to conduct research.
  5. Encourage co-operatives to take up opportunities for partnerships and joint ventures with other local and international agencies to acquire resources and skills to enhance their strategic competitiveness and skills transfer.

At the regional and global arena, periodic recession in the economies of Kenya’s major trading partners often adversely affect co-operative exports, while the volatile international financial market causes price fluctuations on commodity prices, says the Policy.

The reforms sought by the Government seek to place co-operative enterprises on the frontline of the battle to mobilise savings, enhance agricultural and non-agricultural productivity, fight poverty and promote equity.

Co-operatives mobilise funds from farmers to facilitate cost-effective procurement and distribution of farm inputs, acquisition of new technologies and upgrading of production facilities.

The Government is working to mobilise financial and technical assistance for co-operative enterprises and encourages public-private partnerships between such enterprises, private investors and the Government to increase value-addition and aggressive marketing of co-operative products and services.

Of immediate focus is addressing inadequate funding, staffing, limited staff capacity in terms of skills, and low levels of staff motivation. In this regard, the Government has three key objectives:

  1. Build adequate marketing capacity within the co-operative sector;
  2. Facilitate revitalisation and continued growth of co-operative enterprises; and,
  3. Build capacity to enforce the law.

These objectives are dependent on the successful promotion of an innovative, commercially-oriented and modern agriculture which will stimulate and promote the revival of input supply co-operative enterprises and create the necessary capacity to trade in large volumes of inputs, and engage in the distribution of farm inputs while taking advantage of economies of scale.

Legal and regulatory reforms

Because co-operatives are private institutions, the national and county governments’ role remains facilitative in nature.

Co-operative structure

While retaining the four-tier system to support growth of the movement, the Government wants to replace the tier previously known as National Co-operative Organisation (NACO) with the federation to enhance self-regulation within the movement.

Co-operative governance

The draft policy proposes measures that will enhance co-operative board effectiveness, with a clear separation between the roles of the management and those of the board. It also recognises the importance of delegates vis-à-vis the rights of individual members, and responds to the need to stratify the co-operative societies for ease of regulation and supervision.

Enforcement is to be stiffened by restructuring SASRA to regulate all financial co-operatives and a Co-operative Regulatory Authority will be created for non-financial co-operatives. The co-operative tribunal will be streamlined and strengthened, including mainstreaming of ADR mechanisms.

Co-operative financing and investment

Commanding a huge chunk of national savings, the co-operative movement has financed most of the housing stock in Kenya. The policy proposes to strengthen co-operatives on savings mobilisation, investment and credit management.

Also addressed is general credit management in producer co-operatives with an emphasis on educating borrowers to reduce delinquency. The Government wants co-operatives to take advantage of emerging financial opportunities like:

  1. Participation in the national payment system;
  2. Agency banking; and
  3. Share trading.

Co-operative production, value addition and marketing

Co-operatives can boost the return on investment for farmers by:

  1. Channeling farm inputs to improve production;
  2. Providing market linkages for agricultural produce;
  3. Facilitating post-harvest management of agricultural produce through transportation and improved storage technologies;
  4. Helping farmers add value to their raw produce.

Support from the National and County governments would be through:

  1. Facilitating investment in bulk storage facilities;
  2. Mobilising initial capital; and,
  3. Laying the foundation for participation of social venture capitalists in the value addition programme.
Weru cooling plant by Muki farmers cooperative. Muki Farmers Cooperative (MFCS) is in North Kinangop in Nyandarua South sub County of Nyandarua County, Kenya. The Society was pioneered in 1991.

Education, training and research

Funding education and training in the movement is a challenge, hence the choice of the Co-operative University of Kenya as the centre of excellence in Co-operative Education and Training, in addition to other institutions of higher learning, offering co-operative education and training. To augment this effort, the National Government would establish a national data and information centre for co-operatives.


The National and County governments are to help the co-operative movement fully adopt the use of ICT by formulating and passing the necessary legislation, and facilitating the development of the e-COOP platform to enhance service delivery to co-operative societies.

Cross cutting issues

Recognising that the youth, women and persons with disability are not fully integrated in co-operative activities, perhaps due to attitude, lack of interest or existing ownership structures, the Government is looking at innovative ways for marginalised groups to be absorbed in co-operative operations. One of the strategies is creation of worker co-operatives.

With devolution now firmly entrenched, full acceptance and participation by county governments in implementing the national policy on co-operative development is important.

In other words, while the National Government facilitates growth and development of co-operative enterprises throughout the country, the County governments are responsible for the same in their respective counties.

A vibrant and successful co-operative sector can help anchor Kenya’s industrialisation efforts, thanks to its huge resource base.

Types of co-operatives in Kenya

Savings and Credit Co-operative Societies (Saccos)

These are formed to provide financial support to members. They accept deposits from members and grant them loans at reasonable interest rates in times of need.

The objectives of a Sacco are:

  1. Promote thrift among the members by allowing them to accumulate their savings and deposits, and thereby create a source of funds from which loans can be given to them exclusively for provident and productive purposes at fair and reasonable rates of interest, thereby enabling them to use and control their money for their mutual benefit.
  2. Ensure personal growth through the introduction of new products and services that will promote the economic base of the members.
  3. Ensure the progress of members and society through continuous education programmes on the proper use of credit, reduction of poverty, human dignity and co-operation.
  4. Apply the co-operative principle of ‘co-operation among co-operatives’ to promote members’ interests. To further these objectives, the society affiliates to the relevant National Co-operative Union and the Apex society.

Housing co-operatives

These are co-operative societies formed to provide residential houses to members. They purchase land, develop it, construct houses or flats, and allot the same to members. Some societies also provide loans at low rates of interest to members to construct their own houses.

The objectives of housing co-operatives are:

  1. Contracting for loans from non-members by issuing debentures or mortgaging its property, or by any other means up to a maximum amount to be decided by the general meeting.
  2. Lend money to members for: Acquisition of living accommodation for themselves, for income-generating purposes on such terms and with such security as the management committee may, from time to time, determine; or guarantee loans and advances to members for similar purposes.
  3. Undertake building operations by such means, either directly or indirectly, as the committee may decide.
  4. Acquire supplies of building and similar materials and machinery of all kinds, including household furniture and equipment, for use in building or for sale or hire to members.
  5. Acquire and relinquish land, buildings and rights over land and buildings by purchase, lease or any other means as may be necessary, for the attainment of these objectives.
  6. Employ architects, builders, contractors, and contract services for light and power, water drainage, roads, and generally do all such things as are necessary and customary for acquisition of land and its development for housing purposes.
  7. Enter into contracts with members for sale or lease of land and buildings acquired by the society in pursuance of its objectives, on such terms and conditions as may from time to time be determined.
  8. Ensure the progress of members and the society through continuous education programmes on proper use of credit, reduction of poverty, human dignity and co-operation.
  9. To apply the co-operative principle of co-operation among co-operatives to promote members’ interests and, in furtherance of the objectives of the society, affiliate to the relevant national co-operative union and the Apex society.

Consumer co-operatives societies

These protect the interests of general consumers by making consumer goods available at reasonable prices. They buy goods directly from producers or manufactures and thereby eliminate middlemen in the process of distribution.

Agriculture/farmers co-operative societies

These serve small-scale farmers.

Producer co-operative societies

These serve small producers by helping them acquire the items they need for production – like raw materials, tools, equipment and machinery.

Marketing co-operative societies

Several producers and manufacturers who find it difficult to sell their products in the market form co-operative societies. A good example is the Kenya Co-operative Creameries.

The objectives of a marketing co-operative are:

  1. Arrange for co-operative marketing, processing, grading, packaging and transporting of members’ produce, and provision of other services as may be necessary for the most profitable disposal of the produce.
  2. Arrange for the purchase and resale of farm inputs and chemicals, and other similar requirements of the members.
  3. Take measures to control pests and diseases.
  4. Foster education and training of members, committee members and employees.
  5. Provide co-operation and goodwill between members and the society.
  6. Co-operate with other co-operatives in order to promote members’ interests and in furtherance of the society’s objectives.
  7. Apply the principle of promoting members’ interests.
Kenya Police Sacco Chairman Mr David Mategwa handing over the donations of masks, handsanitizers and gloves to the IG National Police Service Hillary Mutyambai. The Society started with a membership of 690 and has grown to the current membership of about 61,755 with an asset base of about KES 35 Billion and a loan portfolio of KES 29 Billion.

Investment co-operative societies

The objectives of an investment co-operative are:

  1. Invest members’ contributions in prudently identified ventures in order to maximise the return on investment.
  2. Acquire, lease, or otherwise dispose the society’s building(s) and other fixed properties as may be necessary.
  3. Purchase, take on lease, or exchange, hire or otherwise acquire any movable or immovable property of any kind and of any interest therein, and any right or privileges which the management committee of the society may think necessary or convenient for the purpose of, or in connection with, the society’s business, or which may enhance the value of any other property of the society.
  4. Improve, manage, develop, and turn to account, grant rights or privileges in respect of, or otherwise deal with, any of the property rights and privileges of the society.
  5. Acquire and undertake the whole or any part of the business, assets and liabilities of any person or society carrying on, or proposing to carry on, any business which the society is authorised to undertake, or which can be carried on in conjunction with any business of the society, or which is possessed of property suitable for the purpose of the society.
  6. Pay out the funds of the society, or expenses, which the society may lawfully pay for or in connection with the formation and registration of the society.
  7. Amalgamate, enter into a partnership, or into any arrangement for sharing profits, union of interests, co-operation, joint ventures and reciprocal concession limiting competition or otherwise.
  8. Borrow money or receive money or deposits either with or without security, or secured by debentures, mortgages or other security charged on the undertaking, or on all or any of the assets of the society.
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