JIMMA UNIVERSITY

COLLEGE OF AGRICULTRAL AND

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1.Evolution of cooperatives and the modern cooperative development in the world.
The cooperative movement began in Europe in the 19th century, primarily in Britain and
France. The industrial revolution and the increasing mechanization of the economy transformed
society and threatened the livelihoods of many workers. The concurrent labour and social
movements and the issues they attempted to address describe the climate at the time.
The first documented consumer cooperative was founded in 1769,[1] 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.[2][3]
In the decades that followed, several cooperatives or cooperative societies formed including
Lennox town Friendly Victualling Society, founded in 1812.[4]
By 1830, there were several hundred co-operatives. [5] Some were initially successful, but most
cooperatives founded in the early 19th century had failed by 1840.[6] However, Lockhurst Lane
Industrial Co-operative Society (founded in 1832 and now Heart of England Co-operative
Society), and Galashiels and Hawick Co-operative Societies (1839 or earlier, merged with The
Co-operative Group) still trade today. [7][8]
It was not until 1844 when the Rochdale Society of Equitable Pioneers established the
"Rochdale Principles" on which they ran their cooperative, that the basis for development and
growth of the modern cooperative movement was established. [9]
Financially, cooperative banks, called credit unions in the US, were invented in Germany in the
mid-19th century, first by Franz Hermann Schulze-Delitzsch (1852, urban), then by Friedrich
Wilhelm Raiffeisen (1864, rural). While Schulze-Delitzsch is chronologically earlier, Raiffeisen
has proven more influential over time – see history of credit unions. In Britain, the friendly
society, building society, and mutual savings bank were earlier forms of similar institutions.
New Cooperative Development
The phases of forming a cooperative are sequential in nature and occur along a critical path.
That is, the activities associated with each phase must be completed before it is advisable to
proceed to the next phase. The group needs to select and agree on what criteria constitute a
green light at each phase before moving on to the following one or what criteria might
constitute a red light meaning it is time to abandon the process and explore other options.

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The ultimate goal of starting a cooperative can only be reached when six preliminary objectives
are accomplished. The group must: (1) agree that a compelling problem or opportunity exists
warranting their attention, (2) agree that by forming a new cooperative they can address the
identified problem, (3) reach an adequate level of trust among potential members, (4) secure
commitment from members, (5) secure commitment from other key stakeholders and (6)
assemble the staff and assets to start up the cooperative enterprise. Attaining each of these
objectives typically involves a set of activities common to cooperative formation. However,
each group’s journey along the path of forming a cooperative can vary or take longer than
another.
Activities associated with these key objectives are discussed to provide insight into the start-up
process. There is no hard and fast recipe for forming a cooperative or a list of steps that work
for all situations. With that in mind, the six phases common to the formation of new
cooperatives are presented.
2.The modern cooperative development in Africa
The promotion of these organizations to champion development has seen the history of
cooperative development in independent Africa generally phased into two eras: the first era
running from the immediate post-colonial period in the 1960’s to the mid-1990s and the
second era occurring during the global economic reforms from the mid 1990’s to the present,
which has been characterized liberalization of the economy (Wanyama, Develtere and Pollet,
2009). Whereas the first era was characterized by stringent government control over
cooperative development through enactment of policies, legislation and programmers’ that
promoted cooperatives as vehicles for accelerating national economic development, the second
era has been the sphere of freeing cooperatives from the state to enjoy autonomy and operate
like business ventures responding to market demands.
State-controlled Cooperative Development
After independence, cooperative policies and legal frameworks gave African governments
powers to direct and manage the affairs of cooperatives. In most cases, the role of promotion,
control and guidance of the movement was vested in special cooperative development
departments or ministries that gave these organizations monopolistic positions in the economy
(Develtere, 2008).
Liberalization and Cooperative Development
The focus of the second era of cooperative development was liberalization, which sought to
free the cooperative movement from such state control in order to remain in tandem with the
neoliberal wave that swept across Africa. The liberalization of the economy that resulted from
the said wave necessitated several changes in cooperative development in Africa
LESSONS OF EXPERIENCE
The history of cooperative development in Africa presents lessons on the opportunities and
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challenges to harnessing the cooperative advantage for African development. We now attempt
to highlight some of them, incorporating both the challenges to cooperative development on
the continent and avenues for utilizing the cooperative model to spearhead African
development.
State Regulation of Cooperatives
The foregoing historical overview has shown that state-controlled cooperative development
resulted into negative consequences for the cooperative movement. Cooperative policy and
legislation that gave the state power to strictly supervise these organizations led to state
interference in the governance and management of these institutions, with the result that
cooperatives ended up being politicized; corruption and mismanagement became prevalent;
cooperatives’ monopolistic position in the economy never helped them to realized adequate
returns on their businesses, thereby weakening their financial base; cooperatives were unable
to provide services to members; and members lost morale to participate in the governance of
their organizations, with some of them regarding them to be extensions of the government.
Donor Support to Cooperatives
The available evidence suggests that during the era of state control over cooperative
development, donor support though the state seemed to reinforce state control to the
detriment of cooperatives. Whereas cooperatives served donor organizations as instruments
for channeling grants to recipients, they served governments as mechanisms for realizing
national development and exercising political control. Clearly, the interests of cooperatives
were missing from the purpose of donor support. In the circumstances, donor support to
cooperatives was easily turned into patronage resources for aligning cooperatives to the state
Effective Membership Participation
The story of the origin of modern cooperatives in Africa shows that these organizations were
founded without people’s solidarity. This is because the initial cooperatives were meant to
serve the interests of the colonial state rather than the African people. The independent
governments took over the promotion of cooperatives after independence, once again without
regard to ordinary members’ interests. The result was that cooperatives were regarded to be
extensions of 11 the government rather than membership organizations. The inefficiencies that
visited cooperatives following the politicization of cooperatives saw “members” withdraw their
effective participation. The
Political Culture
By their very nature, cooperatives are voluntary and open membership organizations that are
governed on the principle of democratic member control. Cooperatives also emphasize
member participation in their activities. The implication is that cooperatives are inclined more
towards democratic political environments than authoritarian political cultures.
The Social Culture
As envisaged in their principles and statement of identity, cooperatives are based on the values
of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of
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their founders, cooperative members believe in the ethical values of honesty, openness, social
responsibility, mutuality and caring for others. These values are not new to the African culture.
3.The modern cooperative development in Ethiopia
Ethiopians have a long history of working together by practicing cooperative-like institutions
which we call cultural cooperatives. Traditional cooperatives associations existed in the form of
iqub and idir. Iqub is an association of people having common objectives of mobilizing
resources, especially finance, and distributing it to members on rotating basis. Idir is an
association of people that have the objective of providing social and economic insurance for the
members in the events of death, accident, damages to property, among others. In the case of a
funeral, Idir serves as funeral insurance where community members elect their leaders,
contribute resources either in kind or in cash and support the mourning member. There were
also initiatives for labour resource mobilization that were to overcome seasonal labour peaks,
known as "Jigie”, “Wonfel”, among others.
The history of formal or Modern types of cooperative development in Ethiopia started in the
Era of Emperor Haile Selassie I between 1950 and 1974. The predominant societies were
producers and service co-operatives. Since this time cooperative policy and law has undertaken
many reforms and cooperatives have come to play a crucial role in economic and social
development.
The historical development of cooperatives in Ethiopia is briefly discussed under three
perspectives. These are
(i) during the imperial regime,
(ii) during the military rule, and
(iii) under the present government.
Cooperatives during the Imperial Regime (Before 1974)
In Ethiopia, successive regimes, starting from the Imperial period to the EPRDF government,
gave due recognition to the role of coops and made deliberate effort to promote the same.
However, the principles and approaches followed were markedly different, reflecting the
political thinking and ideology of the regimes. In its Five-Year Development Plan, the Imperial
regime envisaged an important role for coops in transforming smallholding agriculture. Thus, it
set the stage by providing the first legal framework (the Farmer Workers Cooperative Decree
No. 44 later replaced by the Cooperative Societies Proclamation No. 241/1966). The legal
framework was relatively comprehensive and contained most of the essential contents of the
legal framework issued more than three decades later in 1998 and coops were rightly viewed as
primarily voluntary undertakings. However, success was limited during the period.

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Cooperatives in the Military Regime (1974-1991)
The Military regime, which viewed coops as a key instrument to build a socialist economy
pursued the cooperatives agenda more aggressively. The approach followed combined coercion
with extensive support including priority access to resources, goods and services (such as land,
irrigation, bank loans at lower interest rate, capital goods, inputs and extension services, and
consumer goods). Whereas number of coops and membership size were relatively large, it is
not regarded as a particular success for a number of reasons (for details see Partners
Consultancy and Information Services, 2006). Coops were so unpopular that following the
demise of the Dergregime in 1992 most of them disappeared quickly. What is worse is that they
dissolved in such a disorderly manner (e.g., bank loans and other obligations were not settled;
no distribution of assets between members; etc.) that it created a lasting suspicion and distrust
of cooperatives the stigma of which is haunting cooperatives until today. In an attempt for a
fresh start with promotion of cooperatives, the incumbent government issued a new legal
framework (Proclamation No. 147/1998 and 402/2004). In addition to being comprehensive it
incorporated universally accepted principles of cooperatives.
In the history of cooperative movement in Ethiopia, the government has taken serious
measures after 1996. The measures include, organizing and reorganizing different types of
agricultural cooperatives and establishing Cooperative Promotion Bureaus in regions. At the
Federal structure the government has been established the cooperative promotion desk under
the Prime Minister office. A proclamation No. 147/ 1998 to provide for the establishment of
cooperative societies had also declared by the Federal Government to bring all types of
cooperative societies under one umbrella. The Federal Cooperative Commission (currently
Federal Cooperative Agency) based on proclamation No. 274 / 2002 was established in 2002.
More over to correct the short comings in the proclamation 147/1998andamendment
402/2004 and regulation number 106/2002 became an important instrumental document in
the cooperative movement of the country.
Cooperatives under the present Government (Since 1991)
The present government provided a legal framework which is both comprehensive in many
respects (including its ability to accommodate coops in various sectors/sub-sectors) and
incorporates universally accepted principles of cooperatives including voluntary membership
(Proclamation No. 147/1998 and 402/2004). As a result, some improvements have been seen in
cooperative societies in the country. Cooperative societies started to distribute inputs, provide
loan to their members, market produces of members in the domestic and foreign market,
Unions (secondary cooperatives) were formed with the assistance of Cooperative Union Project
(CUP) funded by VOCA/Ethiopia/USAID), dividend payments were made by the unions as well
as primary cooperatives. The number of Primary and secondary cooperatives of different types
with significant increase in number of member beneficiaries is achieved.

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 Both ADLI (the government's development programme) and the Marketing Strategy
explicitly envisage cooperatives to play a critical role in the development and poverty reduction
efforts of the country (see Ministry of Finance and Economic Development 2003, 2003; Ministry
of Agriculture and Rural Development 2005). In line with this a general legislation setting out
the formal rules and procedures by which the Journal of Economics and Sustainable
Development www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.6, No.5, 2015
40 development and activities of all types of co-operatives in the country are to be guided
(Proc. Nos. 147/1998 and 402/2004) was issued. As such, it constitutes the incentive structure
that shapes the behavior of Co-operatives and their members. According to the proclamation,
the objectives of Co-operative Societies are to create savings and mutual assistance among its
members by pooling their resources, knowledge and property, to enable them to actively
participate in the free market economic system (Proclamation. No. 147/1998).
Challenges of Cooperative Movements in Ethiopia
Despite rapid growth the overall progress of cooperative movement during the last 50 years of
its existence is not very impressive. According to different document analysis and field reports
results indicate that the cooperative movement in Ethiopia is beset with several challenges
related to dependence on government /awareness, governance, accountability, legislative and
policy support and new product development. The major challenges of cooperatives include the
followings.
o Lack of awareness People are not well informed about the objective of the movement, the
contributions it can make in rebuilding the society and the rules and regulations of cooperative
institutions. Regrettably, no special efforts have been made in this direction. People look upon
these institutions as means for obtaining facilities and concessions from the government. So
long as people expect to get something from the government, they see to it that societies
somehow continue to function.
o Weak governance Management committee members have no knowledge of cooperative
business transaction. In most cases cooperatives are unable to employ high caliber
management staff and the burden of due diligence is left to cooperative members who may
have limited education on financial management. The committee members elected by the
general assembly to lead the affairs of the societies for fixed period do not have the necessary
capacity to bring good governance, not undergone in skill upgrading. Thus, good governance is
the main and crucial weakness of cooperatives.
o Inadequate support and weak regulation and supervision The capacity of FCA and regional
cooperative promotion agency/ bureaus to effectively promote, regulate and supervise
cooperatives is severely constrained for the following reasons: - Absence of separate
specialized units at the federal, regional and woreda levels in charge of promoting, supervising
and regulating different type of cooperatives; and - Limited mobility of staff due to shortage of
vehicles and motorbike and high costs associated.

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o Accountability of the cooperative agency and regional offices The Federal Cooperative Agency
and the Regional Cooperative Agency are accountable to the Ministry of Agriculture and Rural
Development. However, saving and credit cooperatives are part and parcel of the financial
sector the authorities that regulate them require prudential standards that are relevant to
financial institutions operations. Hence, the FCA requires to develop these standards which
must be complied with by the SACCOs and their Unions in their daily operations and mitigate
various financial risks.
o Lack of differentiated products Apart from the above stated problems, cooperatives have not
yet provided demand driven products that could address the needs of their members in spite of
their older age and better outreach to the grass roots level and unbanked community. It has
been observed that there is no clearly articulated and defined product development and
revision policy within. If it happens it is either by chance or arbitrarily; It is not done in a
systematic organized manner and by experts but rather by interested individuals or group of
people (professionals or otherwise) and does not follow the necessary steps. It arises simply
from a felt need or a Journal of Economics and Sustainable Development www.iiste.org ISSN
2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.6, No.5, 2015 44 problem prevailing in
cooperatives. In general, there are no planned and structured ways of developing new products
or revising the existing.
o Differences in interpretation of the cooperative legislation at various levels in some cases the
demarcation of authorities between federal and the regional states are not clearly understood.
A typical example would be the formation of cooperative federation. According to the FCA
strategic plan, the country follows four tier vertical structures: primary, union, federation and
league. In practice some regions like SNNP and Tigrai regions have establishing federation at
regional level backed by the irrespective regional level cooperatives law. If cooperatives
continue to integrate vertically, the federations established/ would be established at regional
levels are expected to form another layer before joining the league or the league will be
established including the regional level federations. It is believed that such misunderstanding
emanated from misinterpretation of the grand federal cooperative law and such confusions
need to be cleared.
o Operation areas The federal cooperative law proclamation No.147/1998, amendment
No.402/2004 and regional states cooperative proclamations and cooperative agency SACCO
guideline do not define operational areas for SACCO unions. What is stated both in the federal
and national regional states’ cooperative proclamations and the guideline is that any two and
primary SACCOs may establish SACCO unions. The SACCO unions in urban areas established on
the bases of work areas and community based organization. The Addis Ababa SACCO union is
established by employed workers’ saving and credit cooperatives while Women in self-
employment SACCO union is established by individual self-employed members organized at
community level.

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REFERENCES
https://en.wikipedia.org/wiki/History_of_the_cooperative_movement
https://social.un.org/coopsyear/documents/
WanyamaCOOPERATIVESFORAFRICANDEVELOPMENT.pdf
https://coops4dev.coop/en/4devafrica/ethiopia