Question 1(a)
“Cooperatives and other forms of organizations are established to serve the public”. In view of this statement, explain their notable similarities and differences.
The International Labour Organisation defines cooperatives thus; A “Cooperative is an association of person usually of limited means, who have voluntarily joined together to achieve a common economic, end through the formation of a democratically controlled business organisation, make equitable contribution to the capital required and accepting a fair share of risks and benefits of the undertaking".
Hubert Calvest (1972) defines the Cooperative as a form of organisation wherein persons voluntarily associates together as human beings on the basis of equality for the promotion of the economic and social interests of themselves."
Cooperatives have unique characteristics which differentiate them from other forms of business organizations particularly partnerships and limited liability companies. The following are the characteristics of cooperatives.
Voluntary association:
Everybody having a common interest is free to join cooperative society. There is no restriction on the basis of caste, creed, religion, colour, etc. Anybody can also leave it at any time after giving due notice to the society. That is specialty of any cooperative society. There should be a minimum of 10 members to for cooperative society but there is no maximum limit for the membership.
This characteristic is similar to other forms of public limited liability companies where membership is voluntary for both and is open to anybody who can meet the requirements for membership. The only difference can be seen in the case of private limited companies and partnership where membership is by invitation and thus restricted.
Separate legal entity:
A cooperative society after registration is recognized as separate legal entity by law. It acquires an identity quite distinct and independent of its member can purchase, dispose its own assets, can sue and also can be sued. The income of cooperative society is legally taxable as per the Income Tax Act, 1961. This characteristic is common to private limited companies and public limited companies which are also treated as legal person’s separate from their owners or shareholders. Partnerships and sole proprietorships however do not enjoy this status portraying a major difference with the cooperatives.
Democratic management:
Equality is the essence of cooperative enterprises, governed by democratic principles. Every member has got equal right over the function management of that society. As such each member has only single voting right irrespective of the number of shares held or capital contributed by them. In case of cooperative society, no member detects the terms and conditions of the functioning because "one man one vote" is the thumb rule.
This characteristic shows a major dissimilarity between the cooperatives and other forms of business organizations. For the others, the rights are tied to the amount of capital contributed in terms of shareholding. To these other forms of business organizations, voting power is proportional to the number of shares held. In a sole proprietorship, the owner has sole rights in all respects of decision making. Service motive:
The main objective being formation of any cooperative society is for mutual benefit through self-help and collective effort. Profit is not at all in the agenda of the cooperative society. But if members so like, they can take up any activities of their choice to generate surplus in order to meet the day-to-day expenses.
This characteristic indicates a major departure from the other forms of business organizations. To these others, the major aim is to make profits and increase the capital of their owners.

Question 1(b)
Discuss the principles of cooperatives
The cooperative movement began October 24, 1844, when a group of 28 laborers scrimped and saved a total of 28 pounds ($110) to form a local cooperative to help them survive in the low-wage textile factories of Rochdale, England. The prospective members had no example to guide them, only theory and hope to achieve their dream of operating a cooperative store. This group developed eight cooperative principles that provided the framework for the cooperative movement that we see today. The original cooperative principles are as explained here:
Open, voluntary membership; A cooperative society should be voluntary and available without artificial restriction or any social, political, racial or religious discrimination, to all persons who can make use of its services and are willing to accept the responsibilities of membership.
Democratic Control; Cooperative societies are democratic organizations. Their affairs should be administered by persons elected or appointed in a manner agreed to by the members and accountable to them. Members of primary societies should enjoy equal rights of voting (one member, one vote) and participation in decisions affecting their societies. In other than primary societies the administration should be conducted on a democratic basis in a suitable form.
Limited return, if any, on equity capital; Share capital should only receive a strictly limited rate of interest.
Net surplus belongs to user-owners; The economic results arising out of the operations of a society belong to the members of that society and should be distributed in such a manner as to avoid one member gaining at the expense of others. This may be done by decision of the members as follows: a) by provision for development of the business of the cooperative; b) by provision of common services; or c) by distribution among the members in proportion to their transactions with the society.
Honest business practices; Cooperatives should deal openly, honestly, and honorably with their members and the general public.
Ultimate Aim Is To Advance Common Good; The ultimate aim of all cooperatives should be to aid in the participatory definition and the advancement of the common good.
Education; All cooperative societies should make provision for the education of their members, officers, and employees and of the general public in the principles and techniques of cooperation, both economic and democratic.
Cooperation among Cooperatives; All cooperative organizations, in order to best serve the interest of their members and their communities, should actively cooperate in every practical way with other cooperatives at local, national, and international levels.

Question 2(a)
Cooperative managers have a heavy task in running the cooperatives. Explain their roles and functions in the cooperatives.

The prompt and proper execution of the programmes in co- operatives can be achieved only through an effective management. Negligence and ignorance of managerial aspects of co-operatives can lead the institutions to failure. Management is defined as the accomplishment of desired objectives by establishing an environment favourable to performance by people operating in organized group. In other words management can also be defined as an art and science of organizing and directing the resources of an enterprise towards the achievement of its objectives. This definition is applicable to both co-operative and non~-operative sectors. But it is the responsibility of the co-operative management to aim at success both for the co-operative as a business enterprise, as well as that of an association serving its members. Management functions of co-operatives are performed in such a way that there is a fair balance between the social perspective and economic benefits.
A co-operative is controlled by a general body of members who are all entitled to attend the meeting and each member holds one vote regardless of his share. Since it is very difficult for the general assembly of members to be involved in actual management of their society, nearly all co-operative laws and rules entrust a special board or committee composed of elected members with the management of the affairs of the co-operatives. To a varying degree these boards delegate certain powers to individual members or employed personnel such as managers who remain however, under the policy guidance of the elected board or committee.
Management functions includes planning, financing, marketing, etc, each of which mainly depends on the type of the co-operatives. Management should be able to evaluate co-operative objectives by taking into consideration the needs of the members, the resources in the community that could mobilize the existing socio-political and economic condition in the locality in order to set more realistic goals. Management is also responsible for appointing and training staff.

Record keeping
Co-operative enterprise involves a number of transactions. Transaction here refers to any business dealing that result in money or money's worth. Purchase and sales of goods, either for cash or credit, payment of salaries to staff, payment to supplier of goods, receipt from customer etc. is going on in co-operatives. So a co-operative unit must necessarily keep a systematic record of all business transactions. The manager is responsible for ensuring that records are made and are accurate.
Controlling Function of Management
The whole managerial process involves certain systematic steps in the managerial plans; the first step should be to set goals and objectives for effective functioning. Once objectives and goals are chalked out, the staff of the co-operatives must work to achieve it. Their actual performances have to be monitored and measured. Then their planned performance has to be reviewed or compared. Finally corrective action has to be introduced. Sometimes, the activities which are not contributing to the objectives and goals have to be altered or reformulated. This process of monitoring or reviewing performance and initiating corrective action is described as managerial control. It helps to ensure that the plans are executed and accomplished. This is the role of the manager who may be hired to run a cooperative.
Democratic control and delegation
Democratic control depends not merely in casting votes but on discussion and informed criticism. The management or board must be prepared to undertake this activity and ensure that it responds to the wishes of the members. The manager has to lead the cooperative members in achieving the democratization of all decision making in the cooperative organization.
Delegation of authority is vital for ensuring organizational effectiveness, and co-operatives are no exception to this. The democratic management, the legal frame work and sound management culture enrich the process of delegation to the prosperity of co- operatives.

Democratic leadership
In co-operatives, direction should not be one man's show rather he should ensure the participation of his subordinates in matters related to their job, functioning, working environment and so on. The process of directing should be followed by healthy communication, strong motivation and effective leadership.
Direction
Mere planning, organizing and staffing are not sufficient for: the co-operatives. But through the function of direction the manager is able to get the employees accomplish their tasks by making them integrate their individual efforts to the interest and objectives of co-operatives.

Question 3 Discuss critically the roles of government in cooperatives
It agreed that the government is a major stakeholder in the cooperative movement. The roles of the government in cooperatives are many and varied. The most significant roles hinges on the need for regulation and promotion of the cooperatives.
There is a lot of emphasis on the role of government in establishing an appropriate policy framework within which cooperatives can survive and grow. The government’s actions are to be guided by cooperative values and principles. Specifically, they are expected to provide a supportive policy, legal and institutional framework, provide support measures when social and policy outcomes are met (i.e. support to cooperatives based on their activities and not because of their nature), provide oversight on terms equivalent to other forms of enterprise and social organization, adopt measures to improve access to finance for disadvantaged groups, and topically, to promote the formalization of the informal economy of which cooperatives usually rise from. The role of cooperatives in transforming marginal survival activities in the informal economy into legally protected work should be recognized.
It is also recognized that government can contribute significantly to improving cooperative performance by facilitating access of cooperatives to support services. In particular, support to cooperative human resource development is considered to be essential. Cooperative success can often be attributed to the success of comprehensive human resource development (HRD) programmes for all stakeholders in cooperatives. This includes members, workers and managers and regulative agencies. In Kenya, this is reflected in a number of places such as the establishment of the cooperative college and development of a curriculum for training in cooperative matters. Measures should be adopted to develop the capacities and knowledge of the values, advantages and benefits of the cooperative movement, and national policies should develop technical and vocational skills, entrepreneurial and managerial abilities, knowledge of business potential and general economic and social policy skills of cooperative members, workers and managers and improve their access to information and communication technologies. The promotion of education and training in cooperative principles and practices at all appropriate levels of the national education and training systems, and indeed throughout society, is a role that the government must take.
The other government's role cooperatives revolves the promotion of safety and health, productivity and competitiveness in cooperatives, facilitating access to credit, markets and information, promoting best practice in corporate governance, strengthening gender equality, promoting workers' rights and facilitating vertical and horizontal linkages among cooperatives. The government needs to combat "pseudo cooperatives" through the application of labour legislation, and a call to promote best labour practices in cooperatives. In this respect, Governments are urged to consult cooperative, employers' and workers' organizations in the formulation and revision of legislation, policies and regulations applicable to cooperatives. Governments are also encouraged to facilitate the promotion of the cooperative movement.

Question 4
Explain the weaknesses faced by credit unions when they operate as cooperatives.
A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members. Credit Unions often form cooperatives among themselves to provide services to members. A Credit Union Service Organization (CUSO) is generally a for-profit subsidiary of one or more credit unions formed for this purpose.
Credit unions, unlike the conventional cooperatives have various weaknesses when they operate as cooperatives. These weaknesses are hinged on the fact that the credit unions operate on a different legal framework that is designed for cooperatives. For instance, they depend on members contributions which are specified per period of time. They are therefore, are dependent on their members continued support. Being credit unions, they basically are concerned with giving credit to their members and no more. The lack of diversification in operations is a major weakness unlike in conventional cooperatives which apart from giving credit to members can also be involved in other income generating activities.
Reference

Question 5
Trace the historical development of Micro Finance
The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia, as well as numerous savings clubs and burial societies found all over the world.

Formal credit and savings institutions for the poor have also been around for decades, providing customers who were traditionally neglected by commercial banks a way to obtain financial services through cooperatives and development finance institutions. One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. Their principal purpose was making small loans with interest for short periods. At their peak they were making loans to 20% of all Irish households annually.
In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe, organized primarily among the rural and urban poor. These institutions were known as People's Banks, Credit Unions, and Savings and Credit Co-operatives.
The concept of the credit union was developed by Friedrich Wilhelm Raiffeisen and his supporters. Their altruistic action was motivated by concern to assist the rural population to break out of their dependence on moneylenders and to improve their welfare. From 1870, the unions expanded rapidly over a large sector of the Rhine Province and other regions of the German States. The cooperative movement quickly spread to other countries in Europe and North America, and eventually, supported by the cooperative movement in developed countries and donors, also to developing countries.
In the early 1900s, various adaptations of these models began to appear in parts of rural Latin America. While the goal of such rural finance interventions was usually defined in terms of modernizing the agricultural sector, they usually had two specific objectives: increased commercialization of the rural sector, by mobilizing "idle" savings and increasing investment through credit, and reducing oppressive feudal relations that were enforced through indebtedness. In most cases, these new banks for the poor were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and at times, abusive.
Between the 1950s and 1970s, governments and donors focused on providing agricultural credit to small and marginal farmers, in hopes of raising productivity and incomes. These efforts to expand access to agricultural credit emphasized supply-led government interventions in the form of targeted credit through state-owned development finance institutions, or farmers' cooperatives in some cases, that received concessional loans and on-lent to customers at below-market interest rates. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members. These "microenterprise lending" programs had an almost exclusive focus on credit for income generating activities (in some cases accompanied by forced savings schemes) targeting very poor (often women) borrowers.
The Grameen Bank is a classical example in this respect. In Bangladesh, Professor Muhammad Yunus addressed the banking problem faced by the poor through a programme of action-research. With his graduate students in Chittagong University in 1976, he designed an experimental credit programme to serve them. It spread rapidly to hundreds of villages. Through a special relationship with rural banks, he disbursed and recovered thousands of loans, but the bankers refused to take over the project at the end of the pilot phase. They feared it was too expensive and risky in spite of his success. Eventually, through the support of donors, the Grameen Bank was founded in 1983 and now serves more than 4 million borrowers.

Through the 1980s, the policy of targeted, subsidized rural credit came under a slow but increasing attack as evidence mounted of the disappointing performance of directed credit programs, especially poor loan recovery, high administrative costs, agricultural development bank insolvency, and accrual of a disproportionate share of the benefits of subsidized credit to larger farmers. The basic tenets underlying the traditional directed credit approach were debunked and supplanted by a new school of thought called the "financial systems approach", which viewed credit not as a productive input necessary for agricultural development but as just one type of financial service that should be freely priced to guarantee its permanent supply and eliminate rationing. The financial systems school held that the emphasis on interest rate ceilings and credit subsidies retarded the development of financial intermediaries, discouraged intermediation between savers and investors, and benefited larger scale producers more than small scale, low-income producers.
Meanwhile, microcredit programs throughout the world improved upon the original methodologies and defied conventional wisdom about financing the poor. First, they showed that poor people, especially women, had excellent repayment rates among the better programs, rates that were better than the formal financial sectors of most developing countries. Second, the poor were willing and able to pay interest rates that allowed microfinance institutions (MFIs) to cover their costs. 1990s These two features - high repayment and cost-recovery interest rates - permitted some MFIs to achieve long-term sustainability and reach large numbers of clients.
The 1990s saw growing enthusiasm for promoting microfinance as a strategy for poverty alleviation. The microfinance sector blossomed in many countries, leading to multiple financial services firms serving the needs of micro entrepreneurs and poor households. These gains, however, tended to concentrate in urban and densely populated rural areas.
It was not until the mid-1990s that the term "microcredit" began to be replaced by a new term that included not only credit, but also savings and other financial services. "Microfinance" emerged as the term of choice to refer to a range of financial services to the poor, that included not only credit, but also savings and other services such as insurance and money transfers.
ACCION helped found BancoSol in 1992, the first commercial bank in the world dedicated solely to microfinance. Today, BancoSol offers its more than 70,000 clients an impressive range of financial services including savings accounts, credit cards and housing loans - products that just five years ago were only accessible to Bolivia's upper classes. BancoSol is no longer unique: more than 15 ACCION-affiliated organizations are now regulated financial institutions.
Today, practitioners and donors are increasingly focusing on expanded financial services to the poor in frontier markets and on the integration of microfinance in financial systems development. The recent introduction by some donors of the financial systems approach in microfinance - which emphasizes favorable policy environment and institution-building - has improved the overall effectiveness of microfinance interventions. But numerous challenges remain, especially in rural and agricultural finance and other frontier markets. Today, the microfinance industry and the greater development community share the view that permanent poverty reduction requires addressing the multiple dimensions of poverty. For the international community, this means reaching specific Millennium Development Goals (MDGs) in education, women's empowerment, and health, among others. For microfinance, this means viewing microfinance as an essential element in any country's financial system.

Reference
Steven M. Sheffrin (2003). “Micro Finance-History and Development”. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 511. ISBN 0-13-063085-3.