The national government has issued guidelines on approval of maximum borrowing powers by cooperatives.
Commissioner for Cooperatives Development David Obonyo stated that the guidelines are to enhance good governance and leadership in the cooperative sector.
In a letter dated August 16, 2023 directed to County Directors/ Commissioners for Cooperatives, CEO/MD- Cooperative Alliance of Kenya, Chairpersons of all Cooperatives Unions, Obonyo indicated that the department had identified disparities in the financing structures of cooperatives that employ borrowed funds.
He noted that some cooperatives are seeking approval of borrowing powers based on the amount fixed by the Annual General Meeting resolutions without due regard for the actual necessity of the borrowing and the need to borrow.
Such practices have, at times, led to improper allocation of limited resources or, in more unfortunate cases, the non-utilization of approved borrowing powers.
“In accordance with Section 44 of the Cooperative Societies Act, as read with Rules 34 and 35, the determination of maximum liability is vested in the annual general meeting, followed by subsequent approval by the Commissioner,” part of the letter read.
Obonyo directed cooperatives to ensure that all applications to his office seeking approval of borrowing powers meet the following requirements:
a) All application documents must be channeled through the County Director/Commissioner for Cooperatives of the respective counties.
b) The application must be accompanied by: Four duly completed copies of Form VIII – Notification of Limitation of Borrowing Powers, one copy of Form IV A – Annual Return for the relevant year, A copy of the general meeting minutes in which the maximum liability was determined, bearing the authentic signatures of authorized officers.
c) The minutes must be duly certified by the Sub County Cooperative Officer/County Director. Extracted minutes will not be accepted.
d) A copy of up-to-date audited accounts that have been duly registered by the commissioner for co-operative development or SASRA Statement(s) detailing the cooperative’s prevailing indebtedness.
e) A letter of offer from the financing entity, outlining the loan amount, repayment schedule, applicable interest rate, and any collateral prerequisites.
f) A comprehensive business plan, explicitly outlining the proposed utilization of the borrowed funds and the anticipated cash flows designated for loan repayment.
g) Minutes from the Board of Directors/Management Committee that sanctioned the presented business plan.
The measures are imperative to foster judicious borrowing practices and ensure the effective deployment of authorized borrowing powers
By Obegi Malack
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