Cooperative law essentially things to know

1. COOPERATIVE LAW AND POLICY
II
LECTURE 2
WORLDWIDE OVERVIEW OF
COOPERATIVES

2. INTRODUCTION
• Thanks to ICA, cooperative legislation allover
the world share many elements in their
definitions, values and principles (ref. ICA
coop. statement identity, and ILO guidelines)
• However, there are different views and focus
of definition, seeing co-operative societies as
a:
– form of organization
– form of doing business enterprise;
– legal pattern

3. • Some cooperative legislation and policies of
countries which were former colonies of
European countries have taken forms and models
of their former colonizers. For example, in Africa
you may find countries which follow the English
model as well as the French model.
• There is also an element of political influence,
especially during the cold war –the communist
block and the capitalist block influence.

4. • Basically Cooperatives allover the world reflect
one or two elements of cooperative schools of
thought, depending on their historical
development background, as such we have:
(a) Cooperative following the School of Modified
Capitalism (USA, Canada, Western Europe);
(b) Cooperatives following the Socialist School
(former Eastern European countries, China, India,
some Sothern American countries)
(c) Cooperatives Following the Cooperative Sector
School (Scandinavian countries, Israel).

5. • Thus, according to world different concepts and
models of different countries, co-operatives are seen
as:
– autonomous self-help organizations (SHOs) in a liberal
market economy – with regulations ranging from free
choice of legal form, special legal pattern, modified general
legal pattern to formal or informal co-operation;
– organizations for mutual help;
– instruments for political transformation in a centrally
planned and state controlled economy – the socialist
model, no longer in force but still in the minds;
– part of a social economy, practicing a different way of
doing business.

6. THE ORIGIN OF “MODERN”
COOPERATIVES
• The founding fathers of “modern” co-operatives
developed their concepts almost simultaneously
in England, France and Germany in the middle of
the 19th century, reacting to extreme situations
of need threatening the lives of ordinary citizens.
• The focus was different, depending on the main
target group: UK – consumers, France -craftsmen;
Germany -farmers, urban craftsmen and traders.

7. • England - Rochdale Principles (1844)
– The Rochdale Pioneers did not aim at changing the
system of market economy. They wanted to generate
their own capital within the existing system in order to
enable members to build up their own self-managed
enterprises supplying them with consumer goods of
good quality at a fair price.
• Codification of a cooperative legislation could not
be possible because the English policy was that
cooperatives were private associations which
needed no any formal legislation.

8. • The Rochdale Society of Equitable Pioneers
was a group of 10 weavers and 20 others in
Rochdale, England, that was formed in 1844;
• As the mechanization of the Industrial
Revolution was forcing more and more skilled
workers into poverty, these tradesmen
decided to band together to open their own
store selling food items they could not
otherwise afford;

9. • With lessons from prior failed attempts at co-operation
in mind, they designed the now famous Rochdale
Principles and over a period of four months they
struggled to pool one pound sterling per person for a
total of 28 pounds of capital.
• On December 21, 1844, they opened their store with a
very meagre selection of butter, sugar, flour, oatmeal
and a few candles.
• Within three months, they expanded their selection to
include tea and tobacco, and they were soon known
for providing high quality, unadulterated goods.

10. The Rochdale Pioneers, founders of
the first retail co-operative movement.

11. The original rules of conduct as
published in the Pioneers’ annual
almanac were:
• That capital should be of their own providing and
bear a fixed rate of interest.
• That only the purest provisions procurable should
be supplied to members.
• That full weight and measure should be given.
• That market prices should be charged and no
credit given nor asked.
• That profits should be divided pro rata upon the
amount of purchases made by each member.
.

12. • That the principle of ‘one member one vote’
should obtain in government and the equality
of the sexes in membership;
• That the management should be in the hands
of officers and committee elected periodically.
• That a definite percentage of profits should be
allotted to education;
• That frequent statements and balance sheets
should be presented to members.

13. • France – Different approaches to changing the
economic system (1860s)
• The French co-operative founding fathers wanted
to develop an alternative to the prevailing
economic and social system, which they
considered to be unjust and exploitative (e.g
Charles Fourier, Philippe Buchez and Louis Blanc
and later Charles Gide).
• The establishment of cooperatives in France
dates from the 1750s when several cheese-
makers’ mutual societies were established in the
Franch-Comté region.

14. • In France craftsmen suffered most from
competition of new industrial producers. They
became factory workers with miserable working
and living conditions and thus decided to
establish cooperatives.
• In 1865 the first proposal of cooperative
legislation was made, and a law was enacted two
years later authorizing the right to associate.
However, the general law on co-operative
societies was made in 1947.

15. • Germany – (1880s)
• In Germany, modern co-operatives developed as a
reaction on land reforms and the industrial revolution
in the middle of the 19th century.
• Thrift and loan societies and agricultural supply and
marketing co-operatives spread in the rural areas
following the models of Raiffeisen and Haas
• While in the urban areas supply co-operatives of
craftsmen and traders, as well as peoples’ banks, were
created according to the concept of Herman Schulze-
Delitzsch, a judge and a parliamentarian in 1808 -
1883.
• Raiffeisen and Schultz-Delitsch developed an
independently formulated co-operative model in
Germany, the credit union (SACCOS).

16. • In 1850 Schulze was able to draft the first
Cooperative Societies Act for Germany. He
developed it from one of the by-laws of
cooperatives he was promoting.
• It was passed in 1889 and later became a
worldwide model of a cooperative societies
legislation.
• Following German legal tradition, it was a full
codified law, however, it granted autonomy to co-
operatives to adjust the general legal pattern to
their needs.

17. COOPERATIVES IN OTHER EUROPEAN
COUNTRIES
• Based on the English, France and Germany
models cooperatives spread all over Europe in
the 19th century in tandem with spread of
industrial revolution.
• In Spain for example, there is a general
national co-operative law but some regions
have autonomy to make their own regional
laws and in addition there are also special
laws for special types of co-operatives, leading
to a total of about 50 co-operative laws.

18. • In 1864 a revolutionary writer Fernando Garrido
Tortosa was the first to write about co-operation and
co-operatives in Spain.
• One year later, consumer co-operatives were first
established in Catalonia, the most industrialized region
in Spain.
• They were followed by Agriculture Credit Co-operatives
in Marcia in 1891 after the Ley de Asociaciones
(Associations’ Law) – the first legal text mentioning co-
operatives – had been adopted four years earlier.
• Housing co-operatives didn’t appear until 1911

19. • In Italy, The Netherlands and Switzerland, co-
operatives are regulated in the Civil Code,
supplemented in Italy by special laws and regional
autonomy to make own cooperative laws.
• In Belgium, co-operative law is part of the coordinated
laws of commercial societies, since 1995 also including
special regulations for societies having social
objectives.
• Social co-operative activities can also be carried out in
the legal form of non-profit association .
• The same trend was followed for cooperatives in
Scandinavian countries such as Denmark, Finland and
Sweden.

20. • Socialist co-operatives in the former Soviet
Unions and in the “Eastern Block” were following
the Lenin’s Plan of 1923 for the development of
co-operatives in the Soviet Union.
• It was based on a concept of co-operation as a
political tool.
• In the Soviet Union tasks and goals of co-
operatives were to serve as instruments of
implementing a centrally planned state economy.

21. • Their role was to help to transform private
property of means of production into state-
property and private enterprises into state-
controlled collective enterprises or state-
enterprises, based on the motto “what we
cannot nationalize, we co-operatise“.
• Consumer co-operatives were regarded as
mass organizations of the socialist party
having economic and social objectives.

22. • According to the socialist concept, co-operative
organizations have political, economic and social
functions, while co-operatives in a market
economy have mainly economic functions
pursued by value-oriented management.
• Several countries of Eastern and Central Europe,
although have reverted to market economic
policies after the end of the Cold War, there is still
the problem on how to deal with the socialist
past.

23. • In many of these countries, co-operatives still
have to combat the negative image of the
socialist past.
• For the law-makers, the problem is how to
provide a legal framework for autonomous co-
operative self-help organizations, serving the
economic and social interests of their members in
the new environment of a market economy,
without temptations of interfering with
cooperative operations, sometimes for individual
political gains.

24. ASIA: JAPAN, SOUTH KOREA, VIETNAM
AND CHINA
• Raiffeisen’s ideas reached Japan around 1890,
when a German professor (Udo Eggert) taught
at a Japanese University and published a book
“Policy of Promoting Japanese Agriculture”,
emphasizing two roots: autonomous forms of
organized self-help and an imported model.
• Japanese research workers also studied in
Germany and brought their findings back to
Japan.

25. • Influenced by the German model, an Industrial
Cooperative Association Law was made in 1900,
covering four types of co-operatives: credit, marketing,
/purchasing consumer and production co-operatives.
• Later several special laws for different types of
cooperatives followed.
• Today’s legal framework of co-operatives in Japan can
serve as an example that state regulation does not
necessarily have negative effects, but rather can create
an order of things in which individual and group
interest can develop freely and at the same time be
protected against potentially dangerous business and
unfair practices.

26. • The first Japanese consumer co-op was
established at the end of the 19th century on the
model of the Rochdale Pioneers Co-operative.
• In the late 1940s, consumer co-ops spread across
the country to deal with the poor livelihoods of
citizens after the Second World War.
• In 1945 The Japanese Co-operative Alliance, the
predecessor of Japanese Consumer Cooperative
Union (JCCU), was established.
• In 1948 Consumers' Livelihood Co-operative
Society Law was enacted.

27. • As regards South Korea, the first Agricultural Co-
operative Act entered into force in 1957, re-
organizing the agricultural co-operatives formed
during Japanese occupation.
• In 1961 this Act was replaced by a new
agricultural co-operative law amended nine times
between 1961 and 1999.
• Parallel to this, several laws for other types of
cooperatives were made, following the Japanese
example.

28. • Ideas of “modern” co-operatives reached China on
different routes: the German Raiffeisen/Schulze-Delitzsch
models, studied by Chinese scientists directly and via Japan
and the socialist model via Russia.
• Dai Jitao used the Japanese Industrial Co- operative
Association Law as a model.
• In the 1950s the Socialist model of collectivization was
introduced.
• Like in other socialist countries, instead of having one
national co-operative law, different provisional regulations
were made and administrative procedures prescribed
which were frequently amended to match new practices.

29. • In the former Soviet Union member states in
Asia, a major problem is to re-organize former
collective farms and state enterprises into
market oriented organizations and to
modernize co-operative legislation in line with
the ICA principles and UN Guidelines.
• Reformers are still struggling with the
shadows of the socialist past.

30. British-Indian Pattern of Co-operatives
(BIPC)
• The BICP is the most widely applied form of co-
operative legislation based to some extent on Schulze-
Delitzsch’s codification adjusted to the British legal
system.
• Starting with the Indian Credit Co-operative Societies
Act of 1904, amended 1912 to cover all kinds of co-
operatives, it is still applied in many former British
colonies in Asia and Africa, Pacific and Caribbean island
states and even in the EU Member states such as
Cyprus (1910) and Malta (1946).
• The BIPC served as the basis of the Co-operative Model
Law of 1946, recommended by the British Colonial
Office to all governments of former British colonies.

31. • Today, in India co-operative legislation is a State
Matter, i.g. there are as many Indian co-operative laws
as there are states (like in the USA and Australia).
• With the introduction of the Multi-State Co-operative
Societies Act, cross-border co-operation is facilitated
and such co-operatives are given more autonomy in
exchange of renouncing to government assistance.
• Pakistan, Bangladesh, Sri Lanka, Malaysia and the
Pacific Island States all apply the BIPC with
modifications to fit the local demands.

32. • In Australia, co-operative legislation is State or
Territory Matter and accordingly there are
numerous State Based Co-operative Acts and
Regulations, listed in the ICA study, while
nationwide co-operatives are governed by the
Corporation Law of 1999.
• For more information on development of
cooperatives in Asia refer the ICA 2nd Critical
Study of 2016.

33. Africa: British Colonial Countries
• The BIPC was introduced in the 1930s to Africa, starting
in Gold Coast/Ghana (1931), Tanganyika/Tanzania
(1932), and Nigeria (1935).
• The rationale was expressed in the following quotation:
“What is good for the Indian farmer must also be good
for the African farmer”. What was introduced, were
state-sponsored co-operatives with varying degrees of
state-control.
• What was designed as government promoted co-
operatives, guided to become self-help organizations of
their members, later turned into state controlled co-
operatives.

34. • Development of co-operatives in Tanzania which
started in 1920s with the first cooperative
legislation enacted in 1932 was later in 1976
complemented by the socialist model of
cooperatives in form of the villagization
programme through the Village and Ujamaa
Villages (Registration, Designation and
Administration) Act, 1975.
• However, in 1982, a co-operative law largely
based on the BIPC replaced the Village Act

35. • In Ghana, the successful development of mainly
agricultural co-operatives was disrupted in the
1960s when the grown co-operative
superstructure was dissolved and replaced by a
movement which aimed at including all rural
farmers to cooperatives.
• In 1961 Cooperatives in Ghana were dissolved
and their assets confiscated in favor of the ruling
party organ, the Convention Peoples Party;
• It took many years until the cooperative
movement of Ghana recovered from this chock.

36. • In Kenya the history of cooperatives date back to 1908 and
has continued to grow since then;
• In 1908- first Co-operative Society was established in Kenya,
a dairy Co-operative
• In 1931 –Government’s first formal involvement in
Cooperatives when the first Co-operative Ordinance was
enacted to regulate the operations of co-operatives.
• In 1946 -Inclusion of Africans in the Movement when
the colonial government acknowledged that Africans
needed to participate in the economy through co-
operatives, resulting in the enactment of a new Co-
operative Societies’ Ordinance.

37. • The first co-operatives were Predominantly
marketing oriented & Auxiliary focus,
• Key examples then were Kenya Co-operative
Creameries (KCC-1925), Kenya Planters Co-operative Union
(KPCU-1923) and Kenya Farmers Association (KFA-1923).
• These organizations were originally registered as
companies and only became registered as co-operatives in
1931 when the first Co-operative Ordinance was
promulgated.
• In 1970-The first post-independence Government Co-
operative Development Policy was contained in Sessional
Paper No. 8 of 1970 whose main goal was the consolidation
of the cooperative activities.

38. • In 1975- Another review of the Co-operative
Development Policy took place in which the government
continued to recognize co-operatives as vital organs for
mobilizing material, human and financial resources for
national development.
• The government reiterated its commitment to pursue
and promote expansion of co-operative activities in all
the productive spheres of the economy.
• In 1980s –The government started implementing
Structural Adjustment Programmes (SAPs) for a market
economy. Sessional Paper No.1 of 1986 on “Economic
Management for Renewed Growth”, emphasized the
importance of unfettered (free) private sector led economic
development.

39. • The government through Sessional Paper No. 4 of 1987
on “Renewed Growth through the Co-operative
Movement”, reiterated its commitment to enhance the
participation of Kenyans in the economy through Co-
operatives.
• Through Sessional Paper No. 6 of 1997, on “Co-operatives
in a Liberalized Economic Environment”, the
government reviewed its involvement in the management
of cooperatives by providing a legislative framework under
which co-operatives were to survive in a competitive
economic environment.
• The enactment of the Co-operative Societies Act No. 12
of 1997 removed completely the government’s role in
the affairs of co-operative societies.

40. • Today Kenya boasts about 15,000 registered
cooperatives with 12 million members.
• There are more than 320,000 employees and a further
1.5 million people engaged in small scale and informal
enterprise funded by cooperative loans.”
• Kenya is ranked number one in Africa and seventh in
the world on the strength of savings in excess of
kshs400 billion which is 35 per cent of total savings.
• Savings and credit cooperative societies (Saccos) have
Kshs378 billion deposits.
• Cooperatives command 45 per cent of Kenya’s gross
domestic product (GDP).

41. Francophone Countries
• In the French-speaking countries of Africa
(Francophone countries), French co-operative law
was directly applicable.
• In addition, a special form of communal
provident society was introduced - Société
Indigene de Prévoyance (SIP)
• Later Société Africaine de Prévoyance (SAP) -
socio-economic, semipublic communal
organizations, with compulsory membership and
under government control.

42. • In 1955, a co-operative societies’ decree was
made for co-operative activities and after
independence, the countries made their own co-
operative legislation following French models.
• Since 2010 there is a common Co-operative
Societies Act of OHADA (Organisation pour
l’Harmonisation en Afrique du Droit des Affaires
-Organisation for the Harmonisation of Business
law in Africa) with 390 articles to be applied by all
Member states, replacing the former co-
operative legislation.

43. Americas: North America
• The first co-operatives in the USA were
established in the 1750s (home insurance) and
in 1785 (agricultural co-operatives).
• Robert Owen started his co-operative
settlement “New Harmony” in Indiana in 1825.
• The Cooperative League of USA (CLUSA) was
established in 1916.

44. • Regarding their legal framework, most co-
operatives are registered under state corporation
laws.
• The first Credit Union Act was made in
Massachusetts in 1909.
• From 1929, credit union laws in 32 federal states
followed.
• The Credit Union National Association (CUNA)
was established in 1934, in the same year of
coming into force of the Federal Credit Union Act.

45. • In 1970, the World Council of Credit Unions was
established in Madison, Wisconsin, which later
launched the worldwide model law for credit
unions.
• Canada is among the first countries outside
Europe to form co-operatives with the first co-
operative society established in Nova Scotia in
1861.
• Co-operative legislation in Manitoba dates back
to 1887

46. • The first Credit Union was established in
Quebec in 1900.
• The Co-operative Syndicates Act came into
force in 1907.
• In Canada the cooperative movement, as well
as co-operative legislation, are subdivided in
French and English variations.

47. Latin America
• The co-operative movement in Latin America has
a tradition of more than one hundred years and
various roots.
• First co-operatives in Brazil, Argentina and
Uruguay were established by immigrants from
Germany, Italy, France and Japan starting 1875.
• At first Provisions on co-operative societies were
contained in the Commercial Codes of Argentina
and Mexico.

48. • . Co-operative laws in Brazil (1906) and Chile
(1925) were among the first co-operative laws
made outside the industrialized countries.
• They were later followed by co-operative laws
in Argentina (1926), Columbia (1931), Ecuador
(1937) and Mexico (1938).

49. • In the 1960s, programms of agrarian reform and
social movements used co-operative forms of
organization as instruments to pacify unstable
backward rural areas and for political aims in
Chile, Colombia, Ecuador, Honduras, Panamá and
México.
• In Latin America, co-operative development is
very diverse. In some countries and for some
time co-operatives were promoted by
government (Chile, Costa Rica, Peru, Mexico),
while in other countries the state was indifferent.

50. • Generally the second half of the 19th century
saw establishment of cooperative societies
and their corresponding legislation in almost
all countries worldwide.
• These cooperatives continuad to operate
during the the first half of the 20th Century till
1990s.

51. LEGAL INNOVATIONS IN
COOPERATIVES
• The 1990s witnessed rapid economic, social,
technological, demographic and environmental
changes which resulted in globalization, etc,
• Thus, looking for novel legal structures and
operation was inevitable
• With new developments existing appropriate
legal technologies were to be tested to meet new
needs of organized self-help.
• Experiments were made with new types, forms
and legal patterns of cooperatives to see how
they could cope with the changing environment.

52. • In times of globalization, cross border
activities are becoming necessary.
• As a reaction, multi-state co-operative
legislation have been introduced in India,
America, Europe and have been initiated in
regional configurations of Africa and,
• The Societas Cooperativa Europea (SCE)
Regulation of 2003 for European Co-
operatives in the European Union.

53. • Since 1946 when the British Colonial Office
attempted to draft a Model Cooperative Law
for all its colonies to adopt, countries
recognizing the need for cross border
cooperatives have been attempting to pass
joint Model Laws, these include:
– In 1966, the African Asian Rural Reconstruction
Organization (AARRO) presented a model law for
its member- states in Nairobi

54. – Also WOCCU proposes a Credit Union Model Law
as a guide for its affiliates.
– The model co- operative law by OHADA was
developed in 2010 to be adopted by French
speaking African Countries;
– Also in 2014 East African countries under East
Africa Community passed the East African
Cooperative Societies Bill, to be adopted by all
member countries before it becomes operational.

55. NEW GENERATION COOPERATIVES
(NGCs) AND JOINT VENTURE
COOPERATIVES (JVCs)
• At the National level, Legislation of different
countries have allowed establishment of new
forms of cooperatives as a strategy of coping
with new world changes.
• These new forms include NGCs and JVCs

56. NEW GENERATION COOPERATIVES
• Based on a model first used in California,
NGC’s emerged and flourished in the mid-
western US in the 1990’s.
• Since that time, America, Canada and
European countries have introduced new laws
or modified existing legislation to allow for
NGC’s

57. • There are some key attributes of NGC’s that
are consistent with all co-ops:
– NGC’s are controlled by their membership using
the principle of one member, one vote.
– Earnings are distributed to the members based on
patronage.
– The board of directors is elected by the
membership.

58. • However, there are several characteristics of NGC’s that
differentiate them from traditional co-ops:
– NGC’s may issue designated shares which carry delivery
rights and obligations.
– Individuals (members and non-members) may hold higher
levels of equity through the purchase of investment
shares.
– Membership may be restricted to designated share
holders.
– In most countries NGC’s are applicable only to agricultural
ventures, and the word "co-op" or "co-operative" does not
necessarily have to appear in the name of the venture.

59. MEMBERSHIP SHARES (MARKETING
RIGHTS)
• Initial price:
– Total amount of capital co-op wishes to raise; divide
by number of units of product that can be absorbed
by the facility.
• Membership shares may change in value:
– Market determines value of shares.
– Value goes up/down with co-op's performance.
• Membership shares can be sold:
– Usually with board approval.
– Need not wait for redemption by co-op.

60. NGCs and TRADITIONAL
COOPERATIVE PRINCIPLES
• Democratic control
– Through a one member, one vote policy.
• Excess earnings Distributed among members
as patronage refunds .
– May receive all or most of patronage as cash.
• Board of directors
– Elected from the membership, by the
membership.

61. FINANCING
• Since members invest capital up-front, all, or
almost all, net earnings are returned to members
at end of year.
• Future expansion is financed in the same way as
original equity: members invest through purchase
of shares (delivery rights).
• Preferred shares may be offered to the
community or general public; this allows
communities to support the project while
keeping control in hands of members
• However, there is an 8% limit on dividends.

62. ADVANTAGES OF NGCs
• Producers can react quickly to opportunities.
• People work collectively to respond to problems
or opportunities.
• Restricted membership provides stability for
producers and efficiency for the plant/factory.
• A diverse set of stakeholders ensures the
interests of the community are considered.
• Producers and processors are committed to the
quality of the product.

63. KEYS TO SUCCESS OF NGCs
• Motivated, determined, committed group of
producers is most important.
• Public policy (local, state, national) that
supports (or at least doesn't hinder)
cooperative formation.
• Financial institutions willing to finance
cooperatives.
• Consultants/facilitators to help producer
groups through aspects of the process.

64. JOINT VENTURE COOPERATIVES
• A Joint Venture is a commercial enterprise
undertaken jointly by two or more parties which
otherwise retain their distinct identities and
which individual party cannot establish alone
unless that party joins with another;
• Joint ventures may be formed between
cooperatives and between cooperatives and
private companies
• Read section 26 of the Tanzania Cooperative
Societies Act, 2013 and Regulations 70 to 72.

65. ASSIGNMENT
• Explain the origins of the cooperative
movement and how it spread in the British,
Indian and African countries.