CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

According to the OHADA Law (2011), cooperatives societies like commercial companies are linked to the historical context which arose in Europe in the 19th century starting in the 1830s and have gradually   developed increasingly, spreading abroad and diversifying their forms. History is difficult to set in stones and the choices of dates and events are bound to be arbitrary.

At any date the cradle of the cooperatives are traced to England, France and Germany. To each of these three countries came up with its own form of cooperative. In England we had the consumption cooperative, In France we had the industrial workers or the producer’s cooperative and in Germany we had the savings and credit cooperative.

Cooperatives are autonomous associations of persons united voluntarily to meet common economic, social and or cultural needs and aspirations through jointly-owned and democratically controlled enterprises. (International Cooperative Alliance ICA, 1995).

Consumer cooperatives are enterprises owned by consumers and managed democratically with the aim of fulfilling the needs and aspirations of their members Producer cooperatives are groups of factory workers united to establish together an undertaking based on their competence. Savings and credit cooperatives are groups of people who due to their absolute or relative property were excluded from traditional banking services and decided to mutualize their savings so as to be able to grant loans to members and thus, facilitate their economic development (Tchami, 2007).

According to Nfor (2011), a true test of community development can be viewed through the lenses of the Common Initiative Groups in Cameroon (CIG). It has been in existence for quite a long time taking many forms across the globe. In villages guided by traditional leaders who made people to work in community halls, road constructions and building projects.

The passage of time has engulfed many different sectors and today it is not only limited to the country side but have involved city dwellers who act as information belt between the different zones and regions. CIG arose some twenty years ago due to the fall of market prices of cocoa and coffee a main cash crop that accounted for about 75% of family income.

In Africa, the idea of savings and credit cooperative societies was first described and discussed in 1955 in Jipara, a small town in the West of Ghana. The idea was brought about by a Roman Catholic Priest; Father John McNulty from Ireland. He decided to assist the village to form a saving and credit cooperative and he trained 60 people mainly teachers. The success of the cooperative widely replicated throughout the African continent (Mumanyi, 2014).

Puja Mondal (2007) also said that there are three major types of cooperative societies which are: The Credit Cooperative Society, the Consumers cooperative society, and the Producers Cooperative Society.

These three basic types are further divided into several types. For in¬stance, there is a society of the peasants. This is sub-divided into cotton grower’s society, sugarcane society, wheat producer society and so on and so forth. In the similar way there are sub-types of consumer’s cooperatives and producer’s cooperatives. The three types of cooperative societies are: producer’s cooperatives societies, consumer cooperatives societies, and credit cooperatives societies.

In Cameroon, the above three types of cooperatives have taken a mixed form. A single society could be a credit, consumer and production society at the same time.

Generally, cooperatives are organized into service and producer cooperative. The producer cooperatives objectives are to promote the use of modern technology and contribute to national development through production. The service cooperatives are responsible for procurement, marketing and extensive services, loan disbursement, sale of consumer goods and member’s education (Branco, 2005).

In practice, building a culture that respects the financial challenges as much as the artistic, starts with the executive director. Consistent statements and action by the executive director drives the norms through the organization.

This can be a significant challenge in organizations with a separate value must be held as deeply and communicated as clearly as possible by both leaders. In two organizations with long histories, one executive director consistently talk about the financial and artistic together describing their culture as artistically liberal and fiscally conservative.

. According to Hawo (2015) on the Financial Management of the Public sector of Nairobi (Kenya), said that implementing Integrated Financial Management Information System (IFMIS) is to increase the effectiveness and efficiency of state financial management and facilitate the adoption of modern public expenditures practices in keeping with International Standards and benchmark. Much of the work in automating IFMIS has focused on financial management information system including general ledger accounts payables, accounts receivables, procurement and payroll, asset management, debt management and budget. As IFMIS systems evolved the needs changed so the scope of the automation can be expanded, given the rapid change of technology it may not be feasible to plan all of these potential needs or IT options in advance (Bartel 2009)

Husman&Pudjiastuti (2006), said governments in developing countries are increasingly exploring methods and systems to modernize and improve public financial management. Over the years there has been an introduction of the IFMIS as one of the most common financial management reform practice aimed at the promotion of efficiency, effectiveness, accountability, transparency security of data management and comprehensive financial reporting. The scope and functionality of IFMIS varies across countries but normally it represents an enormous complex strategic reform process.

According to Carlos & Klaus (2006), cooperative, financial institutions have problems in financial management, governance, and supervision. This is due to the political instability in most developing countries, insufficient technical know-how, and fluctuation of prices and interest rates in the developing countries.

1.2 Problem Statement

According to Dogarawa (2005), cooperative Societies have been encouraged among Cameroonians as a measure to curb poverty and hunger in the society. This is no doubt that cooperatives have tremendously contributed to the economic growth in Cameroon. (OHADA Law on cooperatives 2012)

In this research we will be concentrating on the cooperatives of the Buea municipalities as our case study some of these are: the Buea P&T Cooperative Credit Union, Tole Tea Cooperative Credit Union, and Buea Police Cooperative Credit Union Kumba Town Cooperative Credit Union, Ntarinkon Cooperative Credit Union, and Lewoh Cooperative Credit union.

The Kumba Town Cooperative Credit Union is a saving and loan cooperative that has been existing since 1968. The Head Office is in Kumba. It merged with the Medical Servants Cooperative Society in 1970 but retained the present name. It has experienced growth over the period and have branches in many areas like Buea, Nguti. Yaounde, Manyemen and collecting centres like Matoh, Konye, Ediki, Douala and Mbalangui. It exercises saving and credit facilities in acodance with Micro Finance Laws and Regulations in Cameroon.

It is owned and controlled by its members/shareholders. It is managed by a Board of Directors elected from among its members during her General Assembly Meetings (AGM). It renders the following services: savings accounts, deposit accounts, minor accounts, group accounts, payment of operations and facilities, farmers input loan schemes, daily savings collections, TELECOM Money transfer, inter connectivity, VIP services, Njangi collections, and transfer of accounts, (www.all about Cameroon, 2011, 2014).

Cooperative Societies in Cameroon have witnessed a series of reforms since the 1970s with the first being law no 73.15 of 7th December 1973. This law dave the state power of investigation and invention, control and inspection of cooperatives as well as the appointment and the revocation of its administrators especially directors. This law pointed out state involvement in the activities of cooperatives. It is this law that gave way to the putting in place of the National Produce Marketing Board (NPMB) in 1975.

This was a parastetal that worked with the cooperative as it bought produce from these cooperatives and sought to market them as well as other things that strengthened cooperatives during the years 1975 to the early 1990s which saw the demise of the structure. The second law regulating the activities of cooperatives was law no 92/006 of 14 August 1992 relating to cooperatives and common initiative groups (CIGs). This law brought in liberalization in the sector as it allowed cooperatives and CIGs to carry out their financial as well as activities independently without government intervention.

According to Kesseven (2006), said, it was expected that cooperative businesses was to help individual’s pool resources together to increase production, to generate more income and improve their living standard. But today the reverse is the case, there is a wide gap between the Demand and Supply of goods and services in the country as cooperative societies operations have continued to be beyond the understanding of the common man.

He also said that these cooperative societies are facing difficulties among which finance is the major factor militating against enhanced production and growth in this view. It can be ascertain that cooperatives in Cameroon are faced with numerous problems including poor financial status of the people, inadequate cooperative education and extension services, high incidence of bottle neck administrations, lack of mechanization, etc. This inadequate capital and financial management have led to the demise of many cooperative societies.

Many challenges have been made to address the challenges of cooperative finance in Cameroon. A recent study conducted identified shortage of primary production credit as one of the major causes of declining cooperatives.

The shortage was attributed to reluctance by the banks to provide credit for real sector activities especially agricultural production and micro finance services. The reason for the reluctance were inherent risks associated to cooperatives, high cost of administration of cooperative loans and inability of co-operators to provide the necessary collateral.

This prompted the establishment of cooperative credit guarantee scheme. Cooperative leagues like CAMCCUL among others. The unsustainability of such programs has caused the government in December 2014 through CAMCCUL to review their operations in order to ensure sustainability. The government and CAMCCUL in recent years have demanded most common initiative groups to be converted to cooperatives and the capital base be increased to reasonable amounts.

However, even with this, micro finance establishments and other forms of cooperatives do not have adequate funds to operate and meet the vast needs of the micro enterprises and rural poor, in terms of deposit mobilization and credit provision.

The poor performance may be attributed to poor utilization of surplus and reserves, mismanagement of funds and poor dividend and investing decisions among other factors. Their performance and growth in those terms also varies among different cooperatives. Hence the concern is, what are the financial factors/roles influencing cooperative performance in Cameroon?

The challenges of the study is;

• Whether financial management has indeed impacted cooperative societies performance and if it does, how adequate are its roles provided to the societies?
• Equally, to what extent has Financial Management as a discipline help in enhancing the activities of cooperative societies?
• Do the financial management render non-financial services to support cooperative societies?
• What are the opinions of cooperative members on the performance of cooperative management in their activities?
• What challenges pervades in financial cooperative societies and what remedies are available for strengthening the effective finance of cooperative societies in Cameroon?

This study is carried out to address the following questions

1. What role does financial management play in the functioning and growth of cooperative societies?
2. How financial management affects the performance of cooperative societies?
3. How financial management affects investment decisions in cooperatives societies?
4. Who is responsible for financial management?
5. How to achieve best practices?
6. Does investment decisions affect performance in cooperatives?
7. Does loan management affect cooperative performance?

1.3 Objectives

1. To identify the problems associated with financial management and performance of cooperatives societies.
2. Examine how effective financial management enhance the performance of cooperative societies.
3. To make recommendations.

1.4 Hypothesis

H0: financial management does not affect the performance of cooperative societies.

H1: financial management affects the performance of cooperatives societies