Chapter 13: Cooperatives and Collective Entrepreneurship¶

The cooperative, a distinctive economic vehicle¶

A cooperative is a business form of its own. Legally, it is a legal entity. Economically, it is an activity that produces and sells. But unlike a conventional company, it belongs to its members, is governed democratically, and shares out its surplus according to rules it sets for itself, not in proportion to the capital contributed.

For a CED project, the cooperative is neither a whim nor nostalgia. It is a vehicle structurally suited to economic situations where isolated individuals have no market power: small producers facing a handful of large buyers, artisans who need to pool purchases or equipment, savers who want credit without depending on an outside MFI, consumers who organize their own supply.

This chapter sets out the framework for a CED project that creates, strengthens or supports a cooperative.

The seven principles of the International Co-operative Alliance¶

In 1995, the International Co-operative Alliance (ICA) formalized seven principles that define cooperative identity. These principles are not decorative: they separate a real cooperative from a shell cooperative (a structure that bears the name but does not apply the rules, often for tax or political purposes).

Principle 1: Voluntary and open membership¶

Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without discrimination based on sex, origin, political affiliation or religion.

CED implication: a cooperative that excludes groups of people de facto (through barriers of capital contribution, literacy or ethnicity) is not a cooperative. The project must build in this check from the design stage.

Principle 2: Democratic member control¶

One person, one vote. Power is not measured by the capital contributed.

CED implication: the board of directors is elected by the general assembly. Strategic decisions (investments, distribution of surplus, admissions) are voted on democratically. A project that concentrates power in the hands of a promoter, a support NGO or an active minority betrays this principle.

Principle 3: Member economic participation¶

Members contribute equitably to the capital of their cooperative and control it democratically. Part of the surplus is used to develop the cooperative; another part is returned to members in proportion to their transactions with the cooperative (patronage refunds), not in proportion to the capital contributed.

CED implication: the rules for sharing out the surplus are written into the bylaws and respected. Patronage refunds are visible, traceable and understood by all.

Principle 4: Autonomy and independence¶

The cooperative cannot subordinate itself to an outside interest (government, party, dominant company, NGO). If it receives outside funding (such as a Rotary Global Grant), it does so on terms that preserve its autonomy and its democratic control.

CED implication: Rotary funding confers no voting rights and no decision-making power over the cooperative. The MOU states this explicitly.

Principle 5: Education, training and information¶

Cooperatives train their members, leaders and employees, and inform the public about the nature and benefits of cooperation.

CED implication: a training component in almost every project that creates or strengthens a cooperative. Governance, management, marketing, membership.

Principle 6: Cooperation among cooperatives¶

Cooperatives serve their members most effectively by working together through local, regional, national and international structures.

CED implication: whenever possible, link up with existing regional unions or federations. Do not create an isolated cooperative if a larger network can take it in.

Principle 7: Concern for community¶

Cooperatives contribute to the sustainable development of their communities through policies set by their members.

CED implication: the cooperative has effects that reach beyond its own members (indirect jobs, local economic energy, services to the community). These effects are measured and showcased.

Types of cooperatives relevant to CED¶

Not every cooperative belongs in a Rotary CED project. Five forms dominate the projects that clubs lead.

Agricultural production cooperatives¶

Producers in the same sector (cocoa, coffee, shea, cassava, market gardening, livestock) band together to pool input purchases, collection, processing and marketing. Often at the heart of value chain projects (Chapter 12).

Feature	Typical value
Size	30-500 members
Governance	Board of directors of 7-15 members, annual general assembly
Employees	0-10 depending on size
Revenue	USD 50,000 to several million depending on sector and size
Legal complexity	High (accounting, tax and labor requirements)

Savings and credit cooperatives (COOPECs in French-speaking countries, SACCOs in English)¶

Members save and lend to one another. Close to VSLA savings groups but more formal, and often regulated as full-fledged financial institutions.

Feature	Typical value
Size	100-10,000 members
Regulation	Supervised by the central bank or a microfinance authority
License required	Yes, often under a specific law on financial cooperatives
Services	Savings, credit, transfers, sometimes inclusive insurance

Creating a COOPEC is a heavy undertaking: several years, regulatory expertise, solid governance. Most often, a Rotary project strengthens an existing COOPEC rather than creating a new one.

Consumer cooperatives¶

Members band together to buy collectively (farm inputs, consumer goods, services). Pooling lowers the unit cost.

Artisan or service cooperatives¶

Artisans, drivers, tailors, IT technicians. Pooling of workshop, equipment, marketing, accounting.

Multi-activity cooperatives¶

More common in rural African settings, combining several functions (production, savings and consumption). A flexible form, but one that requires clear governance to keep the activities from getting mixed up.

Legal framework: OHADA AUSCOOP and equivalents¶

Cooperative law varies from country to country. A project that sets up in a jurisdiction without mastering its legal framework can create a non-compliant cooperative, exposed to legal challenges or tax reclassification.

OHADA: French-speaking West and Central Africa¶

The Organisation pour l'Harmonisation en Afrique du Droit des Affaires (OHADA, Organization for the Harmonization of Business Law in Africa) brings together 17 African states (14 CFA franc zone states plus Guinea-Conakry, Comoros and the DRC). In 2010 it adopted a Uniform Act on Cooperative Societies (AUSCOOP, from its French name) that sets a common legal framework.

The AUSCOOP distinguishes two main forms:

Form	Description	Use case
Simplified cooperative society (SCOOPS)	A lighter form, fewer than 100 members, low minimum capital, simple governance	Small production and craft cooperatives, early stages of organization
Cooperative society with a board of directors (SCOOP-CA)	A sturdier form, no size limit, three-tier governance (general assembly, board, management)	Large agricultural cooperatives, COOPECs, multi-activity cooperatives

A CED project in the OHADA zone chooses between these two forms based on expected size and the complexity of the activity. A local business lawyer who knows the AUSCOOP is a near-indispensable partner at the creation stage.

Other legal areas¶

Area	Framework	Features
European Union	European Cooperative Society statute (SCE) + national laws	Flexible framework, allows multinational cooperatives
France	1947 Act on cooperatives + specific statutes by type (SCIC, SCOP, etc.)	Mature framework, tax treatment favorable to SCOPs (worker cooperatives)
English-speaking Africa (outside OHADA)	Generally one Co-operative Societies Act per country (Kenya, Uganda, Tanzania, etc.)	Varied frameworks, often a British legacy
Latin America	Wide variation by country (Argentina, Brazil, Colombia, Ecuador)	Historically strong cooperative sector
South Asia	National frameworks (India, Bangladesh, Nepal)	Long cooperative tradition, varied regulation

In every case, a project that creates a cooperative has a prior legal study validating the chosen form. This study is part of the budget eligible for the Global Grant.

The steps in creating a cooperative¶

Step 1: Preliminary assessment (2-3 months)¶

Check that the cooperative form really suits the situation. Not every collective activity calls for one. Questions to ask:

Is there a motivated core of at least 10-15 potential members?
Is the planned activity economically viable over the medium term?
Is there an applicable legal framework that is well understood?
Is there local expertise to support the creation?
Do the potential members understand the difference between a cooperative and a charity?

If the answer to any of these questions is no, it is better to postpone or to choose another form (association, informal group, sole proprietorship).

Step 2: Awareness-raising and preparatory training (3-6 months)¶

Future members are trained in cooperative principles, democratic governance and accounting requirements. Without this training, the cooperative exists on paper but does not work as one.

Typical length: 20-40 hours of training spread over several months, with qualified trainers (cooperative federations, specialized NGOs, the ICA).

Step 3: Bylaws and registration (2-4 months)¶

Drafting bylaws that comply with the local legal framework, approval by the founding members at an inaugural general assembly, official filing. Support from a local business lawyer is all but mandatory to avoid shaky bylaws that will hamper the cooperative's life later on.

Step 4: Operational launch (6-12 months)¶

Setting up day-to-day operations: bookkeeping, member management, business operations, internal communication. The mistakes made in this phase are the ones that kill most young cooperatives.

Ongoing support from an experienced organization (federation, cooperative NGO, an existing sponsor cooperative) is essential.

Step 5: Consolidation and scale-up (12-36 months)¶

The cooperative becomes operationally autonomous, grows its business volume, trains successive leaders and employees, and faces its first internal challenges (conflicts, departures, deaths, successions).

A Rotary CED project that supports the creation of a cooperative must plan for this consolidation phase in its design. Funding only up to registration means delivering a shell.

Components of a CED cooperative project¶

Component	Typical content	Indicative % of budget
Assessment and feasibility	Preliminary studies, mobilizing the founding core	5-10%
Awareness-raising and initial training	Cooperative principles, governance, accounting	10-15%
Legal support	Local lawyer, bylaws, registration, compliance	5-10%
Start-up capital	Shared equipment, premises, initial working capital	25-40%
Continuing training for leaders and employees	Management, accounting, marketing, HR	15-20%
Operational support (coaching, mentoring)	Sponsor organization, occasional expertise	10-15%
Link with the sector or markets	Marketing, relations with buyers	5-10%
Monitoring and evaluation	Economic and governance indicators	5%
Administration	TRF cap	3%

Pitfalls specific to cooperatives¶

The shell cooperative¶

A registered structure with no democratic life and no real economic activity. Often created to capture grants, for tax reasons, or under political pressure.

Warning signs: no general assembly held for more than two years, no elected board of directors, members who contribute nothing and receive nothing, money flowing only downward (from funders to the cooperative, never internally between members).

Mitigation: a cooperative vitality audit before funding an existing cooperative, quarterly tracking of governance indicators after creation.

Elite capture¶

Three to five local notables, usually men, run the cooperative and capture most of the benefits. The other members are tolerated, not heard.

Warning signs: the same people on the board for 10 years, low turnout at general assemblies, opaque patronage refunds, recurring conflicts hushed up, intimidation of critical members.

Mitigation: mandatory board rotation (term limits in the bylaws), quotas for women and young people, accessible complaint mechanisms, an annual external audit.

Mixed-up activities¶

A cooperative that piles up activities (production, internal credit, consumption, services) without clear separate accounts. Losses in one activity are quietly covered by profits from another, until collapse.

Mitigation: cost accounting by activity, legal separation of regulated activities (financial credit in particular), an annual audit.

The conflict between professionalization and democracy¶

As the cooperative grows, it needs professional skills (manager, accountant, sales staff). These skills are expensive and involve technical decisions that not all members understand. A classic tension between efficiency and democratic control.

Mitigation: two-headed governance (the elected board oversees, salaried management executes), continuing training for board members in oversight, full transparency on management decisions.

Post-project fatigue¶

The cooperative works well as long as the Rotary project supports it and funds its operations. Once the project leaves, it collapses within six to eighteen months.

Mitigation: a self-sustaining business model validated from the design stage (the cooperative must cover its operating costs from its own activity before the project ends), a gradual withdrawal phase over 12-18 months.

Indicators to track¶

Organizational indicators¶

Number of registered members in good standing (capital contribution, attendance at general assemblies)
Turnout at general assemblies
Board composition (gender, age, length of service)
Number of employees, turnover
Annual business volume (revenue)

Governance indicators¶

Number of general assemblies held per year, quality of the minutes
Number of board meetings, attendance rate
Actual board rotation in line with the bylaws
Number of complaints received and handled
Results of external audits

Economic impact indicators¶

Average additional income for members thanks to the cooperative
Price obtained by members compared with the average price outside the cooperative
Patronage refunds paid out (amount and regularity)
Jobs created and maintained
Survival rate of the cooperative at 24 and 36 months

Indicators of compliance with the ICA principles¶

Membership actually open (are refusals justified?)
Internal democracy in practice (is one person, one vote actually respected?)
Autonomy from funders and political players
Continuing member training delivered
Participation in cooperative networks

Strategic partners¶

Partner	Role
International Co-operative Alliance (ICA) and its national members	Methodologies, training, networks
National cooperative federations	Sponsorship, support, integration into a network
Ministry of agriculture or rural development	Licenses, co-funding, official recognition
Local business lawyers versed in OHADA or local law	Bylaws, registration, compliance
NGOs specializing in cooperatives (CRS with the SILC method, Oikocredit, Swisscontact, SOS Faim)	Technical and financial support
Sponsor cooperatives (experienced cooperatives that take an emerging cooperative under their wing)	Mentoring, sharing experience

Links with the other families¶

Combination	Logic
Cooperative + value chain	Agricultural cooperatives are often the organizational vehicle for value chain development (Chapter 12)
Cooperative + microfinance	COOPECs are savings and credit cooperatives, on the border between the two families
Cooperative + vocational training	Training for leaders, employees and members; sometimes the creation of a cooperative training center (UIRCA)
Cooperative + local development	Cooperatives as tools for integrated local development (see Chapter 14)

When NOT to create a cooperative¶

When there is no motivated core of at least 10-15 committed members
When the underlying economic activity is not viable
When the local legal framework is too opaque or corrupt to allow a compliant cooperative
When potential members cannot tell a cooperative from an association or an NGO handing out aid
When the area is saturated with shell cooperatives that have bred lasting distrust
When the Rotary club does not have the necessary time horizon (at least 3-5 years)

In these cases, alternative forms exist: informal groups, associations, economic interest groupings (GIE), producer networks without legal personality. They are often better suited as an intermediate step.

Checklist for a cooperative project ready to submit¶

A demanding but powerful form¶

The cooperative is probably the most demanding economic form to build: legally complex, slow to learn, politically vulnerable to capture. It is also, when well designed, one of the most durable: cooperatives a century old exist on every continent. For a Rotary club that seeks long-term structural change in a community, supporting a serious cooperative is often the best investment.

The next chapter takes up the last CED family of intervention: integrated local development, which combines economic infrastructure, incubation and links across several areas of focus.