The downturn of Co-operative Sustainability in East Africa: In-sights into Governance and Management Missteps

For decades, the cooperative has stood as a unique engine for economic growth across East Africa. Unlike a standard business owned by a single investor or a group of shareholders, a cooperative is owned by the people who use its services. Whether it is a group of farmers selling their harvest together or neighbors pooling money to lend to one another, these organizations run on a simple promise: mutual support, democratic decision-making, and shared profit. They have long been seen as a lifeline for rural communities, offering credit where banks will not go and markets where none exist. They are designed to lift up the marginalized, giving women, youth, and small-scale farmers a voice in their own economic futures. However, the promise of these institutions is currently under threat. In many parts of the region, cooperatives are failing, leaving members with lost savings and broken trust. The question facing researchers and policymakers is not just why these organizations are struggling, but which specific types are most at risk and what internal failures are driving them toward collapse.

A recent study by Bikolimana G. Muhihi from Moshi Co-operative University digs into this crisis, focusing on the governance and management missteps that are undermining the sustainability of these community-owned groups. The research, conducted across Kenya, Uganda, and Tanzania, sought to identify which cooperatives are most vulnerable to failure and to understand exactly how poor leadership and weak management structures are causing them to decline. By interviewing key stakeholders and analyzing official records, the study paints a clear picture of a movement in distress, revealing that the path to survival requires more than just good intentions; it demands professional management and a return to the core principles of the cooperative model.

The investigation began by comparing the two most common types of cooperatives in the region: Agricultural Marketing Cooperative Societies, which help farmers sell their crops, and Savings and Credit Cooperative Societies, often called SACCOS, which handle savings and loans. The data revealed a stark difference in their stability. Agricultural marketing groups, while facing challenges like poor roads and market access, generally remain more stable. In Tanzania, for instance, records show that out of over 2,100 agricultural marketing cooperatives, roughly 1,700 are still active and functioning. In contrast, the financial groups are in deep trouble. The same records show that out of nearly 4,800 savings and credit cooperatives, only about 1,500 are active. More than 2,000 have become dormant, meaning they are no longer operating, and another 1,100 are untraceable. This means that less than a third of these financial cooperatives are successfully sustaining their operations, a rate of failure that far outpaces their agricultural counterparts.

The study points to a specific set of internal problems as the primary cause of this collapse, particularly within the financial cooperatives. The most damaging factor appears to be a lack of trust, driven by poor governance. In many of these failing organizations, the leaders elected to run the show are often chosen based on popularity rather than skill or experience. Once in power, these leaders frequently lack the necessary training to manage complex finances or navigate market changes. This inexperience leads to a cascade of errors: funds are mismanaged, resources are allocated inefficiently, and in the worst cases, fraud and corruption take hold. When members see their money disappearing or their leaders making decisions without consulting them, trust evaporates. Without trust, members stop attending meetings, stop saving money, and stop participating in the democratic process that is supposed to keep the organization healthy.

The research highlights that this is not just a problem of bad luck or external economic shocks, but a failure of internal structure. In the financial cooperatives, the separation between the people who own the organization (the members) and the people who run it (the board and managers) has become a source of weakness rather than strength. Instead of acting as a check on power, the leadership often operates without transparency, making unilateral decisions that benefit a few while harming the many. The study found that many of these groups lack basic internal controls, such as systems to monitor spending or prevent fraud. This environment allows financial mismanagement to fester, leading to liquidity crises where the cooperative simply runs out of cash to pay its members. Furthermore, the lack of a clear plan for the future means that when current leaders leave or retire, there is no one ready to take their place, leaving the organization in a state of confusion and instability.

Beyond the financial sector, the agricultural cooperatives face their own set of hurdles, though they are not as severe as those facing the savings groups. These organizations struggle with outdated machinery, poor infrastructure that leads to spoiled crops, and a lack of access to reliable markets. However, they benefit from a closer alignment with government agricultural policies and a more tangible connection to the physical production of food, which provides a degree of stability. The study notes that while both types of cooperatives suffer from a lack of member education, the financial groups are more susceptible to the specific risks of fraud and embezzlement because they are dealing directly with cash and credit. The agricultural groups, by contrast, are more often hindered by logistical issues and market inefficiencies.

The findings suggest that the solution lies in a fundamental shift in how these organizations are run. The study argues that cooperatives can no longer rely on the assumption that being a member is enough to ensure good leadership. Instead, there is a pressing need for professional governance frameworks and capable managers who understand both the business and the unique values of the cooperative model. This means moving away from electing leaders based on popularity and toward selecting individuals with proven skills in management, finance, and conflict resolution. It also requires a renewed commitment to educating members about their rights and responsibilities, ensuring that the democratic structure is not just a formality but a functioning reality. Without these changes, the cycle of failure is likely to continue, leaving the cooperative movement in East Africa unable to fulfill its promise of economic empowerment and social inclusion.

Ultimately, the paper concludes that the survival of cooperatives depends on addressing these internal governance and management issues with the same urgency that governments address external economic policies. The decline of these institutions is not inevitable, but it requires a conscious effort to rebuild trust, enforce accountability, and invest in the skills of the people who lead them. For the millions of East Africans who rely on these organizations for their livelihoods, the stakes are high. The future of the cooperative movement depends on its ability to evolve from a well-intentioned idea into a professionally managed, sustainable reality.