A new draft law governing cooperatives in Rwanda, which, according to the government, seeks to address issues related to loopholes identified during the implementation of the exiting legislation, enacted in 2021, is awaiting parliamentary deliberation and adoption.

Its relevance was approved by the Lower House’s plenary sitting on April 26.

Below are 10 key proposed changes in the bill:

1. Protecting members from persistently paying contributions

The law governing cooperatives in force does not prohibit the persistent collection of contributions from members that are burdensome to them. The new bill provides for types of contributions that may be provided by members after the approval of the General Assembly, and other extra-ordinary contributions, and the related circumstances under which these contributions are requested from the members upon the authorisation of the national agency in charge of the development of cooperatives.

Article 94 of the bill proposes that members may make to the cooperative a regular contribution for running costs approved by the General Assembly to implement its annual action plan. However, a cooperative may, upon approval by the national agency, request irregular contributions in the event of an unplanned and urgent activity.

2. Tackling inefficient budget use, hindrance to general assembly meetings

Some cooperatives with members exceeding 100 people – the required number of members to start a cooperative is at least 10 people, but five people for the case of persons with disabilities – frequently postpone general assembly meetings due to a lack of the required quorum for conducting a valid assembly. In addition, they incur significant costs to prepare for those meetings.

As a solution to the problem, the draft law proposes that the general assembly for a cooperative with more than 100 members is exclusively composed of members’ representatives elected by their peers.

The quorum for the meeting of the extraordinary General Assembly is three-quarters of the registered members or member representatives, the bill proposes, adding that if the quorum is not present for the first time, the meeting is reconvened within three working days.

3. Tackling embezzlement of cooperative assets

The issue of mismanagement and embezzlement of cooperative properties, stemming from the abuse of authority by management members and employees, was identified, according to an explanatory note of the bill.

To deal with the issue, the draft law proposes a new concept requiring the declaration of assets by the management members and employees of cooperatives to the national agency in charge of the development of cooperatives. The move aims to enhance prevention, transparency, and accountability in the management of cooperative property.

ALSO READ: Could asset declaration end embezzlement among cooperatives?

4. Prohibiting engagement of cooperatives in unauthorised activities

The current law is silent on the prohibition of cooperatives from conducting activities other than those of which it has been granted a legal personality.

Because of such a gap, it was found that some members of governance organs in cooperatives abuse their cooperative properties.

As a result, the bill prohibits cooperatives from engaging in activities beyond those for which they have been granted legal personality.

However, it provides that a cooperative may seek authorisation from the national agency in charge of the development of cooperatives to expand its operations into activities within the same value chain for which it was initially granted legal personality.

5. Greater powers for a general assembly

The current law restricts the ordinary General Assembly’s powers and responsibilities to March and October of every year, leading to delays in addressing cooperative issues that are within its responsibilities.

To address the issue, the bill proposes an elimination of these restrictions, allowing the General Assembly to decide on matters as they arise. It harmonises the assembly’s powers and responsibilities without being limited to specific months.

Also, as per the current law, an extraordinary General Assembly is not allowed to decide on urgent matters regarding cooperative property, which was an inherent issue while the urgent matter may require a decision relating to the property.

The bill seeks a removal of such a prohibition, stipulating that it can deliberate on urgent matters that cannot wait until the next ordinary General Assembly meeting.

6. Modalities for distributing net profit to members

The current law allows for the distribution of profits but does not specify a time limit. Therefore, the draft proposes that when a cooperative generates a profit, the net surplus should be distributed not later than March 31 of each year.

In the bill, the net profit allocated to cooperative members was increased to enhance their socio-economic wellbeing and empower them to decide on the use of their profits, rather than having it determined by the law.

As part of the distribution, at least 70 per cent of the net surplus is assigned as dividend to members, the bill provides.

The remaining net surplus—equivalent to 30 per cent—is distributed in such a way that an amount equivalent to not more than 50 per cent of it is deposited into the general reserve of the cooperative, while the remaining 50 per cent is used for activities approved by its general assembly.

These include bonuses paid out to members, incentive bonuses to its Board of Directors, Supervisory Committee, and employees, and other activities for the cooperative to achieve its objectives.

Any time the cooperative incurs a loss, it earmarks, for the following year, funds to compensate for the loss before planning the allocation of dividends.

However, for a cooperative that has already invested while its members do not want to reinvest their net surplus, the Board of Directors may present to the General Assembly an alternative for distributing dividends but must notify the national agency in charge of cooperative development.

7. Requirements, authorisation related to credit and investment of cooperatives

To address issues related to the credit and investment practices of cooperatives, which can impact the distribution of benefits to cooperative members, particularly due to permanent loans, the draft law proposes a Ministerial Order that outlines the requirements for a cooperative to apply for credit from financial institutions. Moreover, cooperatives must obtain authorisation from the national agency in charge of the development of cooperatives before engaging in investments.

8. Allowing cooperative members to sell their production (produce)

There have been issues regarding the sale of members’ production by cooperatives, where members had no opportunity to sell their production themselves. Additionally, there were delays in payment for their production by either the cooperative or the investors purchasing their production. The draft law offers two options for cooperatives; either selling the members’ production themselves (cooperatives) or allowing the members to sell directly following the bylaws and internal rules and regulations of the cooperative.

In case the cooperative opts to sell the members’ production, the bill establishes a time limit of 30 days for investors to pay the price to the cooperatives, and not later than 15 days for cooperatives to pay their members.

9. Introduction of beneficial ownership provisions in the draft law

Rwanda, as a member of the Organization for Economic Cooperation and Development (OECD) Global Forum, must adhere to standards regarding transparency and the exchange of information to prevent tax evasion.

To comply with these standards, the draft law now includes provisions on beneficial ownership, requiring cooperatives to maintain internal registers, update Board of Director changes, and file beneficial ownership information with the Rwanda Cooperative Agency.

A beneficial owner is a natural person who ultimately owns or controls a legal entity or arrangement, or a natural person on whose behalf a transaction is being conducted.

10. Addressing ineffective formation of federations

It was found that forming some federations of cooperatives poses financial burdens on primary cooperatives or unions. The bill revised the requirements of forming a federation of cooperatives by providing that before granting a legal personality to a federation, a national agency in charge of the development of cooperatives must submit the federation’s application file to the minister in charge of cooperatives for consideration of its relevance and decision-making on its formation, hence ensuring effectiveness in its creation.