The Cooperative That Lent to Its Own Committee
The Nsukka Women's Multipurpose Cooperative has 4,000 members and N620 million in assets. Its nine-member management committee is chaired by Mrs Eze, who also chairs the five-member credit committee; her company has borrowed N85 million, and 12 members including two committee members owe a total of N210 million, mostly secured on undeveloped land. There is no written loan policy. The external auditor is the chairman's cousin. The last two annual general meetings were not held, and the member register has not been updated since 2021. A foreign NGO funds an SME training programme and requires anti-fraud, safeguarding and procurement policies; it has just received an anonymous petition alleging that loans were made to non-members. The state director of cooperatives has ordered an inquiry, and elections are due in three months.
1. Identify the governance failures and explain why the credit committee's composition is a control weakness.
Read the worked answer
Core failures: The chairman chairs both the management committee and the credit committee, so the same person promotes lending and approves it. Twelve members, including committee members, owe N210 million, and the chairman's company owes N85 million; related-party lending has no cap, no independent review and weak collateral. The external auditor is the chairman's cousin, so assurance is not independent. Two AGMs have been skipped and the member register is stale, weakening member control. The NGO grant adds donor conditions that the cooperative is not meeting.
Why the credit committee composition matters: Credit approval is a control, not a convenience. Combining promotion and approval removes the check that prevents insider lending. The credit committee should be separate from the management committee, should have no borrower on it, and should apply a written policy with limits, collateral rules and related-party disclosure. The supervisory committee should have real power to inspect and report to members.
Reasoning: Cooperatives are member-owned, so weak governance is not just a regulatory problem; it is a breach of trust with 4,000 owners. The petition alleging loans to non-members must be tested against the register and loan files.
2. What should the supervisory committee do immediately, and how should it handle the chairman?
Read the worked answer
Immediate actions: The supervisory committee should suspend new lending, secure the loan files and minute books, commission an independent forensic review, and write to the state director of cooperatives. It should identify all related-party loans, verify membership, value the collateral and estimate recoverability. The chairman should recuse from the inquiry and from any decision on her own loan.
Handling the chairman: Due process matters. The committee should put the allegations to her in writing, allow a response, and follow the cooperative's bylaws and the state law on suspension and removal. It should not rely on rumour or an anonymous petition alone. If there is evidence of misappropriation, it should refer the matter to the registrar and, where appropriate, the police or anti-corruption agencies.
Members and donor: Members should receive a plain-language update before the AGM. The NGO should be told what has been found and what controls are being put in place; it may suspend or impose conditions. Whistleblowers should be protected. Recovery should be pursued through the loan guarantors and, where necessary, the courts.
3. What governance reforms should be presented at the AGM?
Read the worked answer
Loan policy: Adopt a written policy with eligibility, caps, tenor, collateral, repayment and related-party limits. No committee member should vote on their own loan or a related party's loan. Publish aggregate insider lending to members.
Governance: Separate the management, credit and supervisory committees; require annual independent audit with auditor rotation; hold the AGM within the statutory period; update the member register; and give members access to audited accounts. The supervisory committee should report directly to the AGM.
Donor compliance: Adopt anti-fraud, safeguarding and procurement policies that meet the NGO's conditions, and ring-fence grant funds in a separate account. Train committee members on their duties.
Reasoning: Reforms must be adopted by the members, not imposed by the registrar alone, or they will not stick. The AGM is the moment to restore legitimacy. The test is whether a member can see who borrowed, on what terms and how the committee approved it. Transparency is the cheapest control available to a cooperative.