In order to support the interests of cooperatives in the Kyrgyz Republic at the national level (lobby) and increase the capacity of the cooperative’s governing bodies, CUK is working on the proper establishment and development of the cooperative system in the country, as well as training and consulting.
The beginning of the «new model» of cooperatives in the Kyrgyz Republic dates back to 1999-2000. Initially, the Credit Unions were established with the support of ADB, GIZ, and Helvetas International, which began to develop rural financial institutions. 3-4 years later, the GIZ International Project on Development of Commodity and Service Cooperatives (2003-2007) was launched. It established modern agricultural cooperatives and developed the Law on Cooperatives, which was adopted on June 11, 2004. These projects are «new models» of cooperatives, which can be examined and replicated.
In addition, in order to ensure the further development of cooperatives in Kyrgyzstan, they convened a congress of all cooperatives in the country and established the Cooperatives Union of Kyrgyzstan (CUK) in 2007 https://cooperativ.kg/.
CUK is currently a member of the International Cooperative Alliance and the International Consumer Alliance. CUK staff and consultants receive advice based on international experience about: government programs, international cooperative law, and the specifics of cooperative business and its management. The Cooperatives Union of Kyrgyzstan operates in accordance with the law of the Kyrgyz Republic «On Nonprofit Organizations» (October 15, 1999 № 111) and the guidelines of the International Cooperative Alliance.
COOPERATIVES UNION OF KYRGYZSTAN
CUK is working on the proper establishment and development of the cooperative system in the country, providing training and consulting services, and supporting the interests of cooperatives in the Kyrgyz Republic at the national level (lobby) to increase the capacity of cooperative management.
CUK supported the introduction of tax incentives for the development of agricultural cooperatives in 2009, social payments in 2012, and benefits for the use of agricultural land in 2016. In 2017, CUK initiated the development of a state program for the development of the cooperative movement in the Kyrgyz Republic and submitted it to the Ministry of Agriculture of the Kyrgyz Republic. https://cooperativ.kg/.
Today, the Cooperatives Union of Kyrgyzstan (CUK), as the only cooperative institution in the Kyrgyz Republic, proposes changes and additions to the legislation, and reviews the cooperative movement in the Kyrgyz Republic, types of cooperatives, and their legal frameworks.
The purpose of the review is to improve the legislation on cooperatives in the country, implement proposals to increase the activity of the cooperative movement, and the further development of all types of cooperatives.
This article describes the current state of cooperatives in the country, the specific rules and regulations established by law, and the main official legislative documents of the country that are directly or indirectly related to their activities. The analysis identifies specific problems or obstacles in the legislation and explains how they hinder the development of cooperatives.
In addition, CUK monitors the development of cooperatives, including the introduction of «cooperative principles» in the management of cooperatives. https://www.ica.coop/ However, such activities are carried out only in cooperatives that work closely with the CUK, because before supporting their interests, it is necessary to know to what extent their activities are properly carried out within the law. This is a common practice.
COOPERATIVES are a proven model of international development. They are independent organizations with a long history of putting human values above profit and utilizing the resources of people around the world to improve their lives.
A cooperative is defined as an autonomous association of people who gather on a voluntary basis to meet their common economic, social, and cultural needs and desires through a joint and democratically managed enterprise.
New forms and types of cooperatives are constantly being founded around the world. Recently, we have seen the emergence of innovative cooperatives, business models, collective cooperatives, and various types of multilateral cooperatives. New forms of cooperatives will continue to emerge as people’s socio-economic needs develop and collective aspirations become collective demands for a better world.
The independent cooperative model was developed in Germany by Friedrich Wilhelm Raiffeisen and Franz Hermann Schultz-Delitzch. Raiffeisen and Schultz-Delitzch formed credit unions in 1862. Since then, the model has spread to other cooperative sectors, stimulating the growth of financial cooperatives around the world. Additionally, social cooperatives which were invented in Italy in the late 1970s, are now being used around the world in a unique and influential experiment.
Cooperative principles are the principles that guide cooperatives to uphold their values. Basic rules and regulations that must guide the daily socio-economic activities of members, managers, and specialists of cooperatives.
Many people understand principles as a commandment. However, principles are above precepts. They are the rules for the implementation of cooperative values in the life of cooperatives.
Cooperatives are based on values such as self-help, personal responsibility, democracy, equality, and solidarity. The members of the cooperative follow the traditions of their founders and believe in ethical values such as honesty, transparency, social responsibility, and caring for others.
A cooperative, if it respects the principles of cooperation, can serve its members and society accordingly. In order to ensure the democratic nature of the socio-economic activities of the cooperative, it is necessary to be guided by the principles of cooperation in daily decision-making.
The principles that form the basis of cooperatives are interrelated. They are inseparable: if one of them is not fulfilled, all the others will lose their force. Cooperatives should not be evaluated on one of the principles, but rather their activities should be evaluated holistically, considering all of the principles.
Observance of cooperative principles in daily practice allows for the preservation of the cooperative’s nature and stability of cooperatives.
The International Cooperative Alliance (ICA) has identified seven basic principles of cooperatives.
The first three principles determine the membership of a cooperative. The following principles reflect the rules of internal and external activities of the cooperative.
These seven principles are universal, flexible, applied at different levels, in different types of cooperatives and in different socio-economic conditions. They lead to better organization, and require decisions on the nature of democracy in the cooperative, the use of income, the form of participation of members in the economic activity of the cooperative, and the amount of participation.
Thus, the ICA Declaration on Cooperative Features (1995) sets out cooperative values and principles as a reliable way to develop cooperation in the third millennium.
Therefore, it is necessary to introduce cooperative principles in the development of cooperative legislation and charters.
CURRENT SITUATION, TYPES OF COOPERATIVES AND THEIR LEGAL BASE.
Basically, cooperatives are divided into 2 types: commercial and non-commercial. Commercial cooperatives include production and service cooperatives that seek to make a profit (Article 82, paragraph 1). For example, agricultural cooperatives, financial cooperatives, etc.
Non-profit cooperatives include cooperatives that do not seek to make a profit and do not distribute the profits among the participants (Article 82, paragraph 1 of the Code of Administrative Offenses), which operate only to the extent necessary for the purposes of their charters. Non-profit cooperatives are generally called consumer cooperatives. Some examples are: housing and housing construction cooperatives, medicine cooperatives, kindergartens, schools, workers’ unions (so-called trade unions), and consumer cooperatives.
Among these cooperatives in the Kyrgyz Republic, agricultural, financial (credit union) and consumer cooperatives are widespread and have laws governing the legal and economic basis of their activities. These are the laws «On Cooperatives» and «On Credit Unions.»
About agricultural cooperatives
Agricultural cooperatives have been known as «collective farms» since Soviet times. There is a big difference between the current «collective farms» and modern «agricultural cooperatives.» We are talking about land and agrarian reform that occurred during 1993-1995, i.e. we should not think that we will create collective farms that had been established and functioned in a socialist society. Their activities do not comply with the principles of a market economy. Therefore, creating a new model of cooperative is one of the most important goals. As mentioned above, although land and agrarian reforms have been carried out, the collective farms themselves have not been reformed. To achieve this goal, the German Agency for International Cooperation (GIZ) launched a project called «Development of Commodity and Service Cooperatives» (2003-2007). As part of the project, a new law on cooperatives was adopted on June 11, 2004. This law determines the legal and economic basis for the establishment of cooperatives and their activities in the Kyrgyz Republic. The formation and operation of cooperatives and their associations shall be regulated by this Law and other normative legal acts of the Kyrgyz Republic.
According to statistics, there are 360 cooperatives in the country (31.12.2021), according to the Ministry of Justice of the Kyrgyz Republic, there are 3,089 commercial and 918 non-profit cooperatives in the country. Most of them are created for various projects, grants, loans, and tax benefits. According to the Resolution of the Cabinet of Ministers No. 309 of December 17, 2021, the number of cooperatives for non-competitive lease of land from the State Fund of Agricultural Land has been growing recently. There is no oversight body for the extent to which they operate legally, and there are no special procedures or requirements for the provision of state assistance.
Among the established cooperatives there are a few cooperatives whose activities comply with the principles of the cooperative and comply with the law. Most of them cannot get loans from banks because management or decision-making is done collectively, not by a single manager. This form of governance is considered dangerous by creditors-banks. However, a cooperative cannot be run by one person, because it is completely contrary to the principles of cooperation. The country has a loan program to finance agriculture. However, there is no special credit for financing agricultural cooperatives and a state program for their development in general. However, there are exemptions from taxes and long-term leases of land from the State Fund for Agricultural Lands. As a result of these incentives, there are initial movements in this area of the cooperative, but in general, their development is not observed. This is due to the lack of funding, information, and training.
Introduction of cooperative principles in the management of cooperative business and their control is one of the main tasks of the Cooperatives Union of Kyrgyzstan, so the majority of members adhere to the principles of cooperation.
SUGGESTION (1) It is necessary to develop a state program for the development of agricultural cooperatives. The program should focus on creating a cooperative system and its structure, including comprehensive measures (training, information delivery, organization of services and sales, credit, etc.). The program should also include an audit of the principles of the cooperative for the targeted use of any government assistance. (2) In-depth analysis is needed to identify whether amendments and additions can be made to the Law of the Kyrgyz Republic “On Cooperatives” or if there is a need to develop a separate (special) law «On Agricultural Cooperatives.»
Credit unions-financial cooperatives
Establishment of the credit union system was approved by the Government of the Kyrgyz Republic on October 28, 1999 №117, based on the 1998 agreement between the Kyrgyz Republic and the Asian Development Bank and within the framework of the state project «Rural Financial Institutions». The Financial Company for Support and Development of Credit Unions was established under the National Bank of the Kyrgyz Republic to open, train and technically finance credit unions.
A credit union is a financial and credit organization established in the form of a cooperative, the purpose of which is to add personal deposits of members and use them for mutual lending, as well as to provide other financial services to its members.
To start their activities, credit unions obtain a license from the National Bank of the Kyrgyz Republic and the right to conduct the operations specified in it.
The law «On Credit Unions» (October 28, 1999 N 117) provides for the main objectives of the activities of unions, when they will be restricted, legal status, formation of a credit union, charter, capital formation, members, governing bodies, general meeting, credit committee, Detailed information on the audit committee, external audit, savings benefits, accounting and preparation of financial statements.
The state provides a lot of support to this area of the cooperative, its development, provides benefits and provides large loans and grants at low interest rates. However, according to statistics, only 87 out of 561 credit unions, or 16%, are currently operating (from the NBKR Register, 2021). It is clear that the reduction in the number of credit unions to 16% of the former level is not a good indicator.
The National Bank of the Kyrgyz Republic monitors the legality of the financial activities of credit unions but does not monitor (audit) compliance with cooperative principles.
SUGGESTION. (1) Credit unions are one of the rural financial institutions and play an important role in financing the villagers and agriculture. Therefore, it is necessary to conduct research in this area, funded by the state, and based on the results of the study, to take appropriate measures and develop development programs.
ABOUT NON-COMMERCIAL COOPERATIVES
As for consumers or non-profit cooperatives, it is not currently possible to get accurate information on the number and types of cooperatives from the National Statistics Committee or the Ministry of Justice. This is one of the most important issues for the state.
However, in our country there is no concept of cooperatives, in fields such as medicine, kindergartens, schools, libraries, etc. According to the Ministry of Justice, the number of housing cooperatives established in the country in recent years is 158 (March 2022).
About housing cooperatives
Along with the emergence of a new form of installment housing in Kyrgyzstan, another type of cooperative is being actively established in the country. This is because the market has responded to growing demand with the emergence of certain mechanisms, and with different levels of success, another type of mortgage has emerged in Kyrgyzstan.
The demand for a house or apartment in the market exceeds the supply because most Kyrgyz people are unable to pay the required amount for a house or apartment. Therefore, it is convenient to buy a house through a mortgage, installment payment or housing cooperatives. However, due to high demand in the market, there is a risk of falling into fraudulent schemes.
However, the emergence of this movement itself is a good thing. It is important to support it at the state level, as well as to take immediate financial control (financial supervision). To do this, we must first develop a legal framework.
To make it clear, if we look at the world practice of housing cooperatives, for example, the idea of cooperative housing construction appeared in Germany in the second half of the 19th century. Hamburg’s fast-growing industry and increased port traffic have led to a large influx of labor into the city. There was a catastrophic shortage of housing, and the cost of renting apartments was incredibly high. Workers were trapped in cramped spaces and sometimes forced to live in unsanitary conditions. The situation was similar in many other German cities. The threat of an epidemic and unrest among workers forced the government to pass a law on cooperatives (Genossenschaftgesetzt, 1889), which regulated economic activities, including the formation of associations in the construction industry.
The activities of construction savings banks are closely monitored by the Federal Bureau of Financial Supervision (Bundesanstalt für Finanzdienstleistungsaufsicht), which has broad powers, including the power to force the resignation of unscrupulous management of the savings bank (§ 3, § 11 BauSparkG). All these measures reduce to zero the risk of fraud and loss of deposits.
Requirements for the borrower (income, property, age, etc.) are less severe and at a lower interest rate than the bank mortgage rate on a loan from the Construction Savings Bank. There is no doubt that owning real estate in this way is a better option than getting a loan. In addition, the government has introduced various additional payment programs for depositors of savings banks. This has significantly enhanced the reputation of housing cooperatives, addressed housing needs in the country, and reduced social tensions.
As we all know, through social networks we see that many people are getting a house through housing cooperatives. At the same time, there are reports of negative phenomena. There is no legal framework governing the activities of housing cooperatives in the country. The law «On Cooperatives» does not regulate the activities of housing cooperatives, the definition of the concept in Article 1 of the law applies to apartment building cooperatives and housing cooperatives.
Article 152 of the Civil Code of the Kyrgyz Republic states that the rights and obligations of members of housing and housing cooperatives after they acquire ownership of housing are determined by the law «On Partnerships of Homeowners» and apply to citizens living in apartment buildings. The rights and responsibilities of existing members of housing cooperatives, and the rights, responsibilities, and obligations of management are crucial to define. Managers should have obligations to raise a significant amount of money and be held accountable for how they use of profits and make decisions. However, there is a lack of control by members of these cooperatives and the lack of a clear legal framework to protect them causes problems. For example, due to the impact of various crises, people without homes do not pay their bills. Or what will happen to those who are waiting for their turn, if the expected money in the plan is not collected due to mistakes made by the management? It is no secret that this poses a great risk.
SUGGESTION. Housing cooperatives play an important role in solving socio-economic problems in the country, especially in providing housing to citizens. It is the responsibility of the state to create their legal framework, regulate them, and provide them with financial assistance. This is because the only task of the state in this area is to solve social problems in the housing sector, improve living standards and improve living conditions for the benefit of the population.
The State Mortgage Company (SMC) has been operating in the country since 2016 in order to provide citizens of the Kyrgyz Republic with affordable housing, mortgage lending and long-term sustainable mechanisms to attract financial resources to the economy-class housing sector. In 2020, the Ak-Bosogo Housing Savings and Credit Company was established. The company’s activities are similar to those of housing cooperatives, except that the company was established, financed, and controlled by the National Bank. Housing cooperatives, on the other hand, have no capacity and are not controlled by any government financial institution.
In my opinion, it would be much more effective if the State Mortgage Company expanded its activities and worked not only with the Ak-Bosogo Housing and Savings Credit Company, but also in partnership with these cooperatives. This is because one of the goals of the SMC, «Implementation of long-term sustainable mechanisms for attracting financial resources to the housing sector,» was implemented by citizens themselves through the mobilization of financial resources to provide a mechanism suitable for market relations in the housing sector.
I think that the state should support such initiatives, as the mission of the state is to improve the provision of housing and the population by developing the mortgage market.
Trade unions or workers’ cooperatives
The same cannot be said of trade unions, which are workers’ cooperatives. The main reason for the lawsuits, conflicts and violations that have been going on for more than 5 years is the lack of a legal framework consistent with current market economy. To date, the law, which was in force during the socialist era, is holding back the activities of the trade union. The second reason is the non-observance of cooperative principles. In Soviet society, the principle of «top-down management» was introduced.
SUGGESTION. This cooperative network is the most important social sector because it protects the rights of workers, as well as their health. More serious reforms are needed in this area. Therefore, it is necessary to bring this industry out of the crisis through in-depth analysis, research, and radical reform. In this case, it is impossible to work without the advice of the International Labor Organization (ILO) and the International Cooperative Alliance https://ru.wikipedia.org/. In short, we need large-scale comprehensive measures. In any case, in the development of this branch of the cooperative, it is necessary to introduce the principle of «bottom-up» management.
In addition, in common practice, there are special medical cooperatives that provide health and insurance for workers.
In the case of consumer cooperatives, such as The Kyrgyz Consumers’ Union, Regional Consumers’ Union, etc. which are familiar to us by name, the situation is the same as in the trade unions (there have been many lawsuits and disputes in this area for more than 10 years). In this area, too, a system compatible with capitalism has not been established, as the structure of consumer cooperatives retain some characteristics from the Soviet Union. During the Soviet era, they grew rapidly, had enormous potential, managed large volumes of trade, and owned large amounts of property, however this type of cooperative, lost its significance with privatization. This industry has played an important role in the sale of products of agricultural cooperatives and farmers.
In conclusion, in the context of the development of market relations, there is a need to radically change the existing forms / models of cooperatives.
As an expert and supporter of the cooperative movement / system, I am interested in the comprehensive and systematic development of cooperatives in the Kyrgyz Republic. In conclusion, I would like to highlight a number of issues that need to be addressed.
Urgent development of the Law «On Housing Cooperatives», considering the emergency situation in the mortgage sector. Supervision by the National Bank.
Development of a legal framework for a non-profit cooperative. Amendments to the relevant legislation.
Analysis / monitoring of legislation applicable to all types of cooperatives.
Introduction of cooperative principles in the management of all types of cooperatives and control over them (audit of compliance with cooperative principles).
Lack of statistical information.
At present, statistics on all types of cooperatives, from their number to data distributed by regions, including the number of members and employees, the volume and types of products, the type and volume of services provided, material and technical base, owned and leased areas, are rare if recorded at all. In addition to the lack of trade links and scientific and analytical activities on cooperatives, there are differences in the methods of accounting and registration between the National Statistics Committee and the Ministry of Agriculture, which are the sole sources of statistical information on cooperatives.
Thus, it is important to introduce a consistent methodology for collecting data on cooperatives, strengthen the analytical application for the development of cooperatives, expand the number of indicators to obtain complete information about cooperatives. In the age of digitalization, solving such problems has become much easier.
UNDERSTANDING COOPERATIVE PRINCIPLES https://www.ica.coop/
The essence of cooperative principles.
Voluntary and open membership. Voluntary membership in a cooperative means that joining and leaving the cooperative is voluntary. A cooperative is an independent organization. Cooperatives are created and managed by citizens and legal entities. Open membership gives citizens the right to join a cooperative, regardless of their financial status or political or religious beliefs.
Democratic membership oversight. Cooperatives are democratic organizations that are actively involved in policy-making and decision-making and are controlled by their members. The leaders of the cooperative are accountable to the members of the cooperative. In cooperatives, all members have equal voting rights (one member, one vote).
Participation of members in economic activities. Cooperative members make contributions (shares) to the joint property of the cooperative and thus form the capital of the cooperative. Cooperative members also contribute to the activities of their cooperatives by purchasing goods and services and in other ways. The members of the cooperative, as collective owners, distribute the profits received at the end of the financial year for the following purposes: development of the cooperative (construction of shops, purchase of vehicles); social activities (construction of residential buildings, maintenance of kindergartens); cooperative payments, dividends, and other payments to cooperative members.
Autonomy and independence. This principle gives cooperatives freedom and independence. Legislation provides cooperatives with autonomy in carrying out socio-economic activities. Therefore, it decides independently all issues related to farming, profit distribution, and the joining of unions or other cooperatives.
Cooperation of cooperatives. Cooperatives serve the interests of their members as effectively as possible. Cooperatives strengthen the cooperative movement through effective social and economic activities through cooperation at the local, regional, national, and international levels.
Education, training, information. Cooperatives are constantly training their members, elected representatives, managers, and employees to be able to effectively contribute to the development of their cooperatives. Managers and specialists inform members of cooperatives about the results and problems of socio-economic activities, as well as report to them on their activities. Cooperative members and cooperative leaders inform the community, especially young people and community leaders, about what cooperatives are and how they can benefit from them.
Caring for society. Cooperatives pay attention to the needs of their members. At the same time, cooperatives, as local organizations, are in close contact with the population. Therefore, cooperatives care for the economic, social, and cultural development of the area in which they operate, in other words, the development of society.
Cooperatives Union of Kyrgyzstan
Manager Imanbekova Ainura.