How to set up a Digital Co-operative Society in Nigeria

It goes without saying that at this point in time and considering the economic state of Nigeria that there’s a more pressing need to look back to one’s roots to understand the principles of traditional financial management, and tried and tested native financial institutions.

This need led to the introduction of a very simple but never before seen Fintech unicorn candidate :- the Digital Ajo/Esusu.

Ajo(Yoruba) and Esusu (Igbo) systems are simply informally created societies based on the African principles of communal economic development, with one member seen as a link in an overall chain of members, who build one another up, via monetary daily or weekly contributions, that form a pool of funds that serve as a line of credit, and an investment pool-source for members.

This grassroot-level human adaptation of ants working in unison, remains the biggest source of alternative finance in Nigeria, accounting for a cumulative funds pool in Lagos assessed at 33Billion Naira at least!

These native financial institutions are what have also been captured under Nigerian law as Co-operative societies, which are defined as voluntary associations made up of individuals joined by a common bond and interest, who converge for the purpose of economic benefits to everyone in the group.

Co-operative societies are a cheaper alternative to registering a Limited liability company in Nigeria and have as their advantages when registered:-

• Perpetual succession (they can outlive their members like companies);

• Cheaper to register than companies (Registration costs can be as low as 10,000.00 Naira minus other fees);

• They are free from the burdens of Tax regimes that typically plague companies;

• They can own, sell, acquire and lease movable and immovable properties;

• When registered, they present the purest examples of democratic management compared to companies that sometimes depend a lot on majority shareholders and a hierarchy within the Nigerian Code of Corporate Governance;

• Co-operative societies are allowed to have group investments such as Co-op Microfinance Banks(which require a minimum share capital of 50million Naira).

Co-operative societies are governed by the Nigerian Co-operative societies Act at the Federal level through the Office of National Civil Registration at the Federal level or at the State level in states like Lagos, the Director of Co-operatives at the Ministry of Commerce, Industry & Co-operatives.

Co-operative societies come in classes or types and under Nigerian law come with minimum membership requirements at the point of registration as seen in the following examples :-

a). An Agricultural Co-operative society – (50 members minimum).

b). A Savings and Credit society, the core focus of this article – (20 members minimum).

c). Specialized skill Co-operatives -(10 members minimum).

d). Multipurpose/General Co-operatives – (20 members minimum).

e). Other types of Co-operatives- 10 members minimum.

Regarding the topic of who can be members of a Co-operative society, the following rules apply under Nigerian Law :-

• A member must be AT LEAST 15 years old.

• A board member must be AT LEAST 18 years old.

• Every member must have a need identical to that of other members of the society necessitating membership of the society.

• A member must show proof of the ability to pay fees of the society and buy shares.

• Every member must be in a line of business or occupation/job relevant to the society e.g. A Medical Doctor has no business joining a Co-operative made up of architects.

Digital Co-operatives :- A digital Co-operative society in this case simply refers to a Cooperative that operates virtually in terms of membership applications, cashless member contributions, and digital rendering of benefits associated with benefits such as loans.

In addition to the requirements associated with registering a Co-operative, a digital “Ajo” system would require the setting up of a digital/online platform,most likely an app, which will have to be registered as a Trademark alongside its copyrights along with the required Frontend and Back-end development contracts as an extra security measure against Intellectual Property theft.

Co-operative society applications usually get approved in about 3 months, although Certificates of Registration are only presented after about 3 years to in order to verify the functionality of the Co-operative and that the Cooperative is not being operated for an ulterior motive such as Money-laundering.

Requirements for the Registration of a Digital Co-operative Society.

The following is necessary for an application for registration of a Co-operative to succeed :-

• An application for registration of the Co-operative society to the Director of Co-operatives signed by at least 10 individuals qualified for membership of the society of it’s a primary society(a society with only individual members) or if it’s a secondary society (a society with another Co-operative society as its member) then a duly authorized member of the member society)

• The proposed name of the society (which will be confirmed by a Name search and approval).

• The proposed office address/location of the Co-operative.

• The objectives of the society.

• The purposes or ends to which the monetary contribution pool of the society will be applied, kept, or invested.

• Membership admission and conduct rules.

• The society’s By-laws.

• A feasibility report as to the operation guidelines of the Cooperative society.

• Copies of a resolution passed at the first meeting of the Co-operative society with the Province Cooperative Officer in charge of registration(this must at least involve the appointment of a chairman, secretary and treasurer of the Co-operative)

• Letters of intent to join the society by prospective members of the society.

• An official Stamp duty of the Co-operative to be tendered after the Cooperative name approval.

• Evidence of Registration fee payment.

• A detailed IT Policy including password policy.

• A SCUML/AML/CFT/KYC compliance framework application by virtue of Co-operatives being Designated Non-financial Institutions.

• A Data Protection Compliance Framework set-up commenced by an application to the National Information Technology Development Agency (NITDA).

Core Rules Of Digital Cooperative Societies (Especially Savings and Credit Societies).

• A primary society will not be registered except it is made up of a minimum of 10 members who are at least 21 years old.

• The word “Co-operative” must be part of the name of the society to be registered.

• A Cooperative Society CANNOT gives loans to non-members except as its by-laws provide, another Co-operative society.

• A Cooperative Society dedicated to lending money to other registered societies is referred to as a Central Financing Society.

• All disputes arising from Cooperative Societies must first be subjected to arbitration.

What You Need a Lawyer For When Setting Up a Digital Cooperative Society.

You need a lawyer for the following services when registering and operating a Cooperative Society:-

• The preparation of your Co-operative society registration application.

• The preparation of the by-laws and objectives of your Co-operative society.

• The documentation of the Front-end and Back-end development contracts of your app.

• The application for SCUML certificates and the continuous rendering of AML/ CFT/KYC/STR/CTR returns.

• The registration of your Co-operative’s Intellectual Properties such as your app .

• The documentation of loan agreements involving your loan disbursements.

• Acting as the first point of detached contact in the event of a dispute.

• Rendering compulsory Data Protection Compliance returns to the NITDA.

• Rendering applicable Tax advisory services.

• Performing liaison officer functions between your Co-operative and the Director of Co-operatives or the Office of National Civil Registration.

• The rendering of all Legal support functions in the execution of Investment decisions of the Co-operative.

• Engaging in Debt Recovery services on behalf of your Co-operative society.

From the above, it can be seen that the future of 21st century Traditional Financing is finally here, and with the right hands guiding you, the Digital Co-operative is the bridge between ages-old traditional financial wisdom, and Financial Technology in its most helpful form.