Compliance on Performance Report Standard of Cooperatives

CHAPTER 2

REVIEW OF RELATED LITERATURE

        This chapter contains related literature and studies that will support the concept of the research.

        Cooperative Development Authority (CDA, 2015) envisions that by the year 2020, 50% of the micro-co-operatives and 50% of small cooperatives shall have scaled up to small and medium category respectively, taking 2013 as the base year. Furthermore, CDA aims that all co-operatives shall be 100% inspected and shall strictly comply with the regulated rules and law on co-operatives to protect the members from self-interest of those in governance. Likewise, International Co-operative Alliance (ICA, 2013) envisions co-operatives to be known globally as the fastest growing organization that greatly contributes to economic growth and helps alleviate poverty as a whole by the year 2020.

        On the Grant Assistance Report by the Asian Development Bank (ADB, 2006), a project financed by the Japan Fund for Poverty Reduction, mentioned that in order to effectively develop the operation of cooperatives in microfinance, standardization of chart of accounts and implementation of COOP-PESOS (now known as the PISO Rating Standard) to all cooperatives was developed jointly by CDA and the National Credit Council (NCC). However, problem still exists on improving the cooperatives’ level of compliance to this CDA performance standards, ADB suggested it may be resolved through capacity building of cooperatives and training of CDA regulators.

Role of Performance Standards

Performance standards are perceived conduct on which a certain organization is required to operate for attaining the agreed level of quality and used as a tool to communicate desired results (African Confederation of Cooperative Savings & Credit Associations [ACCOSCA], 2016, para. 3). It allows those who are in the management to accurately establish relevant solutions to resolve problems faced by the cooperative and determine the status of the cooperative, and identify its strength and weaknesses (CDA, 2013).

The International Finance Corp. (IFC, 2012) also mentioned that performance standards serve as a guide to identify, reduce and even diminish  risks and its effect as a way of developing a sustainable organization like cooperatives, who in turn, needs a corroborative structure of policy since cooperatives influences to the growth of the economy (Mwanja, Marangu, Wanjere, & Thou, 2014).

Cooperative Performance and Compliance

        Cooperative’s performance primarily relies on its capacity to gain and prolong trust, offer excellent assistance and social responsibility towards its members and the community (Kyazze, Nkote, & Isingoma, 2017). Moreover, the need for validation of financial and non-financial events, submission of reports and proper allocation of cooperative resources are essential to the performance of the organization.

        In the study conducted by Sarea and Abdulla Al Dalal (2015), there shows a favorable relationship between the level of compliance on standards and performance of Nigerian banks. In addition, compliance represents an important part on cooperative’s progress and non-compliance with the standards and other policies influences performance (Mwanja et al. 2014).

Cooperative Financial and Non-Financial Performance

Performance measurement is a method used to evaluate efficiency, refers to as the way of maximizing utilization of resources, and effectiveness which pertains to the ability of achieving the desired results. Poor standard of performance and inadequate management causes cooperatives not to progress and neither develop their utmost potential (Lakew, Meniga & Gebru, 2014). Whereas, firms that prioritize transparent governance and compliance environment has an advantage over their competitors (Ramakrishna, 2015).