As you travel across Uganda, you will not miss a signage with the word “Savings and Credit Cooperative Societies (SACCOs)”. Even businesses that lend money and have nothing to do with formal cooperatives have somehow baptised themselves with the same name. This is testimony that SACCOs are widely accepted because they offer much-needed financial services.
The industry performance of SACCOs is another positive indicator that they are doing rather better than their other counterparts in terms of liquidity. Nonetheless most of them have wanting capitalisation positions to which the industry ought to pay attention.
Some of the most conspicuous financial cooperatives include Wazalendo, YSAVE, URA, Makerere University Staff, Prisons, Exodus, St. Francis Investment, Nebbi and Kitgum SACCOs amongst others. It is estimated that the top 10 SACCOS cumulatively have an asset base of over Shs 300 bn.
Inception and collapse
The proliferation of SACCOS started during the 1970s economic crisis when banks were no longer happy to lend because of the high risks associated with borrowers. At this time, public servants and persons in white collar jobs, some of whom had not received salary over a period of time had to find alternative sources of credit.
It is then that the Savings and Credit Societies came in handy as most public servants came together to save and borrow. This is how Uganda Savings and Credit Cooperative Union was born in1972. The idea was to find an entity that would organise and build the capacity of the primary financial cooperatives.
As the cooperatives were recovering from the political and economic challenges of the 20th Century, the stigma of mismanagement and embezzlement of agriculture cooperative’s assets was highly entrenched and people lost confidence in the movement. The pain of the loss that the cooperative population had undergone was too much that many people wanted nothing to do with anything called “cooperative”.
“Moreover with liberalisation, cooperatives could not stand to compete because government had spoon-fed and denied them the opportunity to run on real business principles,” says Dr. Wilberforce Kisamba-Mugerwa, the Chairperson of the Microfinance Support Centre (MSC), a microfinance services agency owned by the Government of Uganda.
Resurrection and evolution
Nevertheless, the need for cooperatives still remained a fact among most Ugandans; the conditions of the day couldn’t keep people away from working together.
Indeed in the 1990s, Uganda Cooperative Alliance (UCA) saw the need to save the cooperative movement and came up with the idea of village banks. After UCA visited Asian countries including Bangladesh, Malaysia and Indonesia where they learnt about the Village Saving and Loan Association model, they came and replicated it here in Uganda.
“The baptism “Village Banks” was adopted because UCA did not want to mention cooperatives since that word had been condemned,” says Ivan Asiimwe, the General Secretary of the Uganda Cooperative Alliance (UCA).
Eventually, the “Village Banks” threatened the commercial banks and then war was declared against them, with their detractors saying they were not banks. Immediately, UCA and partners changed their name to SACCOs.
Govt support for SACCOS
In addition to UCA’s efforts, in 2005, the Government of Uganda, through the Ministry of Finance, Planning and Economic Development (MoFPED) came up with the “Plan to Enhance Rural Financial Services”. The Plan’s stated aim was to develop financial infrastructure designed to reach the population in all sub-counties through the strengthening of apex institutions and existing SACCOs, as well as the creation of new SACCOs in more than 20 districts where they did not exist.
According to public circulars published in newspapers at the time, the program would be implemented through Micro Finance Support Centre Limited (MSCL), MOP, SUFFICE and UNDP’s Support to Village Savings and Credit Institutions project.
Lydia Nanono a Monitoring and Evaluation Officer at Uganda Cooperative Savings and Credit Union Limited (UCSCU), whose 4 regional and 11 sub-regional offices support SACCO operations across the country, says SACCOs, cater for the special needs of their members like buying land which they pay in instalments without collateral.
Nanono adds that SACCOs are increasing in numbers because of the trust they engender, their flexibility and easy accessibility, unlike banks which are absent in some areas. She admits that UCSCU has been aided by government and development partners in performing its support role to cooperatives.
She singled out the Rural Financial Services Programme (RFSP), a 7-year project which benefited about 730 SACCOs by providing operational incentives like computers, salaries and rent as one of the major projects that boosted SACCOs.
She also reveals that the Project for Financial Inclusion in Rural Areas (PROFIRA), a project partly funded by a USD 30m loan from International Fund for Agricultural Development (IFAD) is supporting some 500 SACCOs countrywide with training and technical support on managing credit, financial literacy, savings, mobilization and business development.
Another government initiative to boost SACCO growth has been the extension of affordable credit through the Microfinance Support Centre (MSC) in which cooperatives comprise three-quarters of its client portfolio.
Belinda Atim MSC’s Public Relations and Communications Officer says that SACCOs are readily available within the rural settings and meet the institution’s criteria of group lending.
She adds that MSC lends at between 9% to 17% per annum. She boasts of a total disbursement of Shs 250bn and 200 model SACCOs which have proven to be effective in the management of their finances and hence helped the organisation to reach its mandate as far as coverage across the country is concerned.
SACCOS being coddled?
However, the direct and free support to SACCOs continues to elicit mixed reactions. Kisamba Mugerwa is concerned that although government has good intentions in offering financial and other support to cooperatives, the cooperatives are being run on wrong principles partly because of this assistance.
“Once you start along these lines, people do not associate because of the felt need but because of the expectations from the government,” Kisamba Mugerwa argues.
He admits, though, that despite starting out on shaky ground, some SACCOs had made the most of available opportunities, adopted cooperative principles and are successful.
Defending government’s strategy to finance SACCOs, the State Minister for Cooperatives, Frederick Gume, says government is not giving cooperatives money for keeps but for them to improve on their capacity to lend such that “if they are now crawling, they will soon be able to run”.
“If everyone works within cooperatives, the country’s economic status can improve,” Gume affirms.
However, some industry players think that the reduction on dependency would be achieved if small SACCOs merged. They associate the proliferation of small SACCOs lacking the capacity to borrow or lend wholesale with the motive of receiving free money from politicians and development partners.
“They [small SACCOs] should not be getting loans. If these SACCOs with small numbers merge and numbers increase to encourage members to save, they would not need to borrow,” Nanono says.
Challenges and future of SACCOs
SACCOs, like other types of cooperatives, grapple with their own challenges including fraud, loans, low savings, competition and dependency. According to Atim, leadership remains the main issue stifling cooperative growth.
“It means we are unable to loan to some of them and that becomes a challenge for us because we would love to lend to as many as we can,” Atim says.
But also, some founder members are challenging the democratic principle on which cooperatives are built.
According to Atim, the support and interest cooperatives are receiving from government and development partners is one strong impetus to their growth. She advised though, that this support will only translate into gains if the SACCOs deal with their leadership challenges and embrace technology and innovation.
This article was originally published in Issue 4 of theCooperator magazine.
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