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SACCOS.

Poor Management will be our ruin


by Vincent Obiro Orute Since their appearance on the business map of the trading world, co-operative societies have been known to play an important role in the development of any economy. By the end of 2002, there were about 940 million people globally who were involved in co-operative business enterprises providing livelihood and employment to over 100 million people. Cooperative members, for instance, make about 49 per cent of the population of Canada, 42 per cent of USA, 41 per cent of Ireland, 33 per cent of Norway and 29 per cent of Argentina. Today, savings and credit co-operative societies continue to be significant in the financial sector of most countries Tanzania being included.. By the turn of the century, the number of active people who were members of savings and credit co-operatives or credit unions as they are known in other countries, was in excess of 105 million people. In Tanzania, like in many other countries, shares and savings deposits held by members are not readily withdrawable and are normally held under lien as security for loans to members. SACCOS in Tanzania, are constituted, registered, regulated and supervised under the Co-operative Societies Act. This is a general Act which governs all types of cooperative societies. This Act does not address the needs of financial service co-operative societies since it lacks adequate provisions for the regulation and supervision of financial service co-operative societies which is central to the development of a safe and sound financial alternative. It is worthwhile to note that other players in the financial service sector except SACCOS are governed by specific Acts . These include, banks, insurance companies, building and mortgage finance companies, post office savings banks and micro-finance institutions. In my view, there is need to create a legal framework which is more accommodative to financial service co-operative societies. Finance and banking institutions require sound management regardless of the size of transactions. Poor management of SACCOS not only affects the SACCO in question but also the economy in general. Inadequate governance and poor management The structure of SACCOS governance includes Annual General Meeting (AGM) as the supreme authority that elects the management and supervisory committees. The management committee is supposed to hire a manager and then rest of the SACCO employees. What amazes me is that the management of most SACCOS has been left in the hands of the management committee. These are people who wield executive powers and in most cases some of them are elderly people whose predisposition is to resist change from all quarters and fight new ideas. These are people who regard any form of criticism, however genuine, as a conspiracy against them. This is not to say that old people have nothing tangible to offer. What I am opposed to, is a situation where the whole management of a financial entity like a SACCO is left in the hands of unscrupulous management committees instead of a manager with sound knowledge in financial management. To make matters worse, these people run SACCOS as if they are social clubs and not business organizations or entities. When you place the management of an important financial entity like a SACCO in the hands of Halmashauri (Management and supervisory committee), the effect is as futile as leaving a young baby without a mother to take care off. This impacts negatively on standards and do away with professionalism. When members of executive and supervisory committee feel they have the power and money, the tendency is that they will become arrogant, unnecessarily defensive and unwilling to accept new ideas.

The problem with having elderly people who resist change is that resistance to change inevitably breeds a culture of mismanagement of funds. Today, most SACCOS are on their knees because they are premised on unworkable models. If you allow a small group of individuals to feel too powerful and behave as if they are not accountable to anyone, you encourage them to engage in all sorts of mismanagement of funds. After all, human beings can never be angels. I support the idea of bringing in young blood who are professionals especially in areas where critical capacities are lacking. Indeed, what SACCOS need is a group of young professionals with sound knowledge in financial management who will breathe in fresh air and new ideas into these important financial institutions. Since SACCOS are the main source of credit to low income earners who could not get loans from banks, we want these important financial institutions to be run on sound financial footing. Why do I say so. Because due to the liberalization of the banking sector in early 1990's most banks were forced to rationalize their operations a move that forced most banks to close all their branches in rural areas. SACCOS are therefore welcome to fill the void left by banks by offering quasi banking services to people living in rural areas. But filling the void left by banks is not enough. Members expect loan applications for example, to be responded to within hours not days, let alone weeks. They also want competitive interest rates on loans and dividends on their savings. What the management committees of SACCOS should never forget is that they are dealing with members savings. Sound financial management is therefore critical to the growth and development of SACCOS.

THE IMPORTANCE OF SACCOS AS MICROFINANCE INSTITUTION 1. Definition of SACCOS Definition, aims and Mission of SACCOS;Savings and Credit Cooperative Society (SACCOS) is defined as private and cooperative financial intermediary where membership is open and voluntary. It belongs to its members who manage it democratically. It is thus the crucible of the members economic and cooperative education. Savings and Credit Cooperative Societies (SACCOS) is a financial organization owned and operated on not for profit basis by its members according to cooperative principles. The main objectives being promotion of development of habit of putting some money aside as savings among its members and creation of a source of credit for its members at controlled rate of interest exclusively for provident or productive purposes. The SACCOS aims at meeting the financial needs of all its members men/women, old/young, rich/poor in particular, by encouraging savings and granting loans to the members. In order to provide the best and most durable satisfaction to its members, the SACCOS is concerned about its own financial stability and to do so it must achieve profitable management on an on going basis. The mission of the SACCOS is to make available on site, to any one wishing to join it, financial services under the best conditions, while enabling the cooperative to cover its operating expenses and providing for the economic education for its members.

The Savings and Credit Cooperative movement in Tanzania started in 1961, when the Government drafted money by law to enable any group with a common bond of occupation, association and residence adopt the by law and register. It was a protection move against the urban areas rampant with shameful activities of Pawn Brokers and Money lenders who were charging exorbitant and illegal rates of interest and, or instituting a mechanism for attitude change of unwise spending of Rural Peasants who were earning sizeable sums of money during harvest time, but go back to poverty. Main functions include Promotion of Savings and credit opportunities to the members, Promotion of financial stability among members, Enhancement of the habit of saving regularly, borrowing wisely and paying promptly. Another function is to links SACCOS members with other SACCOS movement such as active member of SCULT. Never the less, it looks for the best credit facilities opportunities available and extends to the members at reasonable and agreeable interest. 2. Policy review Cooperative development in Tanzania can be traced during 20th century. Unfair marketing and processing practices and political discrimination were among the factors caused the establishment of cooperatives association mainly in cash cropping areas. After independence in 1961 the government policy was to make the cooperative movement an engine for economic development. Therefore government promoted the existing cooperatives and became important tool for the economic development of the rural sector (Report, 2001). The policy of Socialism and self reliance for the period of 1967-1976, transformed the cooperative to the rural development process based on Ujamaa villages. Thus, individuals or groups allowed forming multipurpose cooperative societies. Activities for the multipurpose cooperative ranging from Marketing Agricultural produce, procurement and distribution of inputs and whole sale and retail trade and transportation (Report, 1991). This was followed by the open market policy in 1986, made the Government with support from World Bank and International Monetary fund to undertake the structural and economic adjustment program. This policy had a negative impact in cooperatives such as abolition of price control, elimination of subsidies, liberalization of marketing of agricultural inputs and outputs (Report, 1991). New policy of cooperative development (2002) was the second cooperative policy after that of 1997. The main policy objective includes the availability of sustainable development of members and using cooperative as a tool for achievements. The impact of this policy has been revealed in different aspect including the establishment of cooperatives in other sectors of the economy and make the total number of 5789 cooperatives country wide (SACCOS, 2004). The Cooperative Poverty Reduction policy is performing in line with vision National Strategy for Growth and Reduction of Poverty (NSGRP) commonly known as (MKUKUTA). Cooperatives have been penetrating in rural areas and are involved with agricultural crops and credit and saving activities (Report, 2005).

3. Empirical Review The importance of community organizing in Tanzania revealed longtime before independence. It was in 1925 when the first coffee cooperative known as the Kilimanjaro Native Planters Association (KNPA) established. Registration of KNPA was done in 1932 when the cooperative ordinance cap (Cap 211) enacted and KNPA split into two and formed one secondary society known as Kilimanjaro Native Cooperative Union (KNCU). 2. The importance of SACCOS The importance of the SACCOSs in poverty alleviation and the general economic growth of Tanzania should not be under estimated; down here are the special features of the SACCOSs which make them important and special financial institutions on which the government of Tanzania should pay attention, these features are;2.1 Accessibility; - most of these microfinance institutions are established even in rural areas where banks can not be established bringing financial services closer to the people who could otherwise not be accessible to these services, this increases entrepreneurial morale to Small and Medium Enterprise (SME) operators in Tanzania. 2.2 The SACCOS are more flexible and not complicated as they are established by the people themselves, therefore the people themselves can establish by laws which are more flexible accommodating even the people who are extremely poor and economically marginalized, also no business plan or any detailed description of their business is required for the members to access loans. 2.3 The use of collateral substitutes; So long as these people are poor, therefore the majority does not have the formal collaterals required by the banks, in stead of this collateral substitutes like group guarantee, deposited savings and un surveyed houses are accepted as collateral substitutes for members to access loans. 2.4 The SACCOS also as Microfinance institutions encourage savings to their members, the culture which was not present in the past, these savings can be used for investment and also they receive dividends each year which is also an added income to the members. 2.5 The pricing of their loans is not very high as it is determined by the member themselves and therefore it is fairly done considering the sustainability of their cooperative. 2.6 SACCOS are targeted to serve the poor, this is done through organizing groups, train them on the necessary requirements for them to access the loans and the way the loans are to be spent, this ensures a good repayment rate and in turn these microfinance institutions becomes more strong to serve the poor as they dont loose capital out of defaults. 2.7 The screening of good clients is done by the members themselves as they become responsible in case of default; this reduces the screening cost which is avoided by the formal banks and also reduces the risk of loosing money through defaults. 2.8 SACCOS help individuals and house holds to meet their basic needs and protect against risk. When the house holds and individuals have basic needs and protected against risks, the possibility of establishing small business is great

2.9 Improvement of economic welfare of the community and enterprise stability or growth of low income households is the role of the SACCOS as microfinance institutions in Tanzania. If the community is well off and enterprises are stable the development of the latter is unquestionable. 2.10 The SACCOS as Microfinance institutions have the role of economically empowering all kinds of people, thus promoting gender equality and improve household wellbeing. 2.11 The availability of small loans through the SACCOS within the community brings about the possibility of establishment of small businesses some of which can develop and result to big business establishments. 2.12 The SACCOS also have been a source of employment to the people who work as employees of the SACCOS; hence they are part of the employers list.

Moreover, the government has shown the political commitments and willingness (affirmative action) to support 2002 cooperative policy by strengthening the Cooperative support institutions such as the Moshi University College Cooperative and Business Studies, (MUCCoBS), Cooperative Auditing And Supervision Corporation (COASCO), Tanzania Federation of Cooperation (TFC), Savings and Credit Cooperative Union League of Tanzania (SCCULT). The existence of these Institutions contributes to empower Cooperative membership through acquisition of education, new knowledge and skills, strong saving and credit cooperatives societies and cooperative banks that provide good financial services to members, just to mention few. SACCOS promotes community ownership and peoples voice is the driving force in relation to the cooperative principles. Members have equal right to participate in development of their society. 3.1 Empowerment of SACCOS Members In Tanzania the concept member empowerment in Cooperatives was introduces in the late of 1980s and early 1990s with an objective to facilitate participation and involvement in decision making pertaining to their own social and economic development using cooperative organization as a tool with the ultimate goal of creating wealth and reducing poverty. It is revealed that, with members empowerment, knowledge skills and experience is shared in the process of problem identification, planning, implementation, monitoring and evaluation of the cooperative activities in a participatory manner. 3.2 Sustainability of SACCOS SACCOS as a grass root based financial aimed to be an effective financial intermediaries. In Tanzanian context it has been established through some studies that, the SACCOS potentiality of SACCOS as a financial intermediaries has not been optimized due to lack of innovation of production, law capital formation (depending much in equity financing which is not a permanent capital) and financing methodologies. This has been among the factors that contribute to hinder members / customers needs and expectation as a result of unsustainable SACCOS.

Other factors that contribute to poor sustainability of SACCOS include weak internal control system; inadequate Human resources, unsustainable interest rates, inadequate knowledge on microfinance best practices just to mention few.

THE STATE OF MICROFINANCE IN TANZANIA


By Altemius Millinga 1.0 Macroeconomic situation The United Republic of Tanzania is situated in East Africa and part of the Sub Saharan area with a total surface of 945, 087 square kilometres and a population of 44 million ( mainland and Zanzibar). The country gained its independence in 1961. In 1990, the mainland of Tanzania initiated a political transformation process to a multi-party system. Between 1999 and 2001 the economy picked up by an average of 6% and by 2007 the growth rate (7.1%) was comparable to the early years of independence (URT United Republic of Tanzania, 2008). The inflation rate has been relatively stable during the last seven years with an average of 7% but it has increased significantly during the last 9 months, with a growth up to 13.5% in April 2011 (BOT, 2011). The population living below the poverty line (income is under one dollar a day) was 35.7 % in 2000/1. About 80% of the population in Tanzania lives in rural areas with agriculture being their main activity (Morrinsey et al, 2005). 2.0 Background Microfinance or financials services for the poor, has emerged over the past 30 years from a narrow notion of microcredit well-defined methodology to extend credit to target groups for enterprise development or some other specific purpose to an ambitious and daring concept of building entire financial systems that serve low income and poor people. In Tanzania, the history of microfinance starts way back in 1985 when the Government promoted and established the Presidential Trust Fund in mid 1990s. Other MFIs emerged such as PRIDE, FINCA, and YOSEFO. In the late 1990s the Bank of Tanzania started specialized banks which are commonly known as community banks and cooperative banks. These include Kilimanjaro Cooperative Bank, Mufindi Community Bank and Kagera Cooperative Bank. Akiba Commercial Bank became the first Commercial Bank to venture into microfinance. 3.0 Typology of Microfinance Industry in Tanzania (a) Financial services providers The Microfinance industry is still at the emerging stage and constitutes a diverse range of practitioners and practices. The pioneers of Microfinance in Tanzania are NGOS which started to emerge in the mid 1990s. However, informal microfinance services providers have been in Tanzania for years these include ROSCAs, ASCAs, Burial associations, clan savings groups, etc. Savings and Credit Societies ( SACCOS) is another type of Microfinance services providers which have been active in both rural and urban areas. Banks have joined the Microfinance industry during the last 10 years. Based on the background of the history of Microfinance in Tanzania, it is generally accepted to categorize microfinance institutions by the group under

which the provider belongs. The groups include NGOs MFIs, Banks and Non Bank Financial institutions, Savings and Credit Societies and informal financial services providers and Government/donor programs. (i) NGOs MFI These organizations specialize in provision of financial services to micro entrepreneurs. The major ones include; PRIDE Tanzania Presidential Trust Fund Poverty Africa ( T) FINCE Tanzania Small Enterprise Development Agency ( SEDA) Presidential Trust Fund ( PYTF) Youth Self Employment Foundation ( YOSEFO) (ii) Limited liability Companies These are limited liability companies which specialize in Microfinance Services and are new players in the Tanzanian market. These providers, like NGO MFIs are not regulated Tujijenge Tanzania Ltd K-Finance Ltd

(iii) Microfinance Companies The first Microfinance Company was licensed by Bank of Tanzania in July 2011. Several NGO MFIs are currently lined up for the Transformation to become Microfinance Companies (iv) Commercial Banks and Community Banks these institutions provide a wide range of microfinance services to its clientele. The services include micro loans, savings products, wholesale credit funds to SACCOS, money transfer and micro lending. With regards to loan collateral they use chattel mortgage and peer pressure through solidarity groups. The institutions include; Akiba Commercial Bank CRDB Mufindi Community Bank National Microfinance Bank Mbinga Community Banks Dar es Salaam Community Bank Mwanga Community Bank Kilimanjaro Cooperative Bank Kagera Cooperative Bank and Tanzania Postal Bank (v) Savings and Credit Societies (SACCOS)

These comprise of formal mechanism whereby financial resources are mobilized from members, management is in the hands of members and its members constitute the main beneficiary. SACCOS are registered under the cooperatives law. SACCOS get funds for lending to members from internally mobilized savings and loans from Commercial banks, Community Banks and Government programs such as Small Enterprise Loan Facility (SELF). (vi) Informal financial services providers Informal providers are neither legally constituted nor regulated by any institution. These providers deliver savings, credit and micro insurance services. These are member owned and controlled by members themselves: Rotating savings and credit Associations ( ROSCAs) Accumulated Savings Credit Associations Burial Associations ( micro insurance services) Money lenders and traders Self Help group ( SHGs) Village Community Banks ( VICOBA/VSLA) (vii) Government programs/projects Local government i.e District, Municipal, and City Councils have established youth and women funds for lending. The councils are required by Law to set aside 10% of the revenue to provide loans to women and youth who want to establish or expand their businesses. The Central Government through SELF Project and JK Funds charge subsidized interest. SELF Project is funded by a loan from African Development Bank (ADB) to the Government of the United Republic of Tanzania. (viii) Wholesale MFIs Wholesale microfinance is a new phenomenon in the industry of microfinance in Tanzania. Key players in wholesale microfinance products include Oiko Credit, Stromme East Africa Ltd, CRDB Microfinance Company and other some Commercial Banks. (b) Regulatory Environment National Microfinance Policy The cooperative Development Policy, 2002 The cooperative Societies Act, 2003 The cooperative Societies Regulations, 2004 Microfinance Regulations, 2005 The microfinance Regulations were approved by the Government on 25th March, 2005 comprising regulations for internal control and Internal Audit; Microfinance Companies, Micro credit Activities and Financial Cooperatives. .As of to date, the implementation of the Microfinance Companies and Financial Cooperatives Societies has not created positive results. NGOs MFIs and SACCOS have not transformed to Microfinance Companies or FICCOS respectively. Therefore, Commercial Banks and Community Banks remain to be regulated institutions providing microfinance services in Tanzania. SACCOS receive some limited supervisory services governed by the Cooperative Act.

According to the Microfinance Policy, Government should not interfere on MFIs operations such as pricing, product development, loan terms, etc. Ministry of Finance has the responsibility of ensuring that microfinance programs are consistent with the policy. However, the Government still plays a direct role in lending through JK Funds, Local Authorities Funds for Youth and Women and SELF Project. The main concern for the microfinance industry is that some of the Government funds offer subsidized interest for example JK Funds which in turn distort the market. (c) Apex Organizations There are two Apex bodies for microfinance industry in Tanzania, namely, Tanzania Microfinance Association and SCCULT. For the past three years, two apex bodies TAMFI and Tanzania Microfinance Practitioners and Service Providers Ltd (the Coalition) existed. The two apex bodies merged on July 27th, 2010 and created a new TAMFI. (i) institutional level an inclusive network more institutions are joining the organization a national network present at all levels and in all regions and districts in the country. Have an effective and less costly mechanism and technology to attain the national presence a united voice speak as one active internationally strongly in East Africa, Africa and International areas increased collaboration among members benefit members- develop and deliver services that address important members needs/issues (ii) Industry level Leading in organizing the industry want to see the industry become more organized Have a united voice Participate and be recognized in National issues and activities have influence in decision making with regards to microfinance issues Increase in number of formalized and regulated MFIs Membership of the new TAMFI is drawn from the existing members of the former two apex organization and new members who are going to be recruited by the interims Board of six members. Members are categorized as follows: General Members o Commercial Banks practising/offering microfinance services o Regional banks offering microfinance services o Non-Governmental Organizations engaged in the provision of Microfinance services as core activity o Companies offering microfinance services o Financial cooperative o Apex bodies representing informal financial services providers like VICOBA and COCOBA o Community based organization offering microfinance services as core activity o Whole sale Microfinance Organizations o Business Development Service Providers offering direct services to Microfinance Institutions as major clients o Micro insurance providers, Brokers and agents

Associate Members o Professional networks or Associations which have interest in Microfinance activities o Auditors, Accountants and Consultant firms engaged in Microfinance services o Information communications and technology providers; o Other local and international institutions or programs engaged in support if the microfinance industry (d) Training and other BDS Providers In order for microfinance to grow and prosper, human resource development is crucial. Human resources development can be done through tailor made courses organized by MFIs, or through in-house training and through sending staff to microfinance training institutions. In the 1980s Tanzania had a bankers training centre Amon Nsekela Bankers Training Institute which was providing training services to key bank operations skills such as tellers training, back office operation, credit management, bank subversion, etc. The training institute was closed in the 1990s following restructuring and the ultimate privatization of the Bank. The Bank of Tanzania Training institute in Mwanza took over some of the courses offered by the then bankers training institute. However, Bank of Tanzania Training Institute has not been able to fill the gap. Microfinance training by then was only offered for SACCOS by Moshi Cooperative College (now Moshi University College of Cooperative and Business Studies), NGOs MFIs relied on inhouse training or sending a few staff when donor funds were available. Hence human resource has remained a big challenge for the Microfinance industry in Tanzania. There a few training institutions which provide training services to microfinance institutions these include Centre for Microfinance and Enterprise Development, Centre for Microfinance owned by Global Associates Consultants Limited, Institute of Continued Studies of the Moshi University College of Cooperative and Business study and Tanzania Bankers Institute ( introduction to Microfinance). By and large, human resource development remains a challenge to the Microfinance Industry in Tanzania. Auditors are major players in providing support to the Microfinance industry. Currently there are no auditing companies which specialize in auditing microfinance. Audit services appropriate to microfinance helps to produce transparent and comparable financial statements. International audit companies such as Price waters Coopers have the capacity to bring microfinance expertise form other parts of the world but their price is beyond the reach by majority of MFIs in the country. Trained Internal auditors are also hard to obtain since some of the local institutions provide specialized training in microfinance auditing. (e) Outreach The financial sector in Tanzania is still small. A Finscope survey which was done in 2009 by Financial Sector Deepening Trust revealed that Banks have reached only 12% of the potential market while 2% of the market is served by SACCOS and NGO MFIs. Majority of the poor in Tanzania are either served by informal financial services providers and some have no access to finance of any type.

(f) Access to and use of technology All regulated microfinance services provided have computerized IT system and some have ATM services. The use of computerized MIS systems is also common among NGO MFIs such as PRIDE, YOSEFO, FINCA, PTF, Tujijenge etc, Majority of the NGO MFIs and all Community Banks use Bankers Realm, software developed by Crafts Silicon based in Nairobi, Kenya. 4.0 Problems and Challenges Microfinance is now recognized as na effective tool for reducing poverty. It has shown a positive result in many countries, however, microfinance services have not yet developed down to reach rural communities in Tanzania. There is still a high concentration in few urban areas, there is still a huge mass of people deprived of financial services in Tanzania. At the same time there a number of challenges facing the microfinance industry in Tanzania Most microfinance institutions are concentrated in areas which have easy access to markets and also high density populations. They have not been able to build an upright approach to outreach the neediest rural masses Lack of pool of experts in Microfinance. Human resource development is major constraint to the industry due to limited number of business development services providers that can produce training to staff and board of directors Microfinance regulations 2005 which is expected to guide the industry is not friendly to microfinance services providers. Area of concern include provisioning of current loans, limit of loan size of individual borrower is too small and stringent provisioning Over indebtedness of some borrowers caused by overcrowding of MFIs in few cities and towns with well developed markets and lack of credit reference bureau
http://www.tamfi.co.tz/index.php/resources/view/the_state_of_microfinance_in_tanzania KIMARA SACCOS STRENGTHENING PROJECT LITERATURE REVIEW 1. Theoretical review Cooperative referred as group of people who work together voluntary to meet their common economic social and cultural needs through a jointly owned and democratically controlled enterprise. The cooperative is the member, and depends on its members for its existence. When the members do not understand and do not know what the cooperative is, what are their functions, what it is capable of giving to the member, and what one may not expect from it there is no chance for the existence of this with this cooperative. Honest, openness, social, responsibilities and caring for others are believed of the cooperative members (Maynard and Beckman, 1952). Savings and Credit Cooperative Societies (SACCOS) is a financial organization owned and operated on not for profit basis by its members according to cooperative principles. The main objectives being promotion of development of habit of putting some money aside as savings among its members and creation of a source of credit for its members at controlled rate of interest exclusively for provident or productive purposes. The Savings and Credit Cooperative movement in Tanzania started in 1961, when the Government

drafted money by law to enable any group with a common bond of occupation, association and residence adopt the by law and register. It was a protection move against the urban areas rampant with shameful activities of Pawn Brokers and Money lenders who were charging exorbitant and illegal rates of interest and, or instituting a mechanism for attitude change of unwise spending of Rural Peasants who were earning sizeable sums of money during harvest time, but go back to poverty. Main functions include Promotion of Savings and credit opportunities to the members, Promotion of financial stability among members, Enhancement of the habit of saving regularly, borrowing wisely and paying promptly. Another function is to links SACCOS members with other SACCOS movement such as active member of SCULT. Never the less, it looks for the best credit facilities opportunities available and extends to the members at reasonable and agreeable interest. 2. Policy review Cooperative development in Tanzania can be traced during 20th century. Unfair marketing and processing practices and political discrimination were among the factors caused the establishment of cooperatives association mainly in cash cropping areas. After independence in 1961 the government policy was to make the cooperative movement an engine for economic development. Therefore government promoted the existing cooperatives and became important tool for the economic development of the rural sector (Report, 2001). The policy of Socialism and self reliance for the period of 1967-1976, transformed the cooperative to the rural development process based on Ujamaa villages. Thus, individuals or groups allowed forming multipurpose cooperative societies. Activities for the multipurpose cooperative ranging from Marketing Agricultural produce, procurement and distribution of inputs and whole sale and retail trade and transportation (Report, 1991). This was followed by the open market policy in 1986, made the Government with support from World Bank and International Monetary fund to undertake the structural and economic adjustment program. This policy had a negative impact in cooperatives such as abolition of price control, elimination of subsidies, liberalization of marketing of agricultural inputs and outputs (Report, 1991). New policy of cooperative development (2002) was the second cooperative policy after that of 1997. The main policy objective includes the availability of sustainable development of members and using cooperative as a tool for achievements. The impact of this policy has been revealed in different aspect including the establishment of cooperatives in other sectors of the economy and make the total number of 5789 cooperatives country wide (SACCOS, 2004). The Cooperative Poverty Reduction policy is performing in line with vision National Strategy for Growth and Reduction of Poverty( NSGRP)commonly known as (MKUKUTA). Cooperatives have been penetrating in rural areas and are involved with agricultural crops and credit and saving activities (Report, 2005). 3. Empirical Review The importance of community organizing in Tanzania revealed longtime before independence. It was in 1925 when the first coffee cooperative known as the Kilimanjaro Native Planters Association (KNPA)

established. Registration of KNPA was done in 1932 when the cooperative ordinance cap (Cap 211) enacted and KNPA split into two and formed one secondary society known as Kilimanjaro Native Cooperative Union (KNCU). Saving and Credit Cooperatives Societies are among cooperative financial institution formed as a grass roots based financial institution. This was introduced as the best ways in building the community financial strength and sustainable cooperatives development. There are more than 1719 SACCOS established country wide with 251531 members who managed to accumulate about Tshs 13.1 billions of share value, 2bilions deposits and 28billions savings. This made cooperative members to finance their activities and improve national productivities, their income, and well-being. Moreover, the government has shown the political commitments and willingness (affirmative action) to support 2002 cooperative policy by strengthening the Cooperative support institutions such as the Moshi University College Cooperative and Business Studies, (MUCCoBS), Cooperative Auditing And Supervision Corporation (COASCO), Tanzania Federation of Cooperation (TFC), Savings and Credit Cooperative Union League of Tanzania (SCCULT). The existence of these Institutions contributes to empower Cooperative membership through acquisition of education, new knowledge and skills, strong saving and credit cooperatives societies and cooperative banks that provide good financial services to members, just to mention few. The importance of SACCOS in Tanzania is crucial. The emerging of SACCOS in rural area has been seen as Mkombozi[1] to community. SACCOA promotes community ownership and empowerment. It is contributing to give voices to community in accessing financial resources needed. Also provides security framework to qualify for bank loans to improve communitys efforts in income generating activities. SACCOS promotes community ownership and peoples voice is the driving force in relation to the cooperative principles. Members have equal right to participate in development of their society. 3.1 Empowerment of SACCOS Members In Tanzania the concept member empowerment in Cooperatives was introduces in the late of 1980s and early 1990s with an objective to facilitate participation and involvement in decision making pertaining to their own social and economic development using cooperative organization as a tool with the ultimate goal of creating wealth and reducing poverty. It is revealed that, with members empowerment, knowledge skills and experience is shared in the process of problem identification, planning, implementation, monitoring and evaluation of the cooperative activities in a participatory manner (MCM, 2001).

However, to date the involvement and participation of members in SACCOS affairs is still weak. This was observes in Kimara Ward during participatory assessment where by many SACCOS are experiencing deterioration of membership due to inadequate skill, knowledge and experience. 3.2 Sustainability of SACCOS SACCOS as a grass root based financial aimed to be an effective financial intermediaries. In Tanzanian context it has been established through some studies that, the SACCOS potentiality of SACCOS as a financial intermediaries has not been optimized due to lack of innovation of production, law capital formation (depending much in equity financing which is not a permanent capital) and financing methodologies. This has been among the factors that contribute to hinder members / customers needs and expectation as a result of unsustainable SACCOS. Other factors that contribute to poor sustainability of SACCOS include weak internal control system; inadequate Human resources, unsustainable interest rates, inadequate knowledge on microfinance best practices just to mention few. One of the best practices of SACCOC Chambasho SACCOS is among the example of well performing SACCOS in Kongwa district-Dodoma Region. However many other SACCOS formed through DUNDULIZA[2] /DID[3] model, in Tanzania. Chambasho is an example from the field, in Hogoro ward, and was formed in 2001 and legally registered in 2003. it is one of the more successful SACCOS in regards to rural finance schemes. By August 2004, the SACCOS had 312 members and 33% of them are Women and mobilized capital of Tsh. 12 Million. Chambasho received a first loan from CRDB[4] of Tsh. 10 million (10months, 1% per month). In February 2004, the outstanding loan portfolio was Tsh. 20 million to 266 members (62% Women), the majority for agricultural investments (8months bullet loan, interest 2.5% per month). So far repayment has been 100%. Deposits earn 4% per year. The SACCOS is located in the maize belt of Dodoma Region, and only 40km from the region maize market. It is making a substantial contribution in providing access to financial resources for Maize Farmers and hence underlines the link with AMCOS in the area. In addition, Chambasho SACCOS is helping her members in the way that allow them to access soft loans, e.g. in 2003 was recorded as poor season due to drought, hence the small contribution members had made, helped them to invest again (through borrowing) at reasonable rates. Before they have to resort

to the moneylender, where one bag of maize borrowed had to be repaid with two bags. Finally factors behind the Chambasho SACCOS success story are as follows; Identification of problem is the starting point. The bank services seem not to be a goal in itself, but just a means to solve problems in the community. This brought people together- concept of solidarity affected. The concept of self-help and aspect of voluntarism are well understood in the community. Every one needs a development spirit and long-term vision, without expecting short-term (personal) gains. The elected leaders are committed to this principle. Involvement of different groups: farmers, business people and livestock keepers. Transparency from the beginning: about meetings, progress and performance reports. Lessons learnt from a nearby ward a successful SACCO that had been operating for some time and provided an inspiring. 4. Challenges Policy changes over time have been a challenge to many people to join or formulate SACCOS. For instance in 1976, the cooperative society were dissolved and replaced Ujamaa Villages. Again in 1982 1990 the government replaces the Ujamaaa Village by mixing coops and politics. This was followed by introduction of Rochdale Model of cooperatives in the period of 1991-97. Another challenge is the weak leadership, limited member participation and domination of political rather than business considerations. In order to get out of the current situation it is recommended to focus on the development of capability of cooperative members to take the lead in the operations of SACCOS. Empowered members must show the qualities of full participation and involvement in cooperative activities such as decision making, planning and control; changed behavior and altitude (mind set); commercial minded or business oriented as well as self initiative, innovativeness and transparency.

5. Lesson learnt and Conclusion Empowerment of members and SACCOS promotes sharing knowledge skills and experience in the process of problem identification, planning, implementation, monitoring and evaluation of the cooperative activities in a participatory manner. This will enable power sharing with the ordinary members in order to build confidence and ability to manage economic activities and cooperatives. The importance of SACCOS in Tanzania is crucial. The emerging of SACCOS in rural area has been seen as Mkombozi[5] to community. SACCOA promotes community ownership and empowerment. It is contributing to give voices to community in accessing financial resources needed. Also provides security

framework to qualify for bank loans to improve communitys efforts in income generating activities. Sustainability of SACCOS is underlined to improve the operational performance of SACCOS to meet customer needs.

[1] Mkombozi as Swahili ward that refers to a server or a solution to financial barriers to farmers. [2] DUNDULIZA is a company limited by shares registered in 2004. Currently, 60% of shares are owned by Financial Services and Development Association (FISEDA) and $)% DID. It works with 28 SACCOS in Songea, Mwanza and Dar es Salaam. [3] DID refer to Desjardins International Development, which own 40% of DUNDULIZA Company LTD Shares. [4] Cooperatives and Rural Development Bank, Tanzania LTD. [5] Mkombozi as Swahili ward that refers to a server or a solution to financial barriers to farmers.