1.

0 Discuss the role of Sacco’s as a model for organization and management of financial
services in Uganda today

Introduction
The SACCOs are legal binding group based cooperative financial institutions, where members
can save money and access loans, with an aim of fighting poverty. There are over 5000 SACCOs
in Uganda and many of which have received funding from government through government
agencies and partners. In the last decade government has encouraged formation of SACCOS.
This has enabled increased outreach and access to financial services especially in rural areas.
Below are reasons why SACCOs are considered as models for organization and management of
financial services in Uganda today:-

Employment opportunities

Over the past years, a lot has been discussed in regard to Uganda’s alarming problem of youth
unemployment. The government has been observed by a great majority to be working to
eradicate this problem through programmes like Bonna Bagagawale also known as prosperity for
all and the youth fund, among others. However, none of these achieved its objectives. Uganda
today with an increased number of community-based initiatives like Savings and Credit
Cooperative Organisations (Saccos), especially after the demise of the popular cooperatives in
the early 1990s.has been in position to enable especially the youth obtain funds for investing in
their various SMEs projects.by doing this Saccos have enabled the youth gain the requisite skills
in financial management for the betterment of their lives and hence total inclusion in their
various communities since everyone has an equal chance of joining and saving as long as they
can meet the “minimal” and affordable requirements. The above on top of fostering the
development of savings and credit cooperatives for the purpose of improving their internal
operations.

Economic Development

Its common knowledge that improving one’s economic status requires the ability to earn income,
to spend it wisely, to save part of it for the future benefit and to have access to credit in order to
move into a productive or income generating activity (Kabuga et al 2015).The Ugandan
Government recognizes that the pace of growth of SACCOs has been slow, especially in rural
areas where most have been established in urban areas and work places. To improve this
situation, government has encouraged development of SACCOs in all rural areas to
strengthen people’s capital base and hence development (Kanyike, 2015).These SACCOs have
had rules on interest rates, loan terms, loan security and default rules, this plays an important
part as people access the services of SACCOs. Uganda Federation of Cooperatives (2016),
found out that Cooperatives like Saccos differ from other forms of business in that they are
member centered as contrasted to companies where capital is at the center in order to earn
profits. Through pooling resources, members are able to put up infrastructure for
production, agro-processing and marketing for example establishment of ginneries,
processing plants, dairy products processing and for a well-functioning cooperative
organization, at least two people are employed directly and many others indirectly through
various trades facilitated by a cooperative this helps not only in transparency but also in
management of the Sacco affairs .this suggests that Saccos as a model for economic development
through their varied activities are in many countries significant social and economic actors
in national economies thus making not only personal development a reality but,
contributing to the wellbeing of the entire humanity at the national level.

Production and productivity enhancement

Funds accrued from Saccos play an important role in delivery of agricultural inputs in rural
Uganda given the fact that they are easily accessed by the producers. Many Saccos in Uganda
started as Non-Governmental Organizations with missions and objectives for poverty
eradication, social development and economic development of poor communities after the 1986
liberation war. In general terms, Saccos operated outside the regulatory framework of Financial
Institutions Statute 1999, though they provided both savings and credit services. Some Saccos
were mobilizing client deposits either as part of their lending methodology (compulsory
savings linked to loans) or for safe custody which they kept on their bank accounts with
commercial banks.

This excellent organisation has led to the rapid development of the Saccos and as a result the
central Bank of Uganda is not worried about the safety of public savings being intermediated by
the unregulated informal financial sector. In most Saccos, its reported that female programs and
group based with the characteristic of having small loan size and short loan term show that,
based on a general equilibrium model of the economy, the expansion of access to the financial
sector has significantly raised Uganda’s growth rate. The efficiency and productivity losses
associated with preferential access to finance by the better off, and suggest a potential
first-order effect of access on investment and growth. it is also found out that a strong
positive effect on rural poverty, using a "natural experiment" of new branching
regulations in Uganda that incentivized Saccos to expand into underserved areas

Social and legal barriers

Saccos go a long way in removing social and legal barriers to income growth among the people.
Various studies, Yunus M. B., 2004, Paxton, 1996 and Gine, 2004, agree that there is an impact
of savings on the lives of the poor, but studies finds evidence that savings accounts help the
poor save up and invest in their future as well as withstand emergency needs for cash without
depleting their other assets, such as business inventory. Once given saving accounts,women
invest a huge percentage of their money in their businesses (mostly in inventory) than women
who are not given accounts and hence they are more prone to sell business assets to deal with
health emergencies (Jake, 2016).

SACCOs aim at improving access of the poor to saving services to make them bankable clients
and to promote savings mobilization among the poor through self-help groups. This is done
in order to help them reduce their vulnerability by enhancing their individual and household
incomes, improving their standards of living, empowering and improving household health
(Jake, 2016). On contribution to empowerment especially self-help groups and other savings
based community groups offer to members the pride of ownership and autonomy. Despite
the self-help groups being given training and support from Non-Governmental
Organizations, the majority of even externally supported groups rely primarily on members
savings for their capital instead of external capital as most banks or solidarity groups do. Savings
based approaches that rely on minimal external support charge lower interest rates hence
enabling individual have the ability to repay the acquired loans and hence legally empowering
this makes individuals to be socially participative in communities.

Empowerment benefits
The empowerment benefits derived from SACCOs are often partially offset, by weaker
economic empowerment benefits. By depending on the savings of the SACCO members ‘since
the people’s capital is limited than it would be with external support, which in turn limits the
growth potential of members ‘enterprises and income. In Uganda, SACCOs reward poor savers
and good severs at the same rate; that is a little interest rest rate is paid regardless of average
balances and this discourages those that would be willing to save more and for longer
periods (Thomas ,2017).Production and growth that relates to the effect of access to credit on
savings (the capital in this case) , the level of savings is an important determinant of the
overall level of investment in an economy, and thus is directly linked to growth both at
household level and national level. Most SACCOs in Uganda offer only one type of loan a 3:1 or
5:1 multiple of a member’s savings balance, with no variations to risk levels (borrower
repayment capacity, type of activity financed etc.).These loans to some extent are flexible
enough to meet member’s unlimited credit needs, including short-term working capital for
small businesses and agricultural inputs for small-holder farmers.

Funds for investments

Investment can be defined as the active redirection of resources by an economic entity (e.g. an
individual or a firm) from being used today to creating benefits in the future. Every individual
hope in investment is one aim that the investment will yield greater benefits in future than would
accrue by consuming those resources today. The investment may take the form of savings, of a
financial instrument (e.g. an equity investment), of physical capital (e.g. a new tool or piece of
equipment that improves productivity such as agricultural machinery), or of human capital (e.g.
education).

(Micro, (2009).) identifies that the government of Uganda in 2009 set aside the equivalent
of USD 133.7 million for subsidized loans to individuals and small businesses through the
government-owned Microfinance Support Center (MSC) to Savings and Credit
Cooperative Societies (SACCOS). The position of SACCOS in Uganda was heightened by the
launch of the government “Bonna Bagaggawale” in 2007 (“Prosperity for All”) program
intended among other interventions to address inadequate access to financial services.
Upon its inception this program aided farmers and research by the Ministry of Finance and
Economic Development indicated that market rates to borrowers (Karen Ellis, 2010).
It’s argued that lack of adequate access to credit for the poor has a negative consequence for
various household level outcomes including technology adoption, SMEs profitability, food
security, nutrition, health and overall welfare (Diagne and Zeller, 2001). Access to credit
therefore affects welfare outcomes by alleviating the capital constraints especially on the
upcoming SMEs. This enables entrepreneurs with limited or no savings to acquire capital. This
reduces the opportunity costs of capital intensive assets relative to family labor, thus encouraging
the adoption of labor-saving, higher-yielding technologies and therefore increasing capital and
SMEs profitability.

Directed priorities in borrowing

Its common knowledge that in Ugandans borrow and save for a range of investment purposes,
even in the poorest groups. Rural inhabitants save and borrow more for agricultural investments,
while urban inhabitants tend to save and borrow more for other purposes. This efforts and
priority in borrowing depends on quite a number of demographic factors like, sex, education,
responsibilities and age. For example, if you are to compare women and men Ugandan men and
women exhibit very similar patterns of behavior in terms of saving and borrowing for investment
purposes, (Kondo, 2010).

Increased and business knowledge

All SACCOs depend on savings from individuals and its quite a risk to lend some one such
amount of money hence most SACCOs make it a point to train the borrowers to avoid tendencies
of bad debts. This accompanied with excellent SACCOS governance mechanisms increases the
business knowledge about the business by borrowers and priority investment. Labie,(2008)
highlight the major challenges to corporate governance in SACCOS as existence of
volunteer board of directors, Limited individual influence despite the “one person, one vote”
decision-making system and Volunteer staff Although the financial results of most SACCOS
do not seem very alarming, several issues might put their financial sustainability at risk
in the future.
Due to the enormous demand for financial products especially in Ugandan rural areas (in
particular loan products), the SACCO sector in rural Ugandan communities as a whole is
growing considerably (Kanyike, 2015). However, the growth pattern of many SACCOS in
Uganda seems uneven since they have difficulties to attract savings deposits from their members
for investment or development. The insurance on the Loans helps in the loan recovery for
incidences of death of a member until the outstanding balance is settled. SACCOS do insure
loans for their clients. This also encourages regular social interaction between members since
some banks are unwilling to lend to the poor because their access to property is limited
and they also have fewer sources of collateral security. While SACCOs and credit unions
have distinct advantages to banks regarding access, they face challenges which banks would not
normally encounter.

Credit increases employment at the household level and thereby alleviates poverty. Credit
enables poor people overcome their liquidity constraints and undertake some investments,
especially in improved farm technology and inputs, thereby leading to increased agricultural
production. Christopher Barrett et al (2006).

Furthermore this business knowledge helps poor people to smooth out their consumption patterns
during the lean periods of the year Khandker, (2018). By so doing the credit obtained maintains
the productive capacity of poor households. World Bank (2001), also observed that improved
consumption is an investment in the profitability of the labour force.

Improved welfare of members

The professed goal of every Sacco in Uganda is to improve the welfare of the poor as a result of
better access to small loans.

Financial sustainability is a measures of the extent to which the SACCO covers its operational
and financial costs from internally generated revenues (interests and commissions). SACCOs
with higher repayment rates are more likely to be financially sustainable Mutabazi (2013).
SACCOs with financial sustainability and viable outreach have a greater likelihood of having a
positive impact on poverty alleviation. This is true because they guarantee sustainable access to
credit by the poor (Chambers, 2012).
Chambers, ( 2012), argues that in order to overcome poverty the poor households must help
themselves and SACCOs are set up to create and increase financial services accessibility to poor
households to either eradicate poverty or slow it down (Ashe, 2010). Poor households are
trapped and the only option is to come together and create SACCOs which are highly adaptable,
easily accessible and very flexible with a form of insurance, to help them access financial
services to cater for basic needs like children’s education, health care and rebuild social
networks. The example above has identified Saccos as one of the best model in enhancing
agricultural and non-agricultural productivity in rural areas of Uganda through trade in large
volumes of inputs, engagement in the distribution of farming puts(Kanyike ,2016).

However on the other hand access to credit in addition increases the poor households’ risk
bearing ability. Due to this households have to improves their risk coping strategies and enables
consumption smoothing over time. By so doing, SACCO is argued to improve the welfare of the
poor Christopher Barrett et al (2006).

Mobilizing savings

SACCOs are known for providing useful sums of money to the poor households to start income
generating activities and or improve their businesses. In most cases revenues generated is used to
pay back the loan, cater for household basic needs and general improvement of people’s living
conditions. Loans from Saccos help individual members to manage their life cycle events such as
education, marriage, birth and home making; widowhood, old age and death (Mutesasira, 2001).

Research from Micro save Africa (2011), indicated that the value of Human Development index
for Uganda has been increasing at average rate of 6.3% per annum from the 1990s due to an
increased availability of community based Saccos services for the poor households. In Uganda,
Farmers Saccos are initiative of an informal savings and credit system in most districts has
contributed greatly to improving the people’s standard of living.

According to AKyogabirwe, (2017) , people access credit facilities from Saccos and improved
their farms, started small enterprises and other income generating projects. As a result, these
people are able to buy most household necessities, which they used not to have. Based on
experience, women generally are very responsible and are affected by social forces. When the
income of women is increased, the effect is noticed throughout the household and to the
community than when that same amount is increased to a man. They also have a high
repayment loan and savings rate than their male counterparts (Ledgerwood. , 2009).

Education of the poverty financial management

The major objective of a Sacco is to fight and eradicate poverty (Mbonigaba,2012).Sacco’s

have empowered the poor who make up a significant proportion of the population and to develop
the overall financial system of the country through integration of financial markets (Okurut
et al 2004).In Uganda today Saccos thrive on the assumption that by providing saving
services to the poor are able to acquire assets, business skills and creation of self-
employment by establishing micro enterprises. It is common knowledge that Saccos as a model
for financial management aim at improving access of the poor to savings services hence
make them bankable clients and to promote savings mobilization among the poor. This is
achieved through self-help groups in order to help them reduce their vulnerability by
enhancing their individual and household incomes (Jake,2016). This improves the standards
of living, empowering and improving household health. Hence Saccos Develop and conduct
education and training programmes to educate savings and credit cooperatives in proper
methods, procedures and principles of safe and sound operations. The Ministry of Finance And
economic Development (MoFED) offers trainings to SACCOs elected representatives, staff,
members and study groups. The trainings are carried out both onsite and offsite (at SACCO
premises and in workshops).

Saving culture

Ssemogere, (2015), Argues that Poverty is measured by the proportion of population living
below the poverty line, is observed to be declining over time in Uganda and Kampala district in
particular. The percentage of the poor people living below the poverty line fell from 56% in 1992
to 44% in 1997 and 35% in 2000 but rose to 38% in 2002 . Poverty in Uganda is mainly urban
slum and rural phenomenon, with 96% of the poor living in rural areas in 2000. To reduce the
rural – urban considered being an essential in put to increase small scale enterprises. It is
believed that credit boosts income levels income gap (inequality) , the poverty eradication action
plan (PEAP) emphasis among other things the strategic improvement of access to credit by the
poor through the savings and credit cooperatives. Saccos encourage saving within the respective
communities in which they operate (Mbwana , and Mwakujonga,2013).

Ugandan SACCOs promote saving culture amongst their members and this is crucial
because increased savings lead to increased capital accumulation. This leads to increased
investment that also leads to employment that ultimately generates income for economic
development. These SACCOs have in significant ways stepped in at times when the banks
are reluctant to give financial help to businessmen. As compared to the past when Banks
considered micro finance being unbankable, banks are now targeting using micro finance
programmes through the same cooperative institutions. This process has brought to light and
harnessed the problems facing people who want to access loans for business (Atwongyeire,
2010).
 REFERENCES

Atwongyeire R, (2010): The contribution of cooperative savings and credit society towards
development of small scale business.

Beck, T. B. (2008). “Who Gets the Credit? And does it Matter? Household vs. Firm Lending across
Countries”,.World Bank.

Chambers, R. (2012); Sustainable Rural Livelihoods: Practical Concepts for the 21st century, IDS
Discussion Paper No. 296, Brighton: Institute of Development Studies, University of Sussex.

Dr. John’s. E. Mutabazi (2013); Research Methods, 1 st Edition, Makerere University. Kampala (U)field:
Kumarian Press.

Gine, J (2004) Money Talks: Conversations with Poor Household in Bangladesh about Managing
Money.Vol. 5, No. 2 Journal of Microfinance: Brigham Young University Publications.

Gine, X. &. (2004). Evaluation of financial liberalization. Macroeconomic Policies and Poverty
Reduction. 188.

Jake Kendall, (2016). Improving People’s Lives through Savings.global savings forum .

Kabuga, C. &. (1995). Development Through Mutual Self-help Co-operatives: Past, Present, and
Future.Uganda Co-operative Alliance.

Kanyike T, (2015). Microfinance and Women’s Economic Empowerment Wisconsin

Coordinating Council on Nicaragua, Working Paper, Series No. 1, Spring, 2015.

Khandakar, Q., E. Danopoulos and P. Constantine. (2018). “Political and Military Sociology”. Retrieved
from Find articles webiste: http://thefindarticle.com

Kondo, T. O. (2012). “Impact of Microfinance in Rural Households in the Phillipines.” . International

Conference held at Nkozi University.Kampala: UMU press.

Labie, M. (2008). Corporate Governance in Microfinance: Credit Unions, Center for European Research
in Microfinance. .Brussels, Belgium: Solvay Business School.

Mbonigaba,T (2012): Attacking Poverty, World Development Report Washington, D.C.

Mutesasira L, (1999); Microsave Africa, Promoting Secure Savings for the Poor : The East African
Regional Proposal, Micro Save-Africa.

Nassazi, N. (2013). Effects of training on Employee performance: Evidence from Uganda, Dissertation.
Vaasan Ammattikorkeakoulu.University of Applied Science.

Okurut J. Solow, R.,Justus Kamedde ( 2004). “A Contribution to the Theory of Economic Growth”,.
Quarterly Journal of Economics, 65-94.

Paxton A, (1996). Microfinance Handbook: An Institutional and Financial Perspective,.Washington,

D.C., : World Bank.

Paxton, w. (1996). A Worldwide Inventory of Microfinance.World Bank .

Ssemogerere, Germina (2015): Improving Micro Finance Services through Impact Assessment Systems:
Scope for Extension, Local Application and Cost-effectiveness of the Impact Assessment Tools’,

Yunus M. B., (2004): Economic Development, 6th (edn.). Third Impression: New York.