With virtually all rural savings and credit cooperative organisations (SACCOs) collapsed save for a few limping ones, there is urgent need for review of government strategy in this regard. In many parts of the country, SACCOs have become convenient vehicles to get free money to use without accountability let alone return to benefit others.
SACCOs are microfinance institutions that broadly fall under the Ministry of Finance, Planning and Economic Development (MoFPED). They offer not only small loans to microenterprises, SMEs, groups and individuals but also provide other financial services like savings, insurance, and investment advice including offering training programmes to their clients.
In Uganda both the SACCOs and the microfinance institutions operate side by side thanks to the country’s` policies that are intelligently designed, but have a problem when it comes to implementation.
Government has created an enabling environment to help establishment of SACCOs as a way reducing household poverty levels. The idea is to encourage develop a culture of saving in the population, enable access to cheap affordable credit and help boost production.
Regrettably, SACCOs that were set up at subcounty level all over the country and meant to catalyse development in the communities have failed to take off. A good number have lost all the money they were given to defaulters and even closed shop. Government through the Micro Finance Suport Centre has been lending Saccos money at an interest rate of 9% per annum which the community then borrows from its local SACCO for agricultural activities or business at interest rates of 9% and 13% respectively.
Globally, microcredit programmes have proved effective and beneficial as they have successfully contributed to lifting people out of poverty in many countries around the world.
In his speech launching the Year of Microcredit in 2004, former UN Secretary General Kofi Annan emphasized that sustained access to microcredit had contributed to poverty reduction by generating income and employment, enabling children to attend school and families to receive medical care. It also offered individuals the opportunity to make more informed decisions.
Despite the laudable good intentions of government to provide an infrastructure to enable the poor access financial services without the cumbersome and bureaucratic processes found in the formal financial sector, Saccos have been a big disappointment.
There was not enough mass sensitisation before Saccos were introduced. Qualified personnel in issues related to handling money are lacking partly because many Saccos can not afford to hire them. There are therefore recurrent management problems most visible in poor records and book keeping, poor loan documentation, insufficient risk assessment and internal fraud. Matters are not helped by the fact that these Saccos usually get capital infusion boosts around election time creating the impression that the money is a free donation from the President.
Besides the above mentioned administrative factors, there are other reasons why Saccos are failing. The leading one is lack of transparent leadership. There have been cases where members of Saccos have lost money because leaders just stole it.
Lack of commitment among Sacco members is also a problem. This is evident in failure to pay membership fees, failure to save, and buy shares. Saccos survive on members' shares. This is the money that is used for lending. If members of a Sacco don't actively buy shares, the Sacco can not survive.
There is also the issue of poor or inadequate supervision from the relevant agencies and political interference. Loans are at times taken by technically undeserving unqualified people who eventually fail to pay. Some members borrow and just run away.
If streamlined and made fully functional SACCOs can, without doubt, play a major role in helping our rural communities to get out of poverty. However, a lot remains to be done to realise this dream. To begin with we must address the question of increasing agricultural production and productivity. Saccos make lots of sense when there is a vibrant rural economy and people have to borrow to support increased production and trade not consumption.