Lack of law hinders SACCOs growth
Dec 30, 2010
THE rural poor ended the year with a $27m (about sh62.6b)seed loan geared at increasing access to cheap loans to raise income and alleviate household poverty
By Ibrahim Kasita
THE rural poor ended the year with a $27m (about sh62.6b)seed loan geared at increasing access to cheap loans to raise income and alleviate household poverty
The money, which is part of the rural income and employment enhancement project, will be used to provide loans and training to enhance skills and business development services.
This is expected to boost business growth, bring high return on capital and increase household incomes for the rural population.
“The strategy is hinged on the intervention cycle, which emphasises saving, credit and investment in productive activities to improve production and add value, plus market access,†Ruth Nankabirwa, the state minister for microfinance, explained.
To access the money, individuals must belong to an established savings and credit co-operative society (SACCO).
The SACCO must be registered, with defined areas of operation, clear ownership and governance structure and should have products for on-ward lending.
The Government raised the money from the African Development Bank and the Islamic Development Bank through the Microfinance Support Centre.
The project comprises of financial services and institutional development services.
Under the financial services component, an estimated 1.4 million rural clients, of whom 50% are women, will be reached. About 2,934 loans will be disbursed through financial intermediaries.
The component on institutional and business development services will strengthen the capacity of 1,000 intermediaries and provide business skills to 3,000 staff.
However, the SACCOs sector ended the year still operating in an unregulated environment. A draft Bill on the sector was submitted to Parliament two years ago, but it is yet to be passed, exposing depositors to fraud.
The co-operatives, formed and run on voluntary basis, enable members to save money and access cheap loans. They are not regulated by the Central Bank, giving unscrupulous firms a leeway to steal client’s savings. Micro-finance institutions and SACCOs have since 2007 had an image problem after fake ones ripped-off clients.
Most SACCOs were set up after unveiling the Prosperity-for-All programme. Under the programme, there should be at least one SACCO in every sub-county. Where they existed, they were strengthened.
Need for the SACCO laws
However, in many sub-counties, there are many SACCOs, each claiming to be the legitimate one. The situation is made worse by absence of neither laws nor a regulator.
“We need a good regulator for the over 1,000 micro-finance institutions. The law is not intended to choke the institutions, but guide and monitor them,†Nankabirwa, said.
This will be under tier four of the financial sector, which includes non-deposit-taking micro-finance institutions, micro-finance NGOs and privately-owned lending institutions.
Regulating the sector will encourage more people to use its services and protect clients.
“Having a specific law to regulate SACCOs will give confidence to the masses,†Nankabirwa said.
However, experts argue that while access to financial services was vital, it cannot, on its own, ensure positive and sustainable improvement of the lives of the rural population.
There is need to enact laws to guide the operations of the micro-finance institutions. Areas to be regulated should include financial operations, lending norms, capital adequacy standards, and liquidity levels.
Regulating the micro-finance sector will encourage more people to use its services and protect clients.
“One area that will give confidence to the masses is to have a law under which all micro-finance institutions can be regulated and supervised,†Nankabirwa said.
However, experts argue that while access to financial services was important, it cannot, on its own, ensure positive and sustainable improvement in the lives of the rural population.
They insist that it is important to provide skills for managing the enterprises, a good road network to facilitate marketing of produce and information on markets, prices and opportunities.
THE rural poor ended the year with a $27m (about sh62.6b)seed loan geared at increasing access to cheap loans to raise income and alleviate household poverty
The money, which is part of the rural income and employment enhancement project, will be used to provide loans and training to enhance skills and business development services.
This is expected to boost business growth, bring high return on capital and increase household incomes for the rural population.
“The strategy is hinged on the intervention cycle, which emphasises saving, credit and investment in productive activities to improve production and add value, plus market access,†Ruth Nankabirwa, the state minister for microfinance, explained.
To access the money, individuals must belong to an established savings and credit co-operative society (SACCO).
The SACCO must be registered, with defined areas of operation, clear ownership and governance structure and should have products for on-ward lending.
The Government raised the money from the African Development Bank and the Islamic Development Bank through the Microfinance Support Centre.
The project comprises of financial services and institutional development services.
Under the financial services component, an estimated 1.4 million rural clients, of whom 50% are women, will be reached. About 2,934 loans will be disbursed through financial intermediaries.
The component on institutional and business development services will strengthen the capacity of 1,000 intermediaries and provide business skills to 3,000 staff.
However, the SACCOs sector ended the year still operating in an unregulated environment. A draft Bill on the sector was submitted to Parliament two years ago, but it is yet to be passed, exposing depositors to fraud.
The co-operatives, formed and run on voluntary basis, enable members to save money and access cheap loans. They are not regulated by the Central Bank, giving unscrupulous firms a leeway to steal client’s savings. Micro-finance institutions and SACCOs have since 2007 had an image problem after fake ones ripped-off clients.
Most SACCOs were set up after unveiling the Prosperity-for-All programme. Under the programme, there should be at least one SACCO in every sub-county. Where they existed, they were strengthened.
Need for the SACCO laws
However, in many sub-counties, there are many SACCOs, each claiming to be the legitimate one. The situation is made worse by absence of neither laws nor a regulator.
“We need a good regulator for the over 1,000 micro-finance institutions. The law is not intended to choke the institutions, but guide and monitor them,†Nankabirwa, said.
This will be under tier four of the financial sector, which includes non-deposit-taking micro-finance institutions, micro-finance NGOs and privately-owned lending institutions.
Regulating the sector will encourage more people to use its services and protect clients.
“Having a specific law to regulate SACCOs will give confidence to the masses,†Nankabirwa said.
However, experts argue that while access to financial services was vital, it cannot, on its own, ensure positive and sustainable improvement of the lives of the rural population.
There is need to enact laws to guide the operations of the micro-finance institutions. Areas to be regulated should include financial operations, lending norms, capital adequacy standards, and liquidity levels.
Regulating the micro-finance sector will encourage more people to use its services and protect clients.
“One area that will give confidence to the masses is to have a law under which all micro-finance institutions can be regulated and supervised,†Nankabirwa said.
However, experts argue that while access to financial services was important, it cannot, on its own, ensure positive and sustainable improvement in the lives of the rural population.
They insist that it is important to provide skills for managing the enterprises, a good road network to facilitate marketing of produce and information on markets, prices and opportunities.