Co-operative village banks (SACCOS): key players to poverty alleviation

By  Odeng Julius 

Borrowing a leaf from history

“WHEN YOU HELP OTHERS YOU HELP YOUR SELF’’    Friedrich Wilhelm Raiffeisen

Friedrich Wilhelm Raiffeisen was neither a hero nor a revolutionary, but virtually every village or town in Austria has a Raiffeisen Square or Raiffeisen Street. Then you ask yourself why?

In the second half of the 19th century, amidst reforms, farmers were in severe need of the means to develop. No support was available from the government or private lenders, whose interest rates were extremely high due to the risks and operational expenses related to small-scale loans.

Friedrich Raiffeisen knew poverty first hand. He was born on March 30, 1818 in the German province of Westfalia in the small town of Hamm into the family of a local farmer. The boy's godfather, a priest, helped him receive primary schooling in preparation for a military career. Early in 1842, however, he fell seriously ill, and his eyesight was impaired. Like many other towns in Central Europe Weiherbusch lived in poverty. Farmers and craftsmen lacked means to live, and Raiffeisen understood their problems. He was aware of the various Utopian theories prevalent at the time, but saw them as little more than “wind and smoke”.

In 1847 Raiffeisen used his modest means and donations from the wealthy to create loan societies to help his impoverished compatriots. It soon became obvious, however, that an organization intended to support its members could not succeed on the basis of charitable contributions alone.

Raiffeisen felt the organization should instead be based on the principle of mutual aid among its members, and this idea became the foundation of agricultural cooperatives: “Those in need must not rely on private donations or government support, but must help themselves and others by creating cooperatives and unions, which would also give them the opportunity to sell their products on more favorable terms and compete in the market.”

Raiffeisen founded the first credit union in 1846, providing banking services to members, helping people consolidate their savings, and granting loans to members on reasonable terms.

In relation to these context

Lessons to learn

·         When the community members organize themselves in to a cooperative society, they obtain cheap capital and be able to bargain for their products prices at reasonable terms through their society for the case of agricultural societies thereby raising their hopes and standards of living.

·         Because of the success of the Cooperative village banks, deposits attracted from regular salary earners would make the villages and their members’ independent from the money lenders who always charge higher interest rates on their loans.

·         Members would obtain small scale loans from their societies at reasonable terms instead of relying on money lenders who charge exorbitant interest rates on their loans.

 
How the Co-operative Village Banks can succeed

·         The Co-operative village banks should be open to all people of good character and living in a single village where mutual knowledge and confidence is essential.

·         The management should be in the hands of the members through small committees and supervisory committees should be set to monitor how the loans are utilized.

·         Profits if any should not be distributed at the early years of the banks operation but be put in a reserve fund in order to create a fund from which future loans should be made.

·         Loans must be given only for productive purposes.

Securities for a members loan should be provided by two other members who should agree to pay in case the borrower failed.   Lecturer Uganda Co-operative College Kigumba

The writer is a lecturer Uganda Co-operative College Kigumba