Is it viable for government to invest in SACCOs?
In a paper entitled Assessing the Sustainability of Savings and Credit Cooperatives in Uganda by Markus Distler and Daniel Schmidt, Savings and Credit Cooperatives (SACCOs) are defined as member-based institutions, that intermediate savings into loans which are usually rather small, independent financial institutions . Their level of operation is to collect saving from their members and turn them into loans to their members.
Despite the high potential to mobilize savings among low income people in Uganda, many of them rely on informal – often insecure – ways of saving, such as saving circles or hiding money under the mattress . Therefore the major role of SACCOs is to enable the rural and poor population deposit savings as well as to take out loans; a good way to improve the saving culture.
25 September, 2014, saw the approval of a loan request by government to borrow US $29,336,000 from the International Fund for Agricultural Development (IFAD) for financing the Programme for Financial Inclusion In Rural Areas (PROFIRA) with an aim of sustainably increasing access to and use of financial services by the rural population through strengthening and sustaining the existing SACCOs; expanding community-based financial services by using what is commonly referred to as Village Savings and Loan Association; by establishing more new ones (15,000 groups) as well as establishing a policy, regulatory and institutional environment to provide a smooth regulation of the SACCOs sector in the country.
This funding comes as a continuation of the Government’s Rural Financial Service Strategy that was initiated in 2006, aiming at establishing SACCOs in every Sub-county of Uganda in order to improve access to financial services in rural areas.
While presenting the National Economy Committee report on the loan request, Xavier Kyooma MP Ibanda North acknowledged the importance of the loan request in propelling economic growth of the country, however he also noted the absence of a legal framework referred to as “Tier IV Bill” to regulate the sector leaving a legislative vacuum and it imposes a risk to sustainability of the project. It is also a raw deal being given to tax payers by the government.
The report also noted that the Auditor General’s report for the year ended 30 June 2012, faulted government for not utilizing the New Partnership for Africa’s Development loan for the Rural Finance Services Programme which aimed at building the capacity of SACCOs in the country.
In response to the committee report, Goefrey Ekanya, Shadow Minister for Finance noted that for the last ten years Parliament has asked for a law on Tier IV. As he voiced his concern, he further gave an account of SACCO related interventions made by government. He said it wasn’t the first time Parliament was approving a loan for strengthening rural financial services, there was Program for Alleviation of Poverty and the Social Costs of Adjustment and the auditors, Price Water house Coopers generated a very condemning report on the project. He went ahead to cite other examples like the farmers’ forum under the Uganda Commercial Bank, a loan from the African Development Bank for Rural Financial Services Strengthening Programme and another from Arab Development Bank, all with the same problem. The money was exhausted yet still the Auditor-General wrote a condemning report emphasizing loss of money and nothing on the ground.
Looking at the components; the SACCO Strengthening and Sustainability projects is $12.57m; Community-Based Financial Services is $11.42 million; Policy and Institutional Support and Project Management is $31.982 million exclusion of the contingency which is highlighted at a tune $5.347 million. The committee only touched on 17 % of contingencies and reduced it to 10 % so that the balance goes to groups and SACCOS.
This means that most of the resources are to be spent on capacity building under the component of Policy and Institutional Support and Project Management and it will be consumed in workshops. And just reminder, of recent the same government stopped capacity building under National Agricultural Advisory Services claiming wastage of resources and it adopted a Single Spine system but now under SACCOs, it’s returning to capacity building. Though parliament tried to re-adjust the allocations we have been often reminded on many occasions that the recommendations of the House are merely advisory.
The main reason SACCOs are failing in Uganda is because they have no legal setting and therefore cannot sue to recover what they have lent. To emphasize the need for the law, Femiar Wadada Woman MP, Sironko District informed the House during the debate on the matter that in the courts of law, she said, “You cannot prosecute anyone for having misused the monies of the SACCO. We moved around the country with the minister here but every SACCO we went to said: ‘Not Government money, first help us and get the law’, even the Rt. Hon Speaker, Kadaga added: “I think it is either fortunate or unfortunate that I have been here for a long time and we have been urging the Government to bring this law since the Seventh Parliament. Yes, every Parliament has been told the matter is in Cabinet. Why is the Government disinterested in this law?”
Despite the Members of Parliament demand for the law to regulate the sector, they turned around and approved the loan request on a condition that government was going to table the bill within three months since then it has not been tabled- maybe we are still in range of three months
It also important to note that it’s not viable to talk about saving and ignore production in the agricultural sector since Uganda is more of a peasant economy, the mere fact that the funding is coming from the IFAD. It could have been appropriate for the loan to be injected in credit financing of small scale farmers or even revitalizing the Farmers Cooperative Unions because farmers have been cheated by the middle men. This would enable peasants to generate more income which they would in turn use for saving.
This particular intervention would have been appropriate if it was directed towards ventures with full established legal, policy and structural frameworks. But now that it went that way, we just need to give it time and keep our ears and eyes on the ground. Hopefully this time the Auditor General will not generate a condemning report.