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.