CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
In this chapter the research will look at critical analysis of work done by other researchers on the SACCOs. We shall look at the definitions of SACCOs and socio-economic welfare , examine the existing knowledge about SACCOsin relation to the set objectives of the study which are to examine the different types of services that SACCOs offer to Women in Nsangi Subcounty,to establish the Social economic Welfare levels among Women in Nsangi Subcounty,to find out the challenges, hindrances and boundaries faced by Women in accessing SACCO services andto propose best way forward for full utilization of SACCOs on Women Welfare.
2.1 Overview of SACCOs
A SACCO is an acronym for Savings and Credit Co-operative Societies. This is an autonomous association of persons united voluntarily to meet their common economic and social needs through a jointly owned democratically controlled enterprise or business,(Muwanga,2000).A SACCO is a member owned financial cooperative whose primary objective is to mobilize savings and afford member access to loans on competitive terms as a way of enhancing their socio-economic well being. It is an organization owned by people living in one area such as farmers or people working together,(Navajas,2000).A SACCO has common bond namely; community bond and occupational/association bond. Community bond exists when members are resident in a particular locality or neighborhood such as farmers, businessmen and fishermen. It caters for all people within the community. Occupational/association bond is for people employed by the same employer or belonging to the same profession. The common bond ensures that there exists among members as sense of identity, mutual concern, cooperation, loyalty and trust. The common bond protects the SACCO because members know each other. This facilitates efficiency and effectiveness in credit management for the growth of business or farm enterprise and better access to social services like medical and education just to mention a few. Members are the heart of a SACCO and are reasons for the SACCO existence (Ahimbisibwe, 2007).He goes ahead to say SACCOs are forms of cooperative societies whose core business is to encourage thrift and easy access to credit to their members. Savings and Credit Co-operatives play an important role in the socioeconomic development of the people, they provide avenues for members to save regularly and then borrow for productive and welfare purposes. Like any other cooperative organizations are guided by the practices, philosophy, fundamental principles and values of the cooperative movement world over.
SACCOS can be formed by any group of people who either has common bond (like in the case of one employer), or people with similar objectives. Examples of such people are Government employees, employees of government parastatals, teachers, nurses, doctors, traders, mall workers, municipal workers, tax workers, employees of private commercial companies, parliamentarians, hawkers and domestic workers. A SACCO is one of a cooperative society whose business is to provide financial services to its members. SACCOs are legal institutions registered under the cooperative laws (1991 Cooperatives Act and 1992 cooperative Regulations). SACCOs are owned by their members through payment of share capital and membership fees to the institution. It is also a democratic, unique member driven, self-help, not for profit financial cooperative. It is owned and governed by members who have the same common bond. A SACCO membership is open to all that belong to a group, regardless of race, religion, colour, creed, and gender or job status. These members agree to save their money together in the SACCO and to make loans to one another at reasonable rates of interest. (Kabuga and Batarinyebwa, 1995).
Savings and credit cooperatives (SACCOs) are user – owned financial intermediaries with members who are typically share a common bond base on geographic area, employer, community, or other affiliation and have equal voting rights (CGAP 2005). SACCOs are increasingly gaining worldwide fame as important actors in the microfinance industry (Armendaris and Morduch 2005). The World Council of Credit Unions (WOCCU 2007) notes that 22 sub Saharan African countries have a total of over 11,849 credit unions with assets of over USD 3 trillion.
In Uganda the position of SACCOs has been heightened by the launch of the government “BonnaBagaggawale” (Prosperity for All) programme intended among other interventions to address inadequate access to financial services. This programme is to use a SACCO- per sub- county strategy to channel both SME and commercial loans at below market rates to borrowers. Micro Capital Monitor (2009) identifies that the government of Uganda has set aside the equivalent of USD 133.7 million for subsidized loans to individuals and small business through the government- owned. Microfinance Support Centre (MSC) to Saving and Credit Cooperative Societies (SACCOs).
2.1.1 Concept of Savings Mobilization
According to(Kabuga andBatarinyebwa,1995),SACCOs role is to promote economic interest of their members and in particular to promote thrift among its members by affording them an opportunity for accumulating savings and paying reasonable interest without risk on such savings. They both add that SACCOs create source of funds from which it can afford relief to its members in need by making loans to them for productive and provident purposes are fair and reasonable rates of interest and with easy terms or repayment, continuously educate members on how savings can be made on regular basis and the wise use their savings; and provide service to its members such as financial counseling so that the members can solve most of their financial problems, and the risk of management service to ensure the safety of members’ savings and loans. To fight poverty through improving the members’ economic and social conditions by enabling the access financial services, to fight exploitation of powerless individuals by the powerful individuals or institutions, by polling their own resources to meet their needs. Further they say formation of a SACCO has the following benefits to members: members are encouraged to save since SACCOs are readily accessible, interest rates on saving and lending is better than elsewhere a fact that sound idealistic, members are taught how to handle their finances in a responsible manner this could be true only when they effectively and economically patronize their SACCOs. Loans are insured, so if a member dies, the outstanding balance is settled. However, it is not the practice across board. Besides; other MFIs also do insure loans for their clients. Savings are mobilized. It also encourages regular social interaction between members.
2.1.2 Evolution of SACCOs in Uganda
The SACCOs industry has existed in Uganda for some time now. It started gaining formal recognition in the 1980s,Wright and Rippey,2005). This was in part as a result of the emergence of foreign NGOs, which, as part of their humanitarian work introduced revolving credit schemes to help the communities improve their livelihoods. Later the government and indigenous NGOs embraced the idea, which subsequently led to the emergence of government/donor-funded micro-credit programmes, as well as the privately owned and operated SACCOs Unions,(Wright and Rippey,2005).
2.1.3 Previous SACCOs Activities in Uganda
Over the last two decades, Government of Uganda has initiated, implemented and supported various micro credit schemes aimed at fighting poverty in the country. The main focus of these programmes has been the provision of revolving funds for micro credit to households at the grass root level. Notable examples include the Poverty Alleviation Project (PAP), the Entandikwa Credit Scheme (ECS), the Rural Farmers Scheme, the South-West Small Holder Rehabilitation Project, the Cotton Sub-Sector Development Programme, the Masindi- Kibale Integrated Project, the District Development Service Project, the EU/GoU Micro Projects Programme, and Youth Entrepreneurs Scheme. ( IsaacShinyekwa 2005:23)
2.1.4 The Organization of the SACCO sector
The structure of SACCO sector is composed of the informal non registered and formal registered. Informal finance refers to financial sector with key players being relatives/friends, savings and credit cooperatives/associations, money lenders, community-based oganisations, Non governmentorganisations (NGOs) according to [Wamasembe, 2001:14].
According to Katimbo-Mugwanya (1999:20) the registered informal sector operators include friends and relatives, moneylenders, rotational savings and credit associations (ROSCAs), Savings and credit unions(SACCOs) the post office savings bank, non-governmental organisations (NGOs) and other savings and credit association
2.1.5 The Growth and development of the SACCO Industry
According to MFPED 2003 June report, A country wide survey of the microfinance industry in Uganda conducted for the first time in 2002 , established that the industry was composed of about 1,340 SACCOs outlets that had about 329,000 borrowers with a loan portfolio of Shs 86.5 billion and 800,000 savers with a savings volume of Shs 129.1 billion. Another study was conducted in 2006 by the Ministry of Finance, Planning and Economic Development (MFPED), in collaboration with the Department for International Development (DFID)’s and Financial Sector Deepening Unit (FSDU), with an objective of providing a comprehensive picture of the financial sector, with particular emphasis on Tier 4 financial institutions. The survey established a total of 1,221 financial outlets were serving the financial market in Uganda. The same study established a total of 1,810,813 savings accounts in these financial outlets of which 488,442 or 27% were in the Tier 4segment. In terms of the distribution of the financial out lets by district 27% the study revealed that 85% of the districts have a SACCO out let, 61.3% of the districts have Non –Deposit Taking MFI outlet and 68.8% of the districts have Bank of Uganda regulated financial institution outlets and 6.1% of the districts have SIDAs. In terms of SACCO infrastructure, the study revealed that 16% of the districts have 6-10 SACCO outlets and 13.6% of the districts have only one SACCO outlet each. 20.9% of the districts have between 11-15 SACCO outlets and 14.8% of the districts have more than 15 SACCO outlets. (MFPED June 2003 Report: 25-2
2.1.6 Services offered to Women by SACCOs
SACCO’s play an important role in lower income groups through increasing their assets via establishing a credit relationship, establishing an enterprise, accessing working capital, increasing income through business expansion, meeting housing credit needs and increasing wealth through savings according to (Branch & Cora 1999).
However, targeting the use of credit is not justified in terms of sustainability, administering and monitoring loan use is time consuming and difficult. In most cases the loan use and eligibility criteria don’t meet the credit needs of poor women and men who may need to utilize their loans for a variety of purpose according to (Tranovich 20085).
Among many advantages, there are four primary strengths of SACCO’s institutions i.e. savings mobilization, services for lifetime asset growth, mixed outreach, and full services array of loan products. What distinguishes cooperatives from other non-bank financial entities involved in SACCO’s is the ability of mass number mobilization of small, voluntary, savings account. These deposits can then be invested in rural production, housing, small scale enterprises and small business loans according to (Branch & Cora, 1999).
In Nsangi Subcounty, Nsangi Savings and Cooperative Society managed to reach women who are having businesses and almost majority of those who were interviewed were of low income women who self sustained themselves to get a livelihood.
Branch & Cora (1999) say that, SACCO today emphasizes scale and depth of outreach of financial services to large numbers of the working poor through financially sustainable organizations. They offer a saving-first, self-sustainable approach to SACCO’s that has already successfully met the needs of millions of low-income members around the world.
Membership and lending of SACCO’s institutions are generally broadly diversified. Services to the poor are blended with service to a broader spectrum of the local population. Through serving the poor, these unions achieve sustainability by spreading their costs across loans of larger and medium sizes as well. In this manner these credit facilities can reach a large number of the poor on a sustainable basis. Through this they manage to reach significant scale and thus attain financial sufficiency. SACCO’s Unions are mixed outreach of financial institutions. It is scale, not exclusive focus that determines whether significant outreach to the poor will occur (Rhyne, Christen and Vogel, 1994)
Savings and credit cooperative unions encourage savings mobilization especially for the urban poor women. It is known that savings are key to investment, without them, investments are very hard to be realized. Boomgard (1994) had this to say;The demand for liquidity is far more important to most rural citizens than the demand forcredit. Savings mobilization is just as important as credit in meeting the financial needs of the rural population.
The above is confirmed by Magil (1994) that Savings and Credit Cooperative institutions play a great role in the provision of loan products. Members financing needs determine their credit union loan products. The borrowers usually access these loans for such purposes like housing construction, housing improvement, home purchase, small manufacturing, transportation business, debt financing, emergency needs, education, agriculture, cattle and chicken raising, fish-harvesting, personal expenses, and electric appliance purchases.
Credit cooperative loan portfolios are widely diversified. Since cooperatives lend for a wide variety of purposes, the portfolio risk of specializing in a single type of activity is reduced.
Women obtain credit for several reasons, which may include lack of school fees for their children, starting a livelihood, which show the need for credit. These are the problems common in NsangiSubcounty where poverty ranks the highest among community level problems (55%) according to Michan (2003).
Schmidt and Zeitinger, (1998), argue that, with respect to the speed with which a loan can be obtained, flexibility regarding the terms of the loan, and most importantly with regard to transaction costs, the non conventional individual-based technology is definitely superior to all kinds of group lending technologies for small and medium entrepreneurs.
Some savings a credit cooperative unions offer solidarity group loans designed for lower-income or “down scale” small scale entrepreneurs. For many low income members most especially women and members who live in urban slum areas far from the cooperative union access to a local solidarity group provides them with a lower-cost method to access loan credit services. This is common here in Uganda, Bolivia, Philippines and Bangladesh. All the above services make it easier for the urban poor women to access the services. Micro credit programs extend small loans, often 75 or 100 dollars, to very poor people especially women, for starting or augmenting business in the hopes of increasing profit. The loan is usually paid back over a period of six months to a year (Branch & Cora 1999).
Training and education given by SACCO’s plays a very important role in the improvement the women’s incomes. Many gain knowledge in management of their businesses and saving skills plus capital, and can use it to start businesses and others to expand what they already have. The above can be a result of the training given before issuing out the loan. Thus those who don’t join SACCO’s may lose out on such benefits.
Although SACCO’s play a role as seen above, but they may fail to help the poor because of the outreach aspect. Most of them are located very far from where people stay. Poor women have to balance multiple roles. They are mothers, economic producers and community workers. This means that they have limited free time to travel to a financial institution. The travel cost may be a barrier to the poor and in most cases the free time available coincides with their business operating hours. This may hinder credit access and again income improvement (Bugembe 2005).
In addition factor like the attitude of finance officers may also lead to failure of the poor people in general to access credit, this is because the poor especially women are still considered as unbankable by credit officers. In most cases they are rude even during training sessions. The literacy level of the borrowers may also affect access and effectiveness of small loan credit. Application forms and finance officers are not intellectually sensitive to the needs related to the literacy level of the male and female borrowers,(Wilkinson 1999).
To mention also is the lending method used by the SACCO may affect the effectiveness and access of small loan credit group or individual lending in this case. SACCO’s have failed to know which method best suits the type of borrowers they may have. Group lending is the main method used by SACCO’s but this does not mean to close the doors for other alternatives. A lending method acceptable to customers should be opted for ,(Wilkison 1999).
2.2 SACCOs and Socio-Economic Welfare levels among Women.
According to (Hyuha,1993) women’s Empowerment educates and empowers women who are homeless with the skills and confidence necessary to get a job, create a healthy lifestyle, and regain a home for themselves and their children. The ability of women to control their own fertility is absolutely fundamental to women’s empowerment and equality. When a woman can plan her family, she can plan the rest of her life. When she is healthy, she can be more productive. And when her reproductive rights—including the right to decide the number, timing and spacing of her children, and to make decisions regarding reproduction free of discrimination, coercion and violence—are promoted and protected, she has freedom to participate more fully and equally in society.
To reduce the income gap (inequality) , the poverty eradication action plan (PEAP) emphasis among other things the strategic improvement of access to credit by the poor through the savings and credit cooperatives.
Credit is considered to be an essential in put to increase small scale enterprises. It is believed that credit boosts income levels , increases employment at the household level and thereby alleviates poverty. Credit enables poor people overcome their liquidity constraints and undertake some investments, especially in improved farm technology and inputs, thereby leading to increased agricultural production,(Adugna and Hiedhues, 2000).
Further more; Credit helps poor people to smooth out their consumption patterns during the lean periods of the year (Binswanger and Khandker, 1995). By so doing credit maintains the productive capacity of urban poor rural households ( Heidhues, 1995). World bank (1989) also observed that improved consumption is an investment in the profitabiliy of the labour force.
According to Navajas et al (2000), the professed goal of micro credit is to improve the welfare of the poor as a result of better access to small loans. Diagne and Zeller (2001) argues that lack of adequate access to credit for the poor may have negative consequences for various household level outcomes including technology adoption, SMEs profitability, food security, nutrition, health and overall welfare. Access to credit therefore affects welfare outcomes by alleviating the capital constraints on SMEs, hence enabling poor entrepreneurs with little or no savings to acquire capital. This reduces the opportunity costs of capital intensive assets relative to family labour, thus encouraging the adoption of labour-saving, higher-yielding technologies and therefore increasing capital and SMEs profitability. Access to credit in addition increases the poor households’ risk bearing ability, improves their risk copying strategies and enables consumption smoothing over time. By so doing, SACCO is argued to improve the welfare of the poor.
Rhyne and Otero (1992) argued that financially sustainable SACCOs with outreach have a greater likelihood of having a positive impact on poverty alleviation because they guarantee sustainable access to credit by the poor. Out reach is the number of clients served by SACCO. Financial sustainability on the other hand measures the extent to which the SACCO covers its operational and financial costs from internally generated revenues (interests and commissions). SACCOs with higher repayment rates are more likely to be financially sustainable.
Buckely (1997) argued that the commonly touted indicators of success of micro credit programme relies on high repayment rates, outreach and financial sustainability but says nothing about the impact on micro enterprise operations on livelihood and only tantamount to “savings and credit evangelism”. Based on a study on three countries (Kenya, Malawi and Ghana), Buckley (1997) concluded that there was little evidence to suggest any significant and sustained impact of savings and credit cooperative on beneficiaries in terms of micro entrepreneurs graduating to higher or more sophiscated operations, increased income flows and level of employment.
2.2.1 Women Engagement in Productive Ventures.
Women are mainly engaged in small scale business in the informal sector, they have many social responsibilities so it difficult for their businesses to graduate beyond the micro-stage because it is difficult for them to save and re-invest. Government economic policies have over time exposed women in business to stiff competition pushing many of them out of business. Many other women have been demobilized both in the public and private sector, more have ended up being unemployed and without any source of livelihood.
Without strong and efficient financial services, poor people have little chance of growing their wealth but it is certainly not only savings credit cooperative that is important; in some cases it may be the last tool needed. For example, in times of serious crises, a loan or savings account may not be very helpful. Savings credit cooperative should be part of along term national strategy to grow and develop, strengthen and stabilize its financial sector and economy (Tranonic 2005).
In Wakiso District, the women’s illiteracy level is higher than that of men this is confirmed by their enrollment rates in educational institutions as is the case in the rest of the country, where the rates decreases as one goes up the education ladder. This is caused by the increasing rates of girls dropping out of school due to early pregnancies, domestic labor, poverty and early marriages (Police strategic plan 2007).
Poor health status among women is aggravated by the low level of education, low level of use of contraceptives and because of their poorer economic status and gender relations at household level. Women are the direct care givers in society in Wakiso District and because of this health policy at all levels of society rarely target women’s personal health but rather target them as health agents for their families.
2.3 Challenges, hindrances and barriers faced by Women in accessing SACCO services
According to (Barrett,et al,2006) One of the ongoing challenges SACCOs face, is in optimizing customer satisfaction and developing customer Relationship Management. In order to raise customer satisfaction levels SACCOs must invest in selecting the correct people who not only have the functional, technical competence but also have the right attitude. Research has shown that attitude is the most important requirement skills and functional expertise can be thought. SACCOs must continuously develop, motivate and manage its employees to build customer relationship culture that relies on technical and interpersonal skills. SACCOs must invest in establishing efficient service delivery processes and procedures that appear transparent to the customer and improve on customer interaction with the SACCO, He adds that SACCOs must build in continuous improvement in service delivery especially when things go wrong by letting the numbers know about such situations in advance or timely. Trust is an important element in building customer relationship and as such honesty goes along way. While a SACCO may have valid reasons to with hold bad news, it is worth noting that a delay or distortion can do much more damage to a relationship than bad news quickly revealed.
2.4 Best way forward for full utilization of SACCOs on Women Welfare.
According to Bategeka, (1999), Feedback is another important element in maintaining good customers’ relations with members as this helps in improving service delivery. Staff should be trained to handle members’ complaints effectively by employing the right mix of empathy, apology and resolution. In order to deliver outstanding service, it is essential to build a customer relationship focused culture. This can take number of years can involve changing the way SACCOs according to(Sanchez-Urrelo,2006) operates in all aspects of service delivery. The time investment is long-term customer loyalty and helping to ensure business profitability. Introduction of website for information dissemination and e-banking: A website is a collection of information stored on a computer and seen on the World Wide Web. The website can be viewed locally or internationally making it the newest media used to exchange and gather information and ideas. It enables customers to find out all the information they need about the products, such as the services provided. The products offered product images with specifics and costs, location of the business/organization and where the services are offered, and special offers to clients. Its advantage is that it reaches a global audience, and allows one to deliver the advertisement to a targeted audience in a manner that actually gets the message through to this targeted audience. As store, one can use a website to sell products and take orders for services round the clock without involvement of humans as the entire process can be automated,Education is a core strategy and campaigns have to direct at helping people to understand the importance of savings mobilizations. As more people move into gainful employment, families begin to have more money that can be directed towards savings. Education and training forms an integral part in the promotion of the union services and relevant issues in the management of SACCOs,(Wegoye,2006).The union renders various services such as the promoting SACCOs, members’ education and conduct of National and Regional seminars for delegates. The Union also deals with capacity building, training, marketing, credit, monitoring and evaluation and evaluation of SACCOs activities. KUSCO has a team of highly qualified and experienced multi- disciplinary professionals who are experts in their fields of specialization. They provide consultancy services to affiliates and individual members at a modest cost including feasibility studies, training needs analysis, curriculum development, salary and benefits survey, strategic planning, job description and job evaluation and organizational strategy and restructuring. They also provide services including monitoring and evaluation of SACCOs with Front Office Activity and application of sound corporate governance and best practices issues. They offer additional services to SACCOs such as recruitment of staff to create a good working environment so that members are given quality services to towards their savings mobilization.
Regulatory Framework is regulatory and legal framework which needs to undergo through the necessary legislative development concurrently with the imperative of designing management and accounting systems appropriate for financial cooperatives and building capacity among the SACCOs. The development of SACCOs regulatory framework is an ever-changing phenomenon and it there is therefore need to learn from countries that have progressed more in the SACCO field on savings mobilization. Monitoring and mentorship of cooperatives; SACCOs are to be constantly monitored to find out whether they comply with Cooperative Act, Cooperative Banks Act, their own internal By Laws and internal documents like business plans and Budgets. Such constant monitoring can lead to improvements in management practices of the SACCOs on savings mobilization,(Adugna,2000).
Developing savings mobilization culture: this is done by adjusting the focus and change of habits because savings is a culture, a habit and a way of life. When a culture is developed wealth starts to grow,(Mwangi,2008).The development of a savings culture entails the destruction of old and useless in-built habits and principles, and the assimilation of new ones. This is a commitment toward the participation in this socio-economic revolution brought about by SACCOs by saving regularly at least 5% of ones salary, or other income into a SACCO so that through the strength of numbers, the pool of savings mobilization created could be a source of cheap credit guaranteed could be source of cheap credit guaranteed only by the members of the SACCO.
Promoting of a savings mobilization culture – the reduction of consumption trends and reliance on easy-to-obtain loans should be discouraged through sensitizing campaigns to help change the culture of expenditure on unnecessary goods, and learning how to produce some of the basic items like vegetables, fruits and maize and rice. A culture of savings needs to be inculcated amongst all young and old people. The starting point is in schools where a cooperative curriculum should be developed and taught at all levels of the school system. The formation of Savings and Credit Cooperatives in all work places should be made mandatory, while encouraging the formation of savings clubs in our educational institutions. Countries like have introduced cooperative training in schools,(Cooperative Digest,2007/2008).
Change of attitude and dependence syndrome – an attitude of dependence should be discouraged in the society so that individuals can mobilize themselves and produce goods and services or individuals can come together, work together and save. This can be done by denitrifying opinion leaders in the country and let them travel outside the country to see what the other people have done for themselves,(Cooperative Digest,2007/2008).
Funding of unviable cooperatives: the government should fund a SACCO to become strong because wholesale lending of funds to a weak SACCO runs the risk of doing more harm than good when it is lent to performing portofilios. Wholesale loans to a SACCO can impact the savings mobilization culture of the members positively or negatively. However, the change in a SACCO’s savings culture depends more on the quality of management and governance.
Adequate institutional support structure; this can be done by creating instructional support structures for SACCOs by introducing provincial and district cooperative officer in charge of all cooperative staff and activities and other cooperative officers supervising specific cooperative activities such as savings and credit, agricultural cooperatives, housing cooperatives and handicraft cooperatives among others. Efficient capacity building in cooperative to be enforced since the success of SACCOs is largely dependent on the quality of human resources, governance and management,(Evans,2002).
2.5 Conclusions
To conclude this chapter, the establishment of Saccos in Uganda, is expected to act as a channel through which investible resources are mobilized and tapped. However, to achieve this, there is need to have the necessary conducive environment in place, short of which the objectives of SACCOs will not be realized. Most foregoing authors have given the general conditions necessary for a SACCOs to flourish, but there is a research gap to fill in relation to the contribution of SACCOs towards socio-economic Welfare of Women.
