THE ROLE OF SACCOS IN FINANCIAL INSTITUTIONS TO THE SOCIETY

A CASE STUDY OF KYAMUHUNGA SACCO

ABSTRACT

The study was the role of SACCOs in financial institutions to the society. The purpose of the study was establish the role of SACCOs in financial institutions to the society Bushenyi district a case study of Kyamuhunga people’s cooperative SACCO ltd in Kyamuhunga Sub County.

The research design was based on a descriptive and case study design where both qualitative and quantitative methods were employed in the collection and analysis of the data on a sample size of 70 respondents selected using random sampling technique.

Data was collected by use questionnaires and the interview guide. It was computed and analyzed using descriptive statistics and was presented using tables displaying frequencies and percentages in assessment of the role of SACCOs in financial institutions to the society.

The findings indicated that savings custody was the major product offered by the SACCO. Other products included loans, shares, as well as financial education. The findings also established that the major effect of financial strategies was that a saving and Credit Co-operative society accords members opportunity for saving regularly & accumulating the savings to improve the savings culture. The findings also concluded that the major challenge affecting SACCOS to the society was poor savings culture among the locals and also the study findings concluded that the major strategy to overcome the challenges affecting Saccos is to enforce Capacity building training for SACCO’s members, staff and board to enable them deliver financial service effectively.

The following recommendations were made; SACCO management should encourage its members to deposit daily part of profits/incomes to help them improve their savings culture, government and other stakeholders should organize training of the people on proper ways of saving and usage of the loan obtained from the SACCO and Savings and credit cooperatives should employ highly trained staff who can do the monitoring evaluation of the utilization of the loan.

CHAPTER ONE

INTRODUCTION

This chapter includes the; background of the study, statement of the problem, objectives, research questions, significance of the study and Scope of the study.

1.1 Background of the study

A SACCO is a cooperative society whose objective is to encourage its members to save, thereby creating or accumulating capital, which can then be lent to members at a reasonable rate of interest Davis, et al. (2005).As a source of credit facilities, these cooperatives have generally achieved their objectives.

Although according to neoclassical growth theory by Harrod-Dommar and Robert Solow that Savings mobilization is not an end in itself, it plays an important role in sustaining growth and development. Through savings there will be capital accumulation leading to investments hence economic growth and ultimate development. A high saving economy accumulates assets faster, and thus grows faster, than does a low saving economy (Lipsey and Chrystal, 1995).

According to Kyendo, (2011), “a savings and credit cooperative (SACCO) is 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’s membership is open to all that belong to a group, regardless of race, religion, colour, creed, and gender or job status. These members agreed to save their money together in the SACCO and to make loans to one another at reasonable rates of interest. Interest is charged to cover the interest cost on saving and the cost of administration. The members are the owners and the members decided how their money should be used for the benefit of one another (Bailey, 2001:4). However, it should be noted that, in Uganda unlike South Africa where the Bailey hails, SACCOs often pays dividends to the members depending on the number of shares one has.

SACCOs in Africa are intended to offer an alternative to improving the desirable situation in low income countries. SACCOs are community membership based financial institutions that are formed and owned by their members in promotion of their members economic interests. It can also contribute favorably to Human Integrated Development (Syed, 1991).

According to Mutesasira et al. (1999), Savings and Credit Co-operative Societies (SACCOs), which are started locally, are more attractive to customers thus deeply entrenching themselves in the financial sectors of many countries. In fact, they have solid bases of small saving accounts constituting a stable and relatively low-cost source of funding and low administrative costs (Kabataya, R. a. (2005).

SACCOs are able to advance loans at interest rates lower than those charged by other financial institutions. In addition, SACCOs have the ability and opportunity to clients in areas that are unattractive to banks such as rural or poor areas. The core objective of SACCOs is to ensure members empowerment through mobilization of savings and disbursement of credit (Ofei, 2001).

Savings mobilization should be backed by adequate institutional capital which ensures permanency, provide cushion to absorb losses and impairment of members’ savings Kirkpatrick. (2002), the institutional capital which comprises the core capital and less share capital is mainly accumulated from appropriation of the surpluses. In fact, it helps the SACCOs to grow and, remain economically and financially viable (Kabataya, R. a. (2005). Such growth is enhanced by effective financial practices.

In Uganda they are being promoted and developed by Uganda cooperative alliance ltd (UCA) in an effort to alleviate poverty within the framework of poverty eradication action plan (PEAP) the government of Uganda is also fully supportive of SACCOs’ establishment, development under its rural financial services strategy.

In the effort to target and reach rural and poor communities, the government had to channel credit through institutions that are community based. In this case, Savings and Credit Organizations (SACCOs) were seen as viable vehicles through which government fund would be channelled to reach poor communities. The SACCOs mobilize funds from them and give them access to financial services like loans, savings facility, front office services which is otherwise in accessible to them through the main banks that are there either because they are unaffordable or physically inaccessible.

One of the ways for fighting poverty in Uganda has been the promotion and development of SACCOs. SACCOs as a form of delivery of financial services to the poor has now taken root in Kampala district and Uganda in general.

A number of operators – ranging from government – funded programmes, donor – funded programmes, NGOs (both indigenous and foreign), community – based organizations, credit institutions, and banks, etc are involved in the delivery SACOOs, Nakutaluyirika, M. (2010). However, there has not been a significant study on the role of SACCOs in financial institutions to the society, this study is set to bridge this gap.

1.2 Statement of the Problem

Over the years, SACCOs have been trying to address members’ demands by mobilizing funds and granting credit to members. Financial development is playing an important role in Uganda’s economic progress, Fred (2007). Bottelberge, (2010), asserted that employees based SACCOS have great possibility of serving its members, since they are situated at working places and that occupational SACCOS are more successful than rural SACCOS.

However, most SACCOs have no effective savings mobilization strategies and are unable to outreach members; SACCOs have no regulatory mechanism to develop enforcement of prudential standards and enhance safety and soundness of members’ funds and are unable to meet the growing demand for loans and yet they are potential savers. There has not been a significant study to investigate the role of SACCOs in financial institutions to the society. Therefore, it was against this background that the study set to investigate the role of SACCOs in financial institutions to the society, a case study of Kyamuhunga people’s cooperative SACCO limited.

1.3 Purpose of the study

The purpose of the study was to establish the role of SACCOs in financial institutions to the society Bushenyi district a case study of Kyamuhunga people’s cooperative SACCO limited in Kyamuhunga Sub County.

1.4 Objectives of the study

1. To find out the services offered by Kyamuhunga people’s cooperative SACCO limited to its members in the society.
2. To determine the effect of financial strategies on savings mobilization in Kyamuhunga people’s cooperative SACCO limited.

• To find out the challenges affecting SACCOs in the society.

1. To find out strategies to overcome the challenges affecting SACCOs in the society.

1.5 Research Questions

1. What are the services offered by Kyamuhunga people’s cooperative SACCO limited to its members in the society?
2. What is the effect of financial strategies on savings mobilization in Kyamuhunga people’s cooperative SACCO limited?

• What are the challenges affecting SACCOS in the society?

1. What are the strategies to overcome the challenges affecting SACCOs in the society

1.5 Scope of the study

The study was conducted at Kyamuhunga people’s cooperative SACCO limited in Kyamuhunga sub county, Busenyi district located in western Uganda. The study focused on establishing the role of SACCOs in financial institutions to the society. It was conducted between the month of April and July 2015.

1.6 Significance of the study

1. The information acquired from this study may be useful to policy-makers both in the government, financial institutions and SACCOs in formulating policies for fighting poverty in the society especially through encouraging savings.
2. The study findings formed a basis on which other researchers wishing to carry out further study on the role of SACCOs in financial institutions to the society.

• To the researcher, the study helped her to fulfil one of the requirements for the award of a Bachelor of Management Science of Kyambogo University.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter contains the literature review of the variable of the study; the review was based on the objectives of the study.

2.1 Services offered by SACCOs to its members in the society

According to Kyendo, (2011), over the years the SACCOS have expanded their services and products to meet diverse needs and aspirations of the members. The Society being a member owned entity prides itself in being member focused so that the development of products and services are centered on the members needs.

According to Bailey, (2001), the most common form of products offered by SACCOs is savings. He notes that saving constitutes the key elements on which the development of the community depended. Local savings provide asset for the community’s investment in future. Without it, the community and the economy at large cannot grow and get out of poverty, unless the alternative sources of investment such as foreign capital from donors are injected in the community.

Davis & Worthington, (2005) note that SACCOs offers the widest variety of specialized savings products, including a savings program for women. The customers have a choice between immediately accessible, liquid products, or semi-liquid accounts or time deposits with accordingly higher interest rates. Customer orientation is also reflected in the fact that simple savings products are often offered alongside more complex products which allows customers to graduate as their demands change. Simple and clear design of basic savings products enables depositors to easily select the product that best suits their needs. In line with the above, Pelrine & Kabatalya, (2005) report that the simple and transparent design of the savings products also enables staff to administer them with ease, reducing administrative costs.

This is in line with Lipsey (1995) who reports that it is desirable that SACCOs’ membership embrace a saving culture so as to increase their low incomes, leading to improved quality of life.

Further still, development is induced by saving in that, high levels of saving led to capital accumulation, later on investment lead to high income levels, ultimately breaking through the vicious cycle of poverty, hence, development in the long run.

Kirkpatrick (2002) report that the other most common product offered throughout the SACCO fraternity is the Credit and Loan services. Many of the Institutions have no Institutional capacity or capital base to offer other services. Services are also offered mainly to members of the SACCOs. He further reports that members are entitled to the following loans: Development loans, School fees loans, Emergency loans, Rural / agricultural loans, Normal loans, Special loans, Welfare loans, Working capital loans and Capital development loans.

According to Pelrine et al., (2005), SACCOs also get involved in marketing of the products they sell for wider outreach. They sell their policies, social gatherings (funerals), promotion meetings, the church structure, women groups, local leaders and society meetings.

According to Mutekanga (1998), SACCOs provide financial services to their members through existing product or marketing societies. He further argues that members also have the opportunity of saving with their SACCOs through banking sections of the district cooperative unions, which maintain savings account for their members.

To Afroz, (2013) micro credit institutions make investments without approval from the Ministry of Finance, Planning and Economic Development. He notes that this has greatly removed bureaucracy from the day-to-day operations of the societies though it has increased the risk of making unsound investments. Already some SACCOs have suffered in the recent bank crisis.

Kyendo, (2011),  using  IV  and  Propensity  Score  Matching  (PSM),  found  that  the  effects of micro-loans are not robust across all groups of poor household borrowers; the poor participants are among those who benefit the most and the effect of participation is, in  general, stronger for male borrowers.

2.2 Effect of financial strategies on savings mobilization

Kibanga and Mania, (2004) report that competition between SACCOS and other Financial Institutions is characteristic of a globalized economy in which the business environment is very dynamic and firms have adapt to such changes.

The modern customer is empowered and very difficult to please. Marketers are contending with consumers who are very knowledgeable, smarter, more price conscious, more demanding and less forgiving .The consumers also a variety of firms that are promising to offer them better products and services than their competitors (Kotler, 2002). SACCOS like any other business firms have to contend with such customers.

According to Hertog, (2007) a Saving and Credit Co-operative society accords members an opportunity for saving regularly, accumulating the savings and thereby creating a pool from which they can borrow exclusively for productive purposes at fair and reasonable rates of interest than would be obtained in other financial Institutions.

Gachara (1990) found that Saccos are seen as vehicles for resource mobilization and gateways to economic prosperity for families, communities and nations. These two studies are in agreement with the primary objectives of a Sacco which are: the creation of an opportunity to the members to save and later borrow.

SACCO is a facility that makes it possible for the focused poor people to get a small loan to start a business, pay for school fees, procure housing or receive health care (Microfinance vital to economic growth 2005:15). Such an initiative is instrumental in changing the poverty patterns in view of improved facilities to lessen the challenge posed by startup capital.

According to UN, (2005), SACCOs have been changing people’s lives and revitalizing communities since the beginning of trade (United Nations 2005). The United Nations declared the year 2005 the year of micro-credit because since 1959, the UN has designated International Years in order to draw attention to major issues and to encourage international action to address concerns that have global importance and ramifications.

Mudibo, (2005) argues that the SACCOs’ purpose is to encourage savings among members and using the pooled funds, to make loans to its members at reasonable rates of interest and providing related financial services to enable members improve their economic and social conditions.

According to Bottelberge, (2010), Savings and Credit Cooperatives (SACCOs) have found themselves commanding a large percentage of savings in the financial sector.

This has driven the citizenry to trust the management of the SACCOs in not only safekeeping of their money but also to provide a good return on it.

Mutugu and Mwarania (1986) argues that SACCOs are capable of developing a portfolio of investments that can achieve a desired rate of return for a given level of risk and desired maturity structure and to wipe out all diversifiable risks. These suggestions even though important cannot be fully relied on since the writers did not carry an empirical research to ascertain their allegations.

2.3 Challenges affecting SACCOS in the society

At the level of the individual, the lack of appropriate institutional savings facilities forces the individual to rely upon in-kind savings such as savings in the form of gold, animals or raw materials, or upon informal financial intermediaries, such as Rotating Savings and Credit Associations (ROSCAs) or money-keepers. These informal savings options, however, do not offer a combination of security of funds, ready access or liquidity, positive real return and convenience in order to meet the various needs of the particular saver.

At the institutional level, SACCOs have microproducts service windows on both sides of the balance sheet, serving micro and small savers and borrowers with an average savings balance or loan amount below the average per capita annual income in the respective countries. Yet the number of MFIs that exclusively offer credit is much larger than MFIs with both savings and credit facilities. Empirical studies have demonstrated that the performance records of credit-only MFIs in outreach and sustainability have not been widely successful, (Hertog, 2007; Saunders & Cornett, 2007).

Mutesasira (1999) opines that SAACOs lack effective savings mobilization strategies and thus they are unable to increase their outreach to a significant number of clients on a regional or national scale. In addition, few SACCOs that do not mobilize savings have attained full financial self-sufficiency, independently covering their expenses for operations, loan loss, cost of funds and inflation with their revenues.

According to Mudibo, (2005) throughout the world, SACCOs have often experienced that exclusively offering credit services can lead to undue dependency on external sources of financing. This dependency can cause the SACCOs and other MFIs to concentrate on the demands of the donors rather than on the demands of potential clients, especially potential savings clients.

According to Fred (2007) Most SACCOs either have no loan policy and procedures or what exists is not very clear and comprehensive. There are cases where loan-aging analysis is hardly practiced, there are no provision for loan write offs and losses. No guidelines exist as to what to do in cases where a member defaults in loan repayment. Where they exist they are inadequate to serve the purpose as to why it is intended.

Adam, et al. (2011), report that SACCOs lack Institutional capacity to introduce other Products & Services. According to him, most SACCOs lack capacity to expand their product range because of lack of capital & also lack of necessary management systems. They lack in capacity for market research and product development to introduce other services.

Kyendo, (2011), reports that SACCO’s lack of Sufficient Funds for provision of services hinders their progress. He further notes that Some SACCOs suffer from lack of sufficient funds to provide services especially loans to its members. Whereas waiting period for loans in some institutions could be 14 – 30 days, members have to wait for between 6 – 12 months to have access to the loans. Even seemingly organized SACCOs with comprehensive loan policies suffer from lack of enough capital for service provision.

2.4 Strategies to overcome the challenges affecting SACCOs in the society

In order to ensure that appropriate financial intermediaries for the poor to exist, appropriate external and internal incentives to mobilize and administer micro and small savings efficiently and effectively must exist. High performance standards required by regulatory authorities and effective supervision will necessarily translate into higher management capabilities, especially with regard to cost, liquidity and risk management (Fred, 2007).

According to Kyendo, (2011), SACCOs need to devote particular attention to cost accounting in order to improve their operational efficiency and ensure the long-term provision of their services on a sustainable basis.

According to Pelrine & Kabatalya, (2005) SACCOs members especially rural dwellers require more guidance, training and financial development assistance than the urban and semi-urban SACCO clients do. He noted that the  poor  are  eager  and  determined  to  save  if  the  opportunity  is  made available. They can be organized and take leadership, this is of great advantage since they can easily be mobilized into groups, that are able to give loans  to  people  in  their  own  communities  and  recover  the  money  with  interest.  Such intervention requires long-term institutional and financial support.  Small, poor communities  cannot  become  sustainable  in  a  short  period  due  to  their  small  size,  low absorptive  capacity,  high  illiteracy  and  lack  of  exposure  to  the  MFIs  best  practices, (Kishindo, 2001).

According to Bategeka (1999), one of the ways for fighting poverty in Uganda has been the promotion and development of SACCOs. SACCOs as a form of delivery of financial services to the poor has now taken root in Kampala district and Uganda in general.

Kyendo, (2011) reports that a number of operators – ranging from government – funded programmes, donor – funded programmes, NGOs (both indigenous and foreign), community – based organizations, credit institutions, and banks, etc are involved in the delivery SACOOs. In Uganda case, Government has taken steps to create an appropriate environment for their operation. A policy framework to accommodate the diverse operations of the players in this sector as well as taking on the new initiatives being promoted by government in an effort to achieve “Prosperity for all” has been developed, Fred (2007).

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the methodology that was used to carry out the study; it includes the research design, sources of data, population, sample size, sampling techniques and procedure, data collection instruments, data analysis techniques and ethical considerations.

3.1 Research design

The study employed a cross sectional research design which was descriptive and explanatory in nature. The study also used both qualitative and quantitative methods to collect data and establish the role of SACCOs in financial institutions to the society.

3.2 Study population

The study targeted SACCO members of Kyamuhunga SACCO in Kyamuhunga sub county, Busenyi district located in western Uganda. The study population included 85 respondents who were selected from the SACCO’s registry. This consisted of 5 executive members, 80 other members of the SACCO, a manager, a credit officer and a cashier.

3.3 Sampling size and Sampling procedures

A total of 70 respondents were studied and they included the 5 executive members, 62 ordinary members, a manager, a credit officer and a cashier. This sample size was obtained using the Krejcie & Morgan technique. When distributing questionnaires, simple random sampling technique was used in selecting respondents of the study. This technique was used because it was not biased as each of the respondents stand a chance of being selected for the study.

3.4 Instruments of data collection

A combination of research instruments was employed.

a). Questionnaire Method

The study employed the questionnaire method in the collection of data from the respondents. The questionnaires consisted of both open and closed ended questions administered to respondents of Kyamuhunga people’s cooperative SACCO limited.

b). Interview method

An interview guide was also used by the researcher to obtain information on household income, savings and economic development. In this case the interviews during the research will be was unstructured and self-administered to the Manager, Credit officer and cashier of Kyamuhunga people’s cooperative SACCO limited in Kyamuhunga Sub County.

c). Documentary methods

The researcher used existing records and documents that were related to the study. Such documents included reports and Board meeting minutes, annual financial statements presented during Annual General Meetings of Kyamuhunga people’s cooperative SACCO limited.

3.5 Procedure of data collection

In order to administer the structured interviews to the respondents, the research team requested the management of the SACCO to inform the members to meet the researcher at the SACCO offices where a venue was organized. During the meeting day, the researcher introduced herself and the research assistants. She explained the purpose/objectives of the study and went through the questionnaire. Consent of the members to participate was sought before the questionnaires were distributed and the research assistant also helped to administer the interviews by explaining some of the questions and filling the questionnaires where necessary.

After each data collection, the researcher checked through the questionnaires to ensure accuracy and completeness. Where gaps were identified, relevant corrections were made with the respective respondents. The meeting was closed with a re assurance on confidentiality. Through this process a total of 70 respondents consented and freely agree to participate in the administration of the structured questionnaire. At the end of the meeting, the questionnaires were collected back, checked for accuracy and securely kept for further analysis.

3.6 Data Analysis

Two types of data were collected in this study: Qualitative and quantitative, and two types of statistical analysis were used. The quantitative data was analyzed using descriptive statistics, which includes frequencies and percentages. The qualitative data was analyzed in the content analysis and the analyzed data was presented using tables and figures in form a report.

3.8       Data collection procedure

Before data collection, the researcher will ensure the approval of the research instruments especially the questionnaires; will obtain the introductory letter from the university; will introduce himself to the authorities, will seek participants’ consent and make appointments when to meet them for data collection, and the data collected will be analysed.

3.9       Reliability and Validity

Validity refers to the degree to which a test measures what it is supposed to measure and consequently permits appropriate interpretation of scores. As suggested by (Kathari, 2003), content and construct validity will be determined by expert judgment. The researcher thus will use help of the supervisor who will examine and confirm content validity by checking the items’ and content coverage, relevance, clarity of questionnaire, persistency and ambiguity.

The reliability of research instruments will be ensured by the researcher throughout the study, discussing them with the supervisor when seeking expert opinion, taking great care in the choice of section, order and proper structure of questions. The researcher will develop instruments that are easy to understand.

3.10     Limitation of the study

The study will be faced with a problem of not finding all respondents in the study area especially the employees who go to field as a group. The researcher however will arrange with them to fix for her an appropriate time in order to collect reliable and valid information from them for the study.

The study also will be expensive in terms of stationary. However the researcher will mobilize funds from her friends and family members for the study to be completed successfully in time with the help of her supervisor.

The researcher further will face a problem of some respondents not providing information for the study as information relating to the study variables, however to this, researcher will explain to them that the information will be only for the academic purpose while making them to understand the study variables.

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS

4.0 Introduction

This chapter mainly presents the findings from the study. The findings on the role of SACCOs in financial institutions to the society in Bushenyi district a case study of Kyamuhunga SACCO in Kyamuhunga Sub County are presented according to the objectives of the study. The findings of the researcher were acquired from 70 respondents from Kyamuhunga SACCO. The researcher distributed questionnaires and all of them were returned. She also carried out personal interviews with the respondents.

 4.1 Background variables

The respondents’ gender, age, marital status and education level were treated as background variables of the study.

4.1.1 Gender of the respondents

The table below gives the details regarding the gender of the respondents;

Table 4.1: Gender of the respondents

Source: Primary data

From the findings of the study, it was revealed that majority (60%) of the respondents were males while their counterparts represented 4o% of the total responses. It is evident from the table above that a significant percentage of both sexes were represented implying that the study was not biased. This could have been because of the fact that SACCOs are seen as the surest way of development since they help member to save at subsidized rates than the normal banking system.

4.1.2 Age of the respondents

The study also was interested to establish the age of the respondents and the table below presents the responses;

Figure 4.1: Age of the respondents

Source: primary data

From the findings of the study, it was revealed that the bigger percentages (55.7%) of the respondents were aged between 25 and 35 years while 28.6% of the respondents were aged above 35 years of age and only 15.7% were less than 25 years. The above trend in participation advanced by the respondents is a valid one, this is attributed to the fact that elderly are exposed to SACCOs more that the youth and this could also be because of the fact that they are aware of the importance of the SACCO model as they given the opportunity to save regularly with their SACCO.

4.1.3 Marital status of the respondents

The study was also interested in finding out the marital status of the respondents; table 4.3 below presents the details;

Figure 4.2: Marital status of the respondents

Source: Primary data

From the findings of the study, it was revealed that majority (85.7%) of the respondents were married while 14.3% of the respondents were single. This type of participation is valid, implying that the study was in position to meet the real people who were well grounded with the information Kyamuhunga SACCO.

4.1.4 Education level of the respondents

The study also captured data on the education level of the respondents, and table 4.4 below gives the details of the findings;

Table 4.2: Education level of the respondents

Source: Primary data

It was found out that majority of the respondents (52.9%) had reached up to secondary level of education while 22.9% of the respondents went up to primary level. 12.9% of the respondents were degree holders and 11.4% of the respondents were diploma holders.

From the interviews with the respondents, the study found out that all the employees had bachelors and diploma holders, implying that Kyamuhunga SACCO considers graduate employees to be very creative, knowledgeable and possessing expertise in various areas of banking and financial handling of members’ savings.

4.2 Services offered by SACCO to its members in the society

The first objective of the study was to assess the Services offered by SACCOs to its members in the society and the responses were presented according to the study questionnaires using descriptive statistics where tables, frequencies, percentages and figures were used in the presentation.

4.2.1 Date of Joining the SACCO by the respondents

The responses to how long the members had been saving with SACCO were summarized in table 4.5 below;

Table 4.3: Date of joining the SACCO

Source: primary data

It was observed that most of the members (57.1%) joined SACCO for a period between two and five years while 22.9% of the respondents had been in the SACCO for over five years and lastly 20% of the respondents had joined SACCOs for less than two years.

This implies that the greater percentage joined SACCOs for a long period of time implying that the people of Kyamuhunga comply with the government’s programmes such as prosperity for all scheme; which emphasizes financial services access through community based SACCOs, and thus improving their savings culture and consequently development of the society.

4.2.2 Services Offered by the SACCO

The study captured data on the services offered by the SACCO, and table 4.6 below presents the findings regarding the services offered by the SACCO,

Table 4.4: Services offered by Kyamuhunga people’s cooperative SACCO ltd

Source: primary data

From the findings of the study, it was revealed that majority (42.9%) mentioned savings custody as the major product offered by Kyamuhunga people’s cooperative SACCO ltd.

35.7% of the respondents mentioned financial education and 21.4 mentioned loans. This implies that every potential member must purchase a minimum share as determined by the SACCO making each member an owner of the cooperative.

From the interview with the manager of the SACCO, it was revealed that once the share has been fully paid up, all other contributions will go towards savings and the any members who wish to get a loan, the SACCO considers his share capital to determine the amount that he/she qualifies for in loans.

This finding is valid, implying that getting a loan from the SACCO is fast. What is required is that members are encouraged to save toward loans. Loans are ratio based on member’s savings and shares.

4.2.3 Requirements for getting a loan

The responses to requirements for getting a loan were summarised and the findings are as presented in the table below;

Figure 4.3: Requirements for getting a loan

Source: primary data

From the findings of the study, it was found out that majority (41.4%) of the respondents suggested that getting a loan from the SACCO requires one to be a member of the group which leads to the second requirement as shares (35.7%).

In some instances 12.9% of the respondents suggested that one has present a land Purchase/ownership agreement and lastly 10% of the respondents mentioned a minimum of 2 guarantors as a requirement for getting a loan. This implies that individuals who have established their credit worthiness through regular savings and are able to show ability to repay a loan can earn the privilege of borrowing these savings in the form of a loan without any collateral.

4.2.4 Whether living standard has improved after joining the SACCO

The following table has been summarised from the responses received from the field regarding whether living standard has improved after joining the SACCO

Table 4.5: Whether living standard has improved after joining the SACCO

Source: Primary data

From the findings of the study, it was revealed that majority of the respondents (85.7%) of the respondents strongly agreed that their household income levels had improved after joining the SACCO and only 14.3% of the respondents did not agree. This implies that credit facilities are essential to the Sacco members.

It was also revealed that majority (90%) of the respondents strongly subscribed to the view that SACCO has helped to improve their Household savings culture ever since they joined the SACCO and only a smaller percentage (10%) suggested that their household savings culture had not changed. This implies that financial services in the form of savings products, loan products and financial education help members to aim at improving savings which lead to capital accumulation leading high incomes and improve quality of members’ lives.

From the findings of the study further, it was revealed that majority of the respondents (71.4%) mentioned that their household education levels had improved after joining the SACCO and 28.6% of the respondents’ household education levels had not improved. This implies that education level of the borrower was significant in credit acquisition given that from the interviews conducted, it was revealed that members save for various purposes including getting school fees of their children.

The findings of the study further revealed that majority (70%) mentioned that their household health services had improved after joining the SACCO, while 30% did not subscribe to the view. The finding suggests that SACCOs provide institutional development in area where the formal bank cannot reach.

4.3 Effect of financial strategies on savings mobilization

It was observed that prior to joining SACCO; members were indeed saving. The respondents were asked to mention the different ways in which they were saving, and it was found out that respondents were saving in assert form, secret places, others were saving with institution that is regulated by bank of Uganda and others were saving with  relatives and friends.

This implies that members were well conversant with savings culture, what is needed is constant training for these people so as to enhance them to a proper savings culture so as to promote entrepreneurship education and innovation skills for more income generation and have more to save.

Table 4.6: Effect of financial strategies on savings mobilization

Source: Primary Data

From the findings of the study it was revealed that majority (91.4%) of the respondents strongly agreed that a saving and Credit Co-operative society accords members an opportunity for saving regularly & accumulating the savings while 3.3% also agreed and only 4.3% disagreed.

The findings further revealed that majority (78.6%) of the respondents subscribed to the view that Saccos are seen as vehicles for resource mobilization and gateways to economic prosperity for families, communities and nations and 21.4% also confirmed these findings.

Results from the study further revealed that majority (70%) mentioned that SACCOs make it possible for the focused poor people to get a small loan to start a business and 30% of the respondents also agreed to the same.

The findings also revealed that majority (64.3%) of the respondents suggested that SACCOs’ purpose is to encourage savings among members; this was confirmed by 35.7% of the respondents who agreed to the same. These findings imply that the SACCO program is to improve the income of the members through the provision of organized financial services.

From the interview with one of the key informants he noted that provision of organized financial services is accomplished by engaging participants in income generating activities at the household and community level. He was quoted saying;

“What is needed is proper training of the members on how to handle these savings in such a way that it should lead to income generation and have more to save”.

4.4 Challenges affecting SACCOS in the society

The third objective of the study was to establish the Challenges affecting SACCOs in the society. The study set the following study attributes to achieve the purpose of this study objective.

Table 4.7: Challenges affecting SACCOS in the society

Source: Primary data

Respondents were asked whether in their own view, whether there were challenges affecting their SACCO. To this, there was unanimous agreement among respondents of existence of the challenges affecting SACCOs in the society. Majority (38.6%) of the respondents suggested poor savings culture among the locals as the major challenge affecting SACOs while 24.3% of the respondents suggested multiple borrowing which leads to high default rates. 20% of the respondents mentioned Taxation of members interests which discourages members and 17.1% of the respondents mentioned lack of proper regulations for SACCOs which causes challenges in loan recovery process. This implies that access to the required loan money for most clients was not a problem, but rather proper usage of the loan funds, poor savings culture and high default rates high interest rates.

4.5 Strategies to overcome the challenges affecting SACCOs in the society

The last objective of the study sought to establish the strategies to overcome the challenges affecting SACCOs in the society, the responses were summarized and they are as presented in the table below;

Table 4.8: Strategies to overcome the challenges affecting SACCOs

Source: Primary data

From the findings of the study, it was revealed that majority (48.6%) of the respondents suggested that the major strategy to overcome the challenges affecting Saccos is to enforce Capacity building training for SACCO’s members, staff and board to enable them deliver financial service effectively while 35.7% of the respondents mentioned embracing of management information systems and software for accounting and loans management and 15.7% of the respondents mentioned institution of SACCO regulatory body and laws other than the cooperative statute.

CHAPTER FIVE

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter presents the discussions of the study, conclusions and recommendations which are in line with the objectives of the study.

5.2 Discussions

5.2.1 Services Offered by SACCOs

Findings from table 4.6 indicated that savings custody was the major product offered by SACCOs. Other products included loans, shares, quick/emergence loans as well as financial education. This therefore justifies the objective of the study. These findings are in agreement with the work of various authors and publications, For instance,

Bailey, (2001) earlier reported that the most common form of products offered by SACCOs is savings. He earlier noted that saving constitutes the key elements on which the development of the community depended.

Furthermore, in the documents produced by Kirkpatrick (2002) it was reported that the other most common product offered throughout the SACCO fraternity is the Credit and Loan services. In line with this, Mutekanga (1998) also reported that SACCOs provide financial services to their members through existing product or marketing societies, thus this confirms Pelrine and Katabalya (2007) findings that SACCOs indeed have a great impact on the level of the savings culture.

Davis & Worthington, (2005) also earlier noted that SACCOs offers the widest variety of specialized savings products, including a savings program for women. He also suggested customers have a choice between immediately accessible, liquid products, or semi-liquid accounts or time deposits with accordingly higher interest rates.

5.2.2 Effect of financial strategies on savings mobilization

Findings from table 4.9 indicated various effects of financial strategies suggested by the respondents as far as savings mobilization is concerned. The findings established that the major effect of financial strategies was that a saving and Credit Co-operative society accords members opportunity for saving regularly & accumulating the savings to improve the savings culture. Other effects were; Saccos are seen as vehicles for resource mobilization and gateways to economic prosperity for families, communities and nations, SACCOs make it possible for the focused poor people to get a small loan to start a business. It was also established that SACCOs’ purpose is to encourage savings among members. These findings confirm that financial strategies help members to mobilise savings. The findings above are in line with are in line with the findings of other researchers for instance;

This is in line with Lipsey (1995) earlier reported that it is desirable that SACCOs’ membership embrace a saving culture so as to increase their low incomes, leading to improved quality of life. Further still, development is induced by saving in that, high levels of saving led to capital accumulation, later on investment lead to high income levels, ultimately breaking through the vicious cycle of poverty, hence, development in the long run.

Tsegaye,  (2003) also earlier reported that the  poor  are  eager  and  determined  to  save  if  the  opportunity  is  made available. They can be organized and take leadership. They require more guidance, training and financial development assistance than the urban and semi-urban MFI  clients do, but they offer the advantage that they can easily be mobilized into groups that are able to give loans  to  people  in  their  own  communities  and  recover  the  money  with  interest.

5.2.3 Challenges affecting SACCOS in the society

The findings from the table 4.10 on the challenges affecting SACCOS in the society indicated that the major challenge was poor savings culture among the locals. Other stressing challenges were multiple borrowing which leads to high default rates, Taxation of members’ interests which discourages members and lack of proper regulations for SACCOs which causes challenges in loan recovery process.

The above findings confirms the works of earlier researchers for instance,

Balassa (1989) earlier reported that financial institutions experience a wide range of problems partly owing to the fact that they target low income earners and have to establish a balance between serving them adequately and also meeting their operation costs.

Fred (2007) also reported that most SACCOs either have no loan policy and procedures or what exists is not very clear and comprehensive. There are cases where loan-aging analysis is hardly practiced, there are no provision for loan write offs and losses.

5.2.4 Strategies to overcome the challenges affecting SACCOs

From the analyses and presentations in chapter four, it was established that there were varied range of strategies mentioned by the respondents. The findings established that that the major strategy to overcome the challenges affecting Saccos is to enforce Capacity building training for SACCO’s members, staff and board to enable them deliver financial service effectively. Other strategies included; embracing of management information systems and software for accounting and loans management and institution of SACCO regulatory body and laws other than the cooperative statute. These strategies are in agreement with Wahid (2008) who earlier reported that one of the objectives of SACCOs is to promote a saving culture amongst their members since savings has a close relationship with wealth. Higher rates of saving, lead to faster accumulation of wealth and, the wealthier a nation was, the higher its standard of living (S.O.L) in the future.

5.3 Conclusion

On the Services Offered by the SACCOs, the research findings concluded that the major products offered by SACCOs were; savings custody, loans and financial education. It can be concluded that SACCO loans have played a significant strategic role in providing the bulk of capital used by members to meet their needs such as education, business start-up and other ventures that require quick funding.

Research findings showed that there were significant positive perceptions of respondents in regard the effect of financial strategies on savings mobilization. The Strategies used by SACCOs to mobilize savings were therefore appropriate.

The research findings also concluded that the major challenge was poor savings culture among the locals. Other stressing challenges were multiple borrowing which leads to high default rates, Taxation of members’ interests which discourages members and lack of proper regulations for SACCOs which causes challenges in loan recovery process.

On the strategies to overcome the challenges affecting SACCOs, the study findings concluded that the major strategy to overcome the challenges affecting Saccos is to enforce Capacity building training for SACCO’s members, staff and board to enable them deliver financial service effectively.

5.4 Recommendations

The following recommendations were made as regard the findings of the study;

The study recommends that the SACCO management should encourage its members to deposit daily part of profits/incomes that they earn in their personal savings accounts with the SACCO as this would help them to improve their savings culture.

The study further recommends the government and other stakeholders should organize training of the people on proper ways of saving and usage of the loan obtained from the SACCO. This would help in mounding their expenditure habits especially discouraging them from spending their incomes extravagantly and thus improving the savings culture.

Savings and credit cooperatives should employ highly trained staff who can do the monitoring evaluation of the utilization of the loan. And also to train, educate and sensitize the members on short-term investment and other business portfolios.

The study also recommends that SACCO management should encourage its members to start income generating activities. This will help them to accumulate enough incomes for consumption and savings since the business activity set up will act as a sources of savings.

5.5 Area for further research

The study was limited on finding out the role of SACCOS in financial institutions to the society in Kyamuhunga people’s SACCO only. Further research should be taken on the impact of microcredit on agricultural production and productivity in Kyamuhunga Sub County.

References

Adam, et al. (2011), “Policies for Prosperity” Oxford: Oxford University Press.

Afroz, N. N. (2013). Credit Portfolio Management of Bangladesh Krishi Bank. Global Journal of Management and Business Research Administration and Management, 13(12), 15-20.

Bailey, T. (2001). Applying International Best Practices to South Africa’s SACCOs:

Balassa (1989), “The Effect of Interest Rate on Savings in the Developing Countries”, World Bank Working Paper No. 56.

Bottelberge, (2010), Leading Change in Cooperatives and Member Based Organizations in East Africa: Findings of a Study on Leadership and Leadership Development. Swedish Cooperative Centre.East Africa

Davis, P. & Worthington, S. (2005).Continuity in Capital Accumulation the Case of the British Cooperative Bank. Journal of Business ethics, 12(1), 849-859

Fred (2007). Overview of cooperatives in Uganda. Kampala: Ministry of Trade Industry and Cooperative.

Gachara, J. R. (1990). An investigation into the Investment Practices of Reserve Funds in SACCO societies in Nairobi. MBA University of Nairobi.

Hertog, J. (2007). Regulation: A Distinction between Economic Regulation and Social Regulation. Economic Institute, Utrecht University, Germany.

Kabataya, O. (2005). Urban Saving. Kampala: Macmillian LTD.

Kibanga, M. and Mania, D.T. (2004), Co-operative Management in Developing Countries, Mansfield Management Services Ltd- Kenya.

Kirkpatrick. (2002), “The Implications of the Evolving SACCO Agenda for Regulatory and Supervisory Policy. Development Policy Review

Kotler, P. (2002). Marketing Management. Prentice-Hall, Inc.

KOVIRO, J. ( 2005). CMA. The East Africa Journal , 300.

Kyendo, (2011), “The Growing Power of Savings and Credit Co-operative Societies in Uganda.

Kyendo, M. (2011). The Growing Power of Savings and Credit Co-operative Societies in Kenya

Lipsey & chrystal, (1995), An Introduction to Positive Economics, 8^th Edition. Oxford: Oxford University Press.

Mudibo, K. E. (2005). Corporate Governance in Cooperatives: the East African Experience.  Presented at the 3rd Pan- Africa Consultative Forum on Corporate Governance, Dakar: Senegal.

Mutesasira et al. (1999), Savings and The poor: the methods use and impact of Savings by the poor of East Africa. Research report for Micro save-Africa.

Pelrine, R., & Kabatalya, O. (2005). Savings Habits, Needs and Priorities in Rural Uganda. Kampala: USAID/ Rural SPEED.

Saunders, A., & Cornett, M.M. (2007). Financial Markets and Institutions: An Introduction to a Risk Management Approach. 3rd Ed. New Delhi: Tata McGraw-Hill Publishing Company.

APPENDICES

Appendix I: Questionnaire for the respondents

Dear respondent,

I am Turyasiima Gloria pursuing a Bachelor of Management Science of Kyambogo University. I am conducting a study on the role of SACCOS in financial institutions to the society, a case study of Kyamuhunga SACCO. You are kindly requested to participate in this study by filling in the questionnaire so as to help me complete the program. The information provided will be purely for academic purposes and will be treated with a lot of confidentiality. Your cooperation will be highly appreciated.

 SECTION A: Bio data

1. Gender
2. a) Male                     b) Female
3. Age

a). Less than 25years                b). Between 25 and 35years                 c.) Above 35years

3. Marital status
4. a) Married b) Single
5. Education level

Primary              Secondary                Diploma             Degree                   None

SECTION B: Research Data

Objective 1: Services offered by Kyamuhunga SACCO to its members in the society

5. For how long have you been saving with this SACCO?
6. a) Less than two years b) Between two to five years c) Above Five years
7. What services does this SACCO offer?
8. Loans b) Financial knowledge                      c)  Saving
9. Others (Please specify)………………………………………………………………..
10. Have you ever gotten a loan from this SACCO?
11. a) Yes                                          b) No
12. If yes, what are the requirements for getting a loan?
13. Land title
14. Membership
15. House
16. Other (please specify)…………………………………………………………………
17. Ever since you became a member of this SACCO, has the living standard improved under the following indicators?

Objective 2: Effect of financial strategies on savings mobilization

10. Were you saving before you joined this SACCO?
11. a) Yes                                          b) No
12. Please show your level of agreement as regards the effect of financial strategies on savings mobilization in this area. Your rating will be based on a likert scale where SA=Strongly Agree, A=Agree, D=Disagree and SD=Strongly Disagree.

Objective 3: Challenges affecting SACCOS in the society

12. Does this SACCO face any challenges?

a). Yes                                     b). No

13. If yes, what challenges affect SACCOs in this area?

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

Objective 4: Strategies to overcome the challenges affecting SACCOs in the society

14. Are you satisfied with the level of savings in this SACCO?
15. a) Yes                                          b) No
16. If, yes state the strategies used by this SACCO to mobilize savings

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

16. In your own opinion what possible strategies can be adopted to solve the challenges faced by SACCOs?

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

Thank you so much for your cooperation

Appendix II: Interview guide for the respondents

Dear respondent,

You are kindly requested to participate in this study by filling in the questionnaire so as to help me complete my degree in Bachelor of Management Science of Kyambogo University. The information provided will be purely for academic purposes and will be treated with a lot of confidentiality. Your cooperation will be highly appreciated.

1. For how long have you been saving with this SACCO?
2. What services does this SACCO offer?
3. Has the living standard of the people improved after joining the SACCO?

Were you saving before you joined this SACCO?

4. What strategies are used by this SACCO to mobilize savings of the members?
5. What challenges affect development of SACCOs industry in this area?
6. How do you cope with the challenges affecting the member’s savings culture of this SACCO?

Appendix III: Introduction and acceptance letter