Effects of Wholesale Lending to SACCOs in Uganda - Rural Finance ...

Reasons for Accessing Wholesale Loans
The most common reason SACCOs had for accessing wholesale loans was simply to
increase capital for lending. Many SACCOs insisted the client demand for loans far exceeded
the accessible supply of loan funds. The manager of Kijura SACCO believed a wholesale
loan would help ease cash flow management since members could preserve their savings
balance while still accessing loans from the external credit fund. Ikongo SACCO and Kijura
SACCO both admitted it would be better to lend the SACCO’s funds but when they did not
mobilize sufficient savings and shares to satisfy the growing demand for loans, they applied
for wholesale loans from MSC.
In addition to using wholesale funds to help satisfy the demand for loans, SACCOs accessed
external credit to generate more institutional income. Buzaaya SACCO anticipated the
external credit would improve the SACCO’s income earned from interest on new loans and
membership fees from new members. Other institutions borrowed wholesale funds in order
to increase membership since individuals would be drawn to an institution with accessible
funds for loans. Several managers informed us that the majority of SACCO members joined
the institution with the intention of accessing loans and if the supply of loans does not
satisfy the demand, members withdraw their savings and move to a SACCO with excess
liquidity.
SACCO Repayment to Wholesale Lender
Of the seven SACCOs we visited, three have paid back or are currently repaying the
wholesale loan well, with no late payments. These SACCOs (Bunyaruguru SACCO, Ikongo
SACCO, and Panyimur SACCO) have repaid the interest on the wholesale loan using
interest earned from the
disbursement of the external
credit to their members.
Bunyaruguru SACCO clearly
monitors the interest earned
on the wholesale loan as well
as the costs incurred to
manage the credit. The
SACCO calculates the interest
earned on the wholesale loan
separately from interest earned
on loans made from savings
deposits and share capital in
order to track how profitable
the external loan has been for
the SACCO.
Picture 2: Wholesale Loan Repayment Schedule, Kijura SACCO
Kijura SACCO, considered a success since it promptly repaid both loans to the wholesaler
has, in fact, used share capital to repay several loan instalments. The members have been
informed of this. While the SACCO is uneasy with using member share capital to repay the
wholesale loans, the manager was clear that he does not want to default on an external loan
because having access to wholesale funds allows the SACCO to grow.
The Effects of Wholesale Lending to SACCOs in Uganda
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