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

in 2006. ZEU SACCO is focusing on recovering bad loans while slowly restoring its
voluntary member deposits and share capital stock.
Changes in loan approval processes and quality of loan appraisal
Almost every SACCO we visited maintained its method of conducting loan appraisal and
loan approvals. Generally, members are required to complete a loan application form and
meet with the loans officer to appraise the member’s income generating activity, repayment
potential, collateral options, and standing with the SACCO. Most SACCOs employ a fairly
traditional loan appraisal process for each of the loan products they offer. However, two
SACCOs experienced difficulties with specific agriculture loans they received from the
wholesale lender for different reasons.
In the first case, Panyimur SACCO said MSC did not provide the promised capacity building
or training to the SACCO and its members when it received an agriculture loan. The
SACCO had selected and pre-approved members to receive training and subsequent
agriculture loans but when the training was not offered before the loan was disbursed to the
institution, the SACCO says it was forced to change its lending procedure. Before accessing
the wholesale loan, the SACCO had not issued agriculture-specific loans to its members. The
manager, therefore, hired a service provider to train the potential agriculture members.
Those members that attended the training session were eligible to receive an agriculture loan
from the wholesale funds. While the training was not comprehensive and only lasted one
day, it did allow the SACCO to disburse loans from a new loan product with some
confidence.
In a similar situation, ZEU SACCO received an
agriculture loan from MSC without the
accompanying training. The manager of ZEU
SACCO said he was pressured by the wholesale
lender to disburse the agriculture loan quickly.
This external pressure, he said, led the SACCO to
do poor appraisal of members and, as a result, to
make several bad loans. The management team
cites the inadequate loan appraisal and
disbursement process as the cause of ZEU
SACCO’s poor loan portfolio and troubled
repayment to the wholesale lender. The BOD of
this institution and the wholesale lender attribute
the poor performance of the agriculture loans to
inadequate and possibly dishonest client
appraisals done by the loans officer.
Changes in loan repayment to SACCO
Overall, the available loan repayment data of the
SACCOs is inadequate. The majority of SACCOs
in this study, as explained above, did not keep Picture 4: Loan repayment at Pakwach Nam
SACCO
The Effects of Wholesale Lending to SACCOs in Uganda
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