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

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portfolio quality and aging reports prior to accessing wholesale loans. While some of the institutions now track delinquency and repayment of loans from members, there is little quantitative data to confirm the change in loan repayment to SACCOs. The available information on this topic is anecdotal. Three of the seven SACCOs interviewed in detail for this study claim that repayment rates improved after the institution accessed external funds. 6 These SACCOs cited several different reasons for the improved portfolio quality: 1. The SACCO did not inform members whether loans accessed were from external credit or member savings and share capital. This unknown led members to repay well so as to avoid losing their personal investments. 2. The SACCO sensitized the members regarding the source of the funds. The external borrowing was transparent and members understood the loan conditions. Members improved their repayment rates for fear that the SACCO would collapse if they defaulted, causing the SACCO to default on its repayment to the wholesale lender. 3. Because of the external funds, some SACCOs were able to disburse larger loans to stronger members, thereby improving portfolio quality. In some instances, loan repayment worsened after the injection of the wholesale loan. Panyimur SACCO, a generally well-performing SACCO, noted a decline in its repayment rate and an increase in the portfolio at risk (PAR). The repayment rate decreased from approximately 85-90% to 75-80% while the PAR Box 3: Governance and Corruption “During the elections they [the BOD] play tricks and it becomes hard for us to remove them. For example, the person in charge of managing the elections is bribed, then [the BOD] stage their people who do not give any one else a chance to nominate people. You wonder why all the positions are voted unopposed? You come with a candidate and they throw him or her out. This is just some few people’s business that the government is funding.” -- Male Member, Bushenyi People’s SACCO The Effects of Wholesale Lending to SACCOs in Uganda increased from 5% to 7-10%. The manager noted that the large increase in the SACCO’s loan portfolio occurred too quickly. This rapid increase in loan portfolio made manual loan tracking difficult. ZEU SACCO had a strong repayment rate prior to accessing wholesale loans. But member attitudes changed after the injection of the wholesale loan and default rates increased. The manager said that people who had previously taken four loans and repaid them without a problem took a fifth loan and suddenly defaulted after the wholesale loan arrived. The loan default rate of Buzaaya SACCO also increased after loans were disbursed from the external credit fund. Several members of the BOD took loans from the wholesale credit fund and defaulted. At the same time, no client sensitization was done and many members perceived the new funding as a government grant. 6 Some portfolio quality data was available for these three SACCOs. The financial records of one of the SACCOs contradicted management’s claim that its repayment rate improved after the injection of the wholesale loan: in fact the client default rate increased by almost 15% after the wholesale loan was accessed. 25
MEMBER PERCEPTIONS These findings result from the FGDs conducted by the Isaac Galiwango, a MicroSave trained Ugandan consultant. 7 Ownership The FGDs found that prior to accessing external funds for on-lending, members perceived the SACCO to be theirs. However, members’ perceptions of ownership after the SACCO accessed an external loan changed depending on the success of the SACCO. The SACCOs using interest earned from the external credit to maintain on-time repayment to the wholesale lender have members with a strong sense of ownership. These members are proud of the institution and its financial success. Members in these institutions (Bunyaruguru SACCO, Ikongo SACCO, and Panyimur SACCO) continued to invest in the SACCO by depositing voluntary savings and purchasing shares. The SACCOs having difficultly in repaying the wholesale loan to the lender or that use share capital or savings to make on-time repayments to the wholesale lender have members that often feel as though the SACCO belongs to those in positions of leadership or control. The members of Bushenyi People’s SACCO clearly explained that the SACCO “no longer serves its members”; instead, the members believe the BOD and a select group of their “comrades” benefit from the services of the financial institution. Several members stated that to access a loan from the SACCO, one has to receive approval from a member of the BOD. Members of this institution no longer have a sense of ownership and many of them have moved their personal finances to other SACCOs in the District. In Buzaaya SACCO the FGD participants explained that since receiving a wholesale loan, teachers have taken over the SACCO so they can manage it differently and shift the focus from rural peasant farmers (the founding members) to teachers. Members are not aware that the wholesale loan is being repaid using share capital yet they still feel as though the SACCO currently belongs to the BOD and close associates. Demand for Loans In each of the SACCOs visited, members commented that the demand for loans prior to accessing external funds exceeded the available supply of loan funds. Members explained they could access small loans for short periods of time but it was often common for members to wait long periods of time between loan approval and loan disbursement. Members reported that demand for loans increases after a SACCO receives a wholesale loan because members are aware there is more accessible capital. As a result of the external funds, 7 A detailed report of the FDG findings is available from the author of this report. The Effects of Wholesale Lending to SACCOs in Uganda Box 4: Savings Mobilization as a Path to Increasing Loan Funds: Part I, Ikongo SACCO In 2006, Rural SPEED collaborated with Ikongo SACCO on a savings mobilization campaign. Of the UGX 37 million given to Ikongo SACCO by Rural SPEED as institutional support, UGX 26 million was spent on the savings mobilization program. Within four months, the SACCO raised 1,000 new members resulting in increases in savings of UGX 25 million and share capital of UGX 14 million. 26
Page 1 and 2: The Effects of Wholesale Lending to
Page 3 and 4: © Financial Sector Deepening Proje
Page 5 and 6: LIST OF ABBREVIATIONS ADF African D
Page 7 and 8: SUMMARY This report presents the re
Page 9 and 10: MSC receives funding for its projec
Page 11 and 12: Uganda. In early 2006, FSDU circula
Page 13 and 14: epresent four rural regions of Ugan
Page 15 and 16: The data collection instruments are
Page 17 and 18: FINDINGS The findings presented in
Page 19 and 20: At the time of SACCO selection, Buz
Page 21 and 22: more shares every time they apply f
Page 23 and 24: Panyimur SACCO has offered, and con
Page 25: in 2006. ZEU SACCO is focusing on r
Page 29 and 30: some members improved their repayme
Page 31 and 32: Total Outstanding Loan Balance Only
Page 33 and 34: Bugongi SACCO, on the other hand, s
Page 35 and 36: purchase additional shares for ever
Page 37 and 38: Focused Community SACCO attributes
Page 39 and 40: produce regular performance reports
Page 41 and 42: committees now successfully coordin
Page 43 and 44: 7) Effective Expense Control. A SAC
Page 45 and 46: APPENDIX II: STEERING COMMITTEE MEM
Page 47 and 48: Fred E.G. Mwesigye Commissioner for
Page 49 and 50: APPENDIX IV: INTERVIEW GUIDE - SACC
Page 51 and 52: APPENDIX V: INTERVIEW GUIDE - SACCO
Page 53 and 54: APPENDIX VI: INTERVIEW GUIDE - SACC
Page 55 and 56: APPENDIX VII: INTERVIEW GUIDE - SAC
Page 57 and 58: Balance Sheet: Assets Loans to memb
Page 59 and 60: APPENDIX VIII: BUNYARUGURU SACCO GR
Page 61 and 62: APPENDIX X: KAJARA PEOPLE’S SACCO
Page 63: AMFIU Association of Micro Finance

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