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

Bugongi SACCO, on the other hand, saw similar increases in both loan portfolio and total
assets. According to WOCCU’s recommendations, Bugongi SACCO is generally on target.
However, the faster growth rate of total assets might indicate that potentially less profitable
assets are growing faster than the loan portfolio.
The most important factor to consider, however, is the quality of growth. Increases in loan
portfolio or total assets are not indicators of strength and viability if the quality of the
portfolio is poor. If the increase in loan portfolio is due to many new loans or larger loans
being disbursed to inferior members, the results will be serious.
Quality of Portfolio
As mentioned earlier, the quality of the loan portfolio is one of the most important
indicators of financial performance and future profitability. Many of the SACCOs we visited
began using the PMT after accessing wholesale loans, often because of the wholesale
lender’s requirements. Unfortunately, though, many SACCOs do not have portfolio reports
for the financial years before the injection of the first wholesale loan. Much of the
information about the effects of the wholesale loan on the quality of the SACCO’s portfolio
is anecdotal, and there are frequently differences in the opinions given by the BOD and
management. The effects of wholesale lending on present and future loan portfolio are
generally more difficult to measure than the effects on savings culture, profitability, and
member attitudes
ADDITIONAL FINDINGS
Inter-SACCO Wholesale Lending
The research team discovered a surprising development while in the field. Several large,
liquid member-based institutions have extended lines of credit to other SACCOs in the
region. For example, Muhame SACCO lent UGX 10 million to Bushenyi People’s SACCO
in 2004 even after MSC denied Bushenyi People’s third loan request and advised Muhame to
do the same. Bushenyi People’s SACCO used this loan to repay the final instalment of its
wholesale loan to MSC. Muhame SACCO also extended credit to Kamkuzi SACCO and
Rwebihuro SACCO. Bushenyi People’s SACCO was one month late on each payment to
Muhame SACCO and repaid the final interest payment and principal four months late.
Rwebihuro SACCO defaulted 100% on its loan to Muhame and relinquished the loan
collateral to Muhame SACCO.
A number of other SACCOs are lending to one another. Shuuku SACCO, currently not
borrowing external funds because of excess liquidity, extended a “social service” 12-month
loan to Kyamahunga SACCO with a 1.4% per month declining balance interest rate. 10 While
several of the SACCOs have maintained good repayment to the SACCO lenders, this
practice is not endorsed by many as it is seen as risking member savings, especially when the
SACCO borrower has already been refused loans from other prominent lenders.
10 Normally, Shuuku SACCO charges 2.5% per month reducing balance to its members.
The Effects of Wholesale Lending to SACCOs in Uganda
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