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

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Capacity Building and Training Many SACCOs receive capacity building and training of varying quality from multiple donor agencies, apex institutions and service providers. Unfortunately, the institutions providing the training do not often collaborate, resulting in SACCOs receiving training in the same areas from multiple sources. Often, the training is redundant or, worse, contradicts previous training SACCOs received on the same topic from a different service provider. Some institutions receive a large amount of training and capacity building while others receive very little. Frequently, the trainings are held for several days far from the SACCO’s location and distract the management and BOD. Additional capacity building constraints include a mismatch between prioritized needs and training, a lack of planned sequencing of trainings, a lack of accountability, and a lack of transparency and dissemination of results and findings. Ikongo SACCO reports that it is now receiving support in the form of training, advice, fixed assets or grants from AMFIU, District Microfinance Committee, MSC, PRISEC (the PSPC serving its region), Rural SPEED, SNV, SUFFICE, UCA and UCSCU. While the abundance of assistance has been welcomed by the SACCO, the manager admitted that the training the SACCO receives from different institutions often overlaps. Other SACCOs said the trainings often required travelling to Kampala for several days and distracted the managers and BODs from SACCO activities. Positive and Negative Effects of the Wholesale Loan During the field visits with SACCOs that have accessed external funding, the research team asked SACCO managers, BOD, and members what the positive and negative effects of the wholesale loan(s) have been. Respondents gave a variety of answers, several of which recurred in each of the interviews. The following lists present the common positive and negative effects of wholesale lending as defined by the SACCO managers, BOD and members. Effects are presented in order of frequency of the response. The positive effects are: 1. The loan portfolio increases, generating more income for the SACCO 2. Demand for loans is temporarily satisfied as more members can access larger loans 3. Membership increases, causing an increase in SACCO income from membership and entrance fees 4. Outreach expands as SACCOs serve new subcounties, populations and markets 5. Share capital increases because new members join the SACCO hoping to access loans and because Picture 6: Map of Member Outreach, Pakwach Nam SACCO The Effects of Wholesale Lending to SACCOs in Uganda members are forced to 33
purchase additional shares for every submitted loan application 6. Community businesses see improvements and increases in business operations since entrepreneurs are able to invest in the business 7. Voluntary savings increase because people feel more confidant in the institution 8. Loan sizes increase 9. Training from wholesale lender helps improve capacity and ability of institution and members 10. More individuals in the community are able to attend school and some attend higher levels of education as incomes and access to new or improved school fee loans increase 11. Professionals learn new skills because they, too, can borrow school loans to pay for institute courses, workshops or higher education 12. SACCO staff expands and management salaries increase because of new business/members The negative effects are: 1. A misperception of the money source causes an increase in delinquency on member loans, especially when members view the external funds as political or government grant money 2. The SACCO’s costs and expenses increase because of the additional management needs associated with the wholesale loan 3. The SACCO conducts poor loan appraisal because of pressure from wholesale lender to disburse the loan to members quickly 4. The management of external funds and required performance monitoring and reporting to the wholesale lender requires extra time, effort and abilities 5. SACCO must spend additional time recovering new loans and especially agriculture or solar energy loans, which distracts management from necessary day-to-day activities 6. Members misuse funds when they do not receive training, sensitisation and capacity building to support the disbursed loan 7. Voluntary savings decrease because people have less confidence in the SACCO if it defaults on repayments to wholesale lender 8. The disbursement of the wholesale loan often occurs long after the application was submitted and does not always coincide with the business cycles of the SACCO members 9. Record keeping suffers because of the rapid increase in number of members and the lack of a computerized system 10. If the wholesale loan is smaller than current demand for loans from members, some members are left out and lose a sense of ownership of the institution 11. Interest rates charged to members increased Perception of Wholesale Lender While the SACCOs visited for this study differed on many levels, they all shared the opinion that MSC as a wholesale lender prioritizes repayment over development and growth. The SACCO managers we interviewed said MSC provides little training and advising for longterm sustainability. MSC lends funds to rural SACCOs and expects 100% repayment (principal plus interest) from the institution. These external funds are frequently disbursed The Effects of Wholesale Lending to SACCOs in Uganda 34
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 and 26: in 2006. ZEU SACCO is focusing on r
Page 27 and 28: MEMBER PERCEPTIONS These findings r
Page 29 and 30: some members improved their repayme
Page 31 and 32: Total Outstanding Loan Balance Only
Page 33: Bugongi SACCO, on the other hand, s
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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