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

without capacity building or training and, at times, are not very closely monitored. The
SACCO managers said they would prefer if MSC worked with them on long-term planning
and growth, specifically of membership, savings, and share capital. Several SACCO experts
we interviewed shared this thought and explained they would like to see MSC and the other
wholesale lenders assume more development institution roles.
Impetus for creation of SACCO
Given MSC’s recent initiative to financially support start-up financial institutions through the
Government Plan to Enhance Rural Financial Services in Uganda, many SACCOs are being formed
in order to access external, wholesale funds. Often these SACCOs are opportunistic and lack
the core principles necessary to be a strong SACCO. SACCO experts are nearly unanimous
in cautioning the government that SACCOs created in response to the availability of
government funds are very likely to fail, and urge the government to concentrate on the
creation of SACCOs using proven methods of SACCO formation, relying on training,
membership consciousness raising, and savings.
Outgrowing the Need for External Funds
The research team only identified one SACCO in Uganda that borrowed wholesale funds
and, upon completion of the loan, decided not to access subsequent loans for on-lending.
Shuuku SACCO accessed two wholesale loans in 2002 from two different lenders: MSC and
the Stromme Foundation. While the SACCO did not anticipate administering two external
credits at the same time, it accepted and managed to repay both without difficulty. Upon
completion of both loans, the BOD decided there was no further need for external loan
funds because the SACCO mobilised sufficient savings and share capital. The SACCO has
seen considerable growth over the past four years, pays 2% annual interest on deposits and
offers loans at 2.5% per month declining balance – a lower interest rate than all the other
SACCOs we visited. Since 2004 the SACCO has not used external funds and does not plan
on accessing wholesale credit in the near future.
Control SACCO Planning to Borrow
Focused Community SACCO is a relatively young, small SACCO in Kawempe, a peri-urban
area outside of Kampala. To date, it has
not borrowed external funds for onlending
but the manager plans to submit
an application to MSC next year. The
SACCO faces enormous competition in
the area as six other SACCOs serve the
same parish and Stanbic Bank, FINCA,
Faulu and several other financial
institutions operate in the area. The
manager and her team are trying to
design new ways to mobilise savings but
the SACCO is wary about recruiting
new members, as “people just want
credit.”
The Effects of Wholesale Lending to SACCOs in Uganda
Picture 7: SACCO Sign, Focused Community
SACCO
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