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

CONCLUSIONS
Several principle findings emerged from the study.
1) External funds will not help a weak SACCO become strong. In fact, weak
institutions that access wholesale credit for on-lending can potentially become weaker as
a result of the external loan. Wholesale lenders risk doing more harm than good when
they lend to SACCOs with weak management capacity, ineffective governance structures
or a poorly performing portfolio. On the other hand, external credit, when used
responsibly, may help a strong SACCO become stronger. If a SACCO shows good
growth potential in addition to strong management and governance structures, external
funds may help to improve the institution's performance.
2) The injection of wholesale loans into a SACCO can impact the savings culture of
the institution positively or negatively. However, the use of external credit is not the
only cause of an acceleration or deceleration in the savings rate. The change in a
SACCO's savings rate (whether positive or negative) is more dependent on the
management and governance structures and on the capacity building and support given
to the SACCO by external agencies than the injection of external funds. In the weak
SACCOs in this study, external credit changed the orientation of the institution from a
savings-led SACCO to a loan disbursement institution resulting in a deterioration of the
quality of the loan portfolio and amount of member savings. In stronger SACCOs, the
orientation of the institution remained savings mobilization and the SACCOs
demonstrated continued good portfolio quality and an increase in member savings.
3) SACCOs can be quite successful without accessing external funds. Two SACCOs
in this study have shown sustained growth over time without the use of external funds.
The success in both of these institutions comes from dedicated management and
governance teams, sensitized members, strong financial policies, and consistent capacity
building and training from outside sources. Neither SACCO plans to borrow external
funds in the near future; instead, both SACCOs plan to continue mobilizing savings
from their members and increasing the share capital in order to satisfy demand for loans.
4) Since problems in wholesale lending are closely tied to issues of governance and
management, the resources that are available for capacity building need to be used
as efficiently as possible. There is considerable anecdotal evidence of a lack of
coordination among service providers leading to inequalities in the amount of technical
assistance, redundancies and overlaps, contradictory messages, a mismatch between
needs and assistance given, a lack of planned sequencing, lack of accountability and
conditionality among recipients, and a disconnect between institutional assessments and
assistance given. Just as certification is required for any activity where there is potential
risk, whether for surgeons, drivers or airplane pilots, certification of some type should be
required of management and governance bodies who take on the risks to their
institutions, to their members and to wholesale lenders involved in wholesale debt.
5) The wholesale lender requirements can lead to improvements in management
practices, which can be of great value to the SACCO. As a result of the need to
The Effects of Wholesale Lending to SACCOs in Uganda
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