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

SUMMARY
This report presents the results of a study of the effects of wholesale lending to SACCOs in
Uganda, carried out by AMFIU, CCA, DFID, FSDU, GTZ/SIDA, MSC, Rural SPEED,
SUFFICE, UCA, and UCSCU. The objectives of the study were to: 1) review the
experiences of Ugandan SACCOs with wholesale lending; 2) determine the factors that
influence whether an external loan will have a positive or negative impact; and 3) give
practical advice and provide guidelines for wholesale lenders and potential borrowers. The
study consisted of: a desk review of existing documents; interviews with wholesale lenders,
apex institutions and government officials; and field visits to fifteen SACCOs in four regions
of Uganda, conducted between 5 July and 4 August 2006.
Six principal findings emerged from the study.
1) External funds will not help a weak SACCO become strong. In fact, wholesale
lenders risk doing more harm than good when they lend to SACCOs with weak
management, ineffective governance or poorly performing portfolios.
2) Wholesale loans to a SACCO can impact the savings culture of the institution
positively or negatively. In the weak SACCOs studied, external credit changed the
orientation of the institution from savings-led, to being simple mechanisms for the
disbursement of external funds, resulting in a deterioration of loan portfolio quality and
amounts of member savings. However, the change in a SACCO's savings rate depends
more on the quality of management and governance than on anything else. The strong
SACCOs studied retained their saving orientation after receiving external loans.
3) SACCOs can be very successful without accessing external funds if they have
qualified and dedicated management and governance teams, sensitized members, good
policies, and effective capacity building from outside sources. Two SACCOs in this study
have shown sustained growth over time without any external funds.
4) Efficient capacity building is crucial, since the success of wholesale lending is largely
dependent on the quality of governance and management. Unfortunately, there is much
anecdotal evidence of inequalities in the amount of assistance given; redundancies,
overlaps and contradictory messages in the assistance given by different providers to the
same SACCO; poor timing of interventions; lack of accountability and conditionality;
and a mismatch between institutional assessments and the assistance given.
5) Monitoring and reporting requirements imposed by wholesale lenders, in
particular requirements to age and provision the portfolio, can lead to
improvements in management practices of great value to the SACCO.
Unfortunately, most SACCOs studied do not recognize the value in these requirements.
6) Many SACCO members were negatively influenced by politicians who presented
the external funding as a government grant. In those cases, delinquency rates
increased after the loan. SACCOs that sensitized their members about the need to repay
the loan were more successful in maintaining high repayment rates.
The Effects of Wholesale Lending to SACCOs in Uganda
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