Research Journal of Economics & Business Studies - RJEBS - The ...

consumption during cash shortage and for other emergencies which neglects productive investment
(Kalifa Abdula, 2006). Following the above problems rural savings and credit cooperative unions
have: Inadequate capital base, Restrictive capital structure, Inadequate mix of financial products, Poor
investment decision making (without sufficient research on possible success and impacts on
members),Lack of observance of basic principles of banking and financial management, and
RUSACCOs have also threats or challenges because of liberalization the cost of borrowing has
become to prohibitive because of high borrowing, access to credit by RUSACCOs to other financial
institution has become very limited and cost of living has shot up astronomically hence the members of
the RUSACCOs cannot live comfortably without from their RUSACCOs this has created a high
demand for the loan able funds whose supply is constant and since RUSACCOs easily meet this
demand for loans members loyalty is at cross roads (Associates in Integrated Development (AFRICA)
Limited, 2007).
According to Berhane Kidanu (2008), RUSACCOs are operated and managed by elected committee
members. Most committee members are illiterate, even who attend elementary school and high school
lack the capacity to operate and manage efficiently. They lack basic knowledge and skill to perform
the day- to day activities of SACCOs. Hence, it is difficult to assume an efficient performance, which
meets the required standard in such condition. There is poor recording and book keeping. Besides, a
lack of savings facilities creates problems at three levels: (i) the level of the individual; (ii) the level of
the financial institution; and (iii) the level of the national economy. At the level of the individual, the
lack of appropriate institutional savings facilities forces the individual to rely upon in-kind savings
such as savings in the form of gold, animals or raw materials, or upon informal financial
intermediaries, such as Rotating Savings and Credit Associations (ROSCAs) or money-keepers. These
informal savings options, however, do not offer a combination of security of funds, ready access or
liquidity, positive real return and convenience in order to meet the various needs of the particular
saver. At the institutional level, RUSACCOs have micro product service windows on both sides of the
balance sheet, serving micro and small savers and borrowers with an average savings balance or loan
amount below the average per capita annual income in the respective countries. Yet the number of
RUSACCOs that exclusively offer credit is much larger than RUSACCOs with both savings and credit
facilities. Empirical studies have demonstrated that the performance records of credit-only
RUSACCOs in outreach and sustainability have not been widely successful (Schmidt/Zeitinger, 1996;
Christen et al. 1995, Yaron 1992). On the other hand, those RUSACCOs lacking effective savings
mobilization strategies are unable to increase their outreach to a significant number of clients. In
addition, few RUSACCOs that do not mobilize savings have attained full financial self-sufficiency,
independently covering their expenses for operations, loan loss, cost of funds and inflation with their
revenues. Throughout the world, RUSACCOs have often experienced that exclusively offering credit
services can lead to undue dependency on external sources of financing. This dependency can cause
the RUSACCOS to concentrate on the demands of the donors rather than on the demands of potential
clients, especially potential savings clients. At the level of the national economy, high levels of savings
increase the amount of national resources and decrease the need to resort to foreign indebtedness in
order to cover domestic investment and consumption demand. Numerous countries with low internal
savings rates must borrow from abroad, which results in a debt service burden. This clearly underlines
the importance of savings mobilization to sustain economic growth with national financial resources
(Elser, et.al 1999).The poor need sustainable access to financial services to be out of poverty. So
before dealing further on the issue of ‘sustainability’, it would be prudent to investigate first the key
issues that limit the expansion of the service. Why is there still low financial intermediation in
Ethiopia, particularly in rural areas?
www.theinternationaljournal.org > RJEBS: Volume: 02, Number: 06, April-2013 Page 59