The impact of SACCOs on financial inclusion in Uganda

by Business Times writer
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Savings and Credit Cooperative Organizations (SACCOs) have been instrumental in positively influencing the lives of a vast number of Ugandans. Notably, SACCOs have significantly mitigated the financial exclusion experienced by millions within the Ugandan populace.

In Uganda, financial inclusion remains a challenge in spite of the many gains and successes the country has achieved in the financial sector.

Financial services such as savings products, credit and loans, payment and money transfer services, provide the population with greater capacity to stabilize and increase their incomes.

Additionally, financial services help individuals and communities to build assets and cope with shocks. Financial products have proven to be great tools that mitigate the effects of low, irregular and unreliable incomes.

A 2013 survey by the Makerere University think tank, the Economic Policy Research Center (EPRC) revealed that only 20% of adults in Uganda had access to a formal bank account and only 12% borrowed formally in the last 12 months. Only 2% of adults had any form of formal insurance.

The small numbers suggest a critical need for a further push to the financial inclusion agenda to ensure that the people at the bottom of the pyramid join the financial system, reap benefits and improve their financial well-being.

In 2017, government launched its National Financial Inclusion Strategy (NFIS) 2017 – 2022 which entailed that all Ugandans have access to, and use of a broad range of quality and affordable financial services to ensure their financial security.

The NFIS aimed to reduce financial exclusion.

The NFIS based on five key pillars which include: reducing financial exclusion and barriers to access financial services; developing the credit infrastructure for growth; building the digital infrastructure for efficiency; deepening and broadening formal savings, investment and insurance usage; and protecting and empowering individuals with enhanced financial capability.

At the end June 2023, SACCOs in Uganda had reached 33,000, according to Ministry of Finance.

The country has 10,594 registered SACCOs under the Parish Development Model (PDM), 6,700 under Emyooga, and 15,706 registered as other SACCOs.

SACCOs have proved their ability to reduce the financial exclusion in Uganda by providing accessible financial services to marginalized communities, including rural areas where traditional banks are scarce.

By offering savings, credit, and other financial products, SACCOs have empowered individuals who did not have access to formal banking institutions, thus bridging the gap between the financially included and excluded.

SACCOs have provided cheap credit, and empowered millions of Ugandans to start their businesses and create millions of jobs. 

Accessing capital poses a significant obstacle for Ugandans due to the combination of high-interest rates imposed by commercial banks and the necessity for collateral security, a resource lacking among over 78% of the Ugandan population.

A 2022 Report on the Project for Financial Inclusion in Rural Areas (PROFIRA) – a government supported programme under the Ministry of Finance reveals that savings groups, such as SACCOs and community-based savings and credit groups (CSCGs) have had positive impacts on economic outcomes and women’s economic empowerment in Uganda.

SACCOs and CSCGs are both voluntary associations through which members regularly pool their savings and subsequently, obtain loans which they use for various purposes. 

PROFIRA was implemented across all four main regions of the country, with a focus on CSCGs in the Eastern, Mid-North and West Nile regions, while interventions for SACCOs were concentrated in the Central, Southwest, and Western regions.

The report reveals that SACCOs saw a large relative increase in their savings and loans portfolio between 2016–2017 and 2019–2020, whereas the increase in savings for CSCGs was more modest.

“The average savings portfolio for Category A SACCOs increased from a range of UGX 600 million (Eastern region) and 800 million (Central region) in 2017 to a range between UGX 800 million (Eastern region) and 1.5 billion (Central region) by 2020, with the largest increase for SACCOs in the Central and Western region,” the report reads.

The report also shows that members joined SACCOs and saving groups mainly to ccess affordable working capital to do business and improve livelihoods.

“Women members reported difficulties in accessing bank loans since they lacked collateral as a motivating factor for joining these groups. SACCOs and savings groups help them mobilize their savings and acquire credit. Women also mentioned business development training as a reason for joining SACCOs and savings groups.”

Women in SACCOs and CSCGs generally reported relatively high levels of decision making and autonomy in their households.

“Most women who were participating in productive activities had a relatively high degree of autonomy, with more than 60% making sole decisions about their participation, except in activities related to large livestock farming and large occasional household purchases.”

SACCOs extend easily accessible financial services to underserved communities, particularly in rural regions where conventional banks are limited. Through the provision of savings, credit, and various financial offerings, SACCOs empower individuals who lack access to formal banking establishments, thereby narrowing the disparity between those who are financially integrated and those who are not.

SACCOs promote financial literacy and inclusion through education programs tailored to their members. These programs enhance financial understanding and encourage responsible financial behavior, enabling individuals to make informed decisions about savings, investments, and borrowing.

Additionally, SACCOs offer easier entry requirements than banks, enabling people with limited funds or a troubled credit past to utilize financial services. This inclusiveness promotes economic empowerment and community resilience, thereby diminishing poverty rates and advancing sustainable development goals.

SACCOs play a pivotal role in driving financial inclusion in Uganda through their provision of accessible services, promotion of financial education, emphasis on inclusivity, and utilization of technology to reach marginalized groups. Their initiatives substantially reduce financial exclusion and stimulate economic growth and stability. 

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