Why Ugandans are Embracing SACCOs: Best Practices and Pitfalls to Avoid

by Mmeeme Leticia Luweze
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Savings and Credit Cooperative Organizations (SACCOs) are rapidly gaining popularity across various Ugandan communities.

In almost all communities you visit today, there is an operational SACCO, whether at the church, marketplace, or hospital.

It seems the promoters of these SACCOs did some good advertising to get themselves into the hearts of people. Now, they are attracting more people seeking loans than banks, presenting themselves as the perfect savings and loan centers in Uganda. But are they?

The 2023 FinScope survey indicates that mobile money and SACCOs are the two biggest sources of credit for adult Ugandans, each contributing 16 percent to the overall share of 32 percent. The survey conducted by Financial Sector Deepening Uganda reveals that 16 percent of adult Ugandans, or approximately 3.9 million people, access credit through SACCOs, which is the same number as those accessing mobile money.

Uganda is among the countries with easy access to credit markets, with savings associations being the most popular source of borrowing. The survey, funded by the Bank of Uganda, Abi Finance, and the Bill & Melinda Gates Foundation, found that between 2018 and 2023, at least 51 percent, or 12.5 million of the 24.6 million adult Ugandans, had borrowed money from various sources, including mobile money, SACCOs, banks, credit institutions, micro deposit-taking institutions, saving groups, and family and friends.

Borrowing is classified as formal and informal, with SACCOs, banks, credit institutions, and micro deposit-taking institutions listed as formal channels, while saving groups and family and friends are listed under informal channels. Of the 12.5 million borrowers, at least 11.6 million borrowed formally, while just 1.5 million borrowed informally. Mobile money and SACCOs are the largest among formal lending sources, with a combined number of 7.8 million adult Ugandans borrowing through these two platforms.

Following mobile money and SACCOs, banks provide credit to 8 percent, or 1.9 million Ugandans, while credit institutions and micro-deposit-taking institutions provide credit to 4 percent (984,000) and 3 percent (738,000) of adult Ugandans, respectively. Just 1 percent, or 246,000, of adult Ugandans source their credit from microfinance institutions. Among informal borrowers, more than half of the 900,000 adult Ugandans, or 56 percent, borrow from saving groups, while the rest borrow from family and friends.

The survey indicates that more than 3,176 Ugandans were sampled across the country, representing 24.6 million adult Ugandans. It also reveals that at least 17.2 million adult Ugandans spend more than they earn, meaning the majority rely on family and friends, personal savings, and borrowing to cover financial shortages. The adult population in Uganda, defined as individuals aged 16 and above, has grown significantly from 18.6 million in 2018 to 24.6 million in 2023.

The Bank of Uganda emphasizes that saved money must earn interest. Breaking down the main purposes of saving in Uganda, the 2023 FinScope report shows that 39 percent of Ugandans save to help with regular expenses, up from 37 percent in 2018. However, the percentage of those saving to cope with unexpected expenses has dropped to 14 percent, down from 26 percent. Similarly, the rate of those saving to acquire, build, or renovate houses has decreased to 14 percent, from 26 percent in 2018.

On a more positive note, the fraction of those saving for business purposes has grown to 12 percent, up from 9 percent in 2018, while those saving to invest in agriculture have increased to 12 percent, up from 8 percent. The portion of savers who buy household goods has risen to 3 percent, up from 1 percent.

Presenting the report titled “Saving Mechanisms in Uganda: The FinScope Uganda Survey for 2023” in Kampala, senior analyst at FinMark Trust, Mr. Bobby Berkowitz, highlighted the dominance of informal savings mechanisms. He noted that despite the overall increase in savings among Ugandans, informal mechanisms still prevail, with two out of every ten Ugandans saving electronically through formal financial institutions.

Mr. Bobby pointed out that SACCOs and mobile money have registered the highest increases in adoption since 2018. The proportion of Ugandans keeping their money at home has more than doubled, possibly indicating a lack of confidence in financial service providers, whether formal or informal. The new FinScope survey shows that 42 percent of Ugandans now save through mobile phones, up from 23 percent in 2018, while savings through SACCOs have risen to 15 percent, up from 5 percent.

The survey indicates that overall financial inclusion in Uganda has increased, with formal inclusion currently standing at 81 percent, up from 77 percent in 2018. Currently, SACCOs have extended their reach to 98 countries, boasting a substantial membership of more than 400 million individuals and holding assets worth USD 3.6 trillion.

In Africa, statistics from the World Council of Credit Unions (WOCCU) released in 2022 indicate that the continent has a combined total SACCO membership of more than 43 million, holding about USD 24.5 billion in total assets compared to Europe’s USD 36.7bn, Oceana USD 112.5bn, Asia’s USD 640 billion and North America’s USD 2.5trillion.

Kenya leads the continent with 10.7 million SACCO members and assets worth USD 21.8 billion, demonstrating the profound impact of SACCOs in fostering financial inclusion.

Other African countries with the highest SACCO members include Ethiopia and Rwanda, with a membership of 6.1 million and 4.1 million and holding USD 807.6 million and USD 347.9 million, respectively. Uganda has just over one million SACCO members belonging to 896 credit unions.

The growth in SACCOs aligns with the reality that a significant portion of the global population, approximately 1.4 billion people, remains unbanked. The Global Findex Report for 2021 identifies reasons such as lack of awareness, limited access, inconvenience, unstable income, and trust as contributing factors to this staggering statistic.

As such, SACCOs, functioning as trusted entities, have emerged as a solution to bridging this financial gap, offering a reliable and accessible avenue for individuals to engage with the formal financial sector.

Like in most African countries, banks have since partnered with SACCOs to extend their financial services to the underserved population, especially in the rural areas, where the majority of the population live.

How SACCOs Can Thrive More in Uganda

The State of Microfinance in Uganda 2012/13 notes that to ensure sustainable growth and effective service delivery, SACCOs should prioritize the implementation of performance measurement tools (PMT) and the regular sharing of performance data. By utilizing PMTs, SACCOs can track their progress and identify areas for improvement. Regular reporting of performance data not only allows for in-depth analysis of financial statements but also enables stakeholders to provide meaningful feedback and recommendations. AMFIU, as the national apex organization for MFIs, plays a crucial role in providing analytical insights to SACCOs and guiding them toward achieving their objectives.

In addition to performance monitoring, SACCOs should focus on systematic product development tailored to the diverse needs of their clients. Specifically, SACCOs should explore the development of loan products customized for different agricultural value chains to better serve their members engaged in agriculture-related activities. Moreover, SACCOs should embrace innovation in outreach mechanisms, leveraging technologies such as branchless banking and mobile branches to expand their reach and accessibility. These initiatives will not only enhance convenience for members but also contribute to the growth and sustainability of SACCO operations.

Furthermore, SACCOs must prioritize risk management strategies that take into account the institution’s size and location. By conducting thorough risk assessments, SACCOs can proactively identify and mitigate potential risks, safeguarding their financial stability and reputation. Additionally, SACCOs should enhance their human resource management practices to ensure efficient operations and maintain high-quality loan portfolios. This includes recruiting qualified personnel, setting performance targets, and implementing incentives to motivate staff. By adopting these recommendations, SACCOs can strengthen their position as key contributors to financial inclusion and economic development in Uganda.

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