CIDR Gusii SACCO Report
ANNEX 2
Socio Economic Analysis of Kisii, Gucha & Nyamira Districts – Gusii SACCO Market Assessment
By
Miriam Cherogony1
P.O Box 41378 – 0100 Nairobi, Kenya Tel: (254) 2 2717911 Fax: (254) 2 2710082 E-Mail: [email protected] or [email protected]
1 Miriam Cherogony is the Programme Coordinator for AFRACA
1 CIDR Gusii SACCO Report
ACKNOWLEDGEMENT
We are indebted to many people for their inputs, which have formed the basis for the outcome of this study. We are most grateful to Gusii Farmers Rural SACCO (GRFS) for opening and accepting to be involved in this study and CIDR, France for providing the financial assistance to undertake this study.
Our biggest debt is however the General Manager, Mr. Celestine Nyamumbo, Marketing department officers and the entire program staff of the institutions who organized the data for the questionnaires and the in-depth interviews on the success and challenges that face their industry. We would like to thank the farmers who participated in the exercise. We cannot mention each one of them individually but for all the people who participated accept this as a token of our appreciation. Our thanks also go to David Cheruiyot for the Research Assistantship and Njambi for database management.
None of these contributions is however responsible for any errors of opinion, interpretation of facts, or omissions in this report.
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TABLE OF CONTENTS
ACKNOWLEDGEMENT ...... 2
TABLE OF CONTENTS ...... 3
LIST OF ACRONYMS ...... 4
1.0 INTRODUCTION ...... 5
2.0 OVERVIEW OF RURAL SACCOS IN KENYA ...... 12
3.0 MARKET ASSESSMENT FOR GUSII SACCO ...... 19
4.0 PRODUCT ATTRIBUTES FOR GUSII SACCO SERVICES ...... 41
5.0 CHALLENGES FACING GUSII SACCO ...... 46
6.0 RECOMMENDATIONS TO CIDR ...... 48
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LIST OF ACRONYMS
ASCA Accumulating Savings and Credit Association CPCS Cooperative Production Credit Schemes CSS Cooperative Savings Schemes KTDA Kenya Tea Development Authority KERUSSU Kenya Rural Saving and Credit Association KNFC Kenya National Federation of Cooperatives KUSCCO Kenya Union of Savings and Credit Cooperatives KWFT Kenya Women Finance Trust MFI Microfinance Institution MPC Marketing of Produce Cooperatives MSE Medium and Small Enterprises NGO Non-Governmental Organization SACCO Savings and Credit Cooperatives SASA SACCO Savings Accounts ROSCA Rotating Savings and Credit Associations UBS Union Banking Sections
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1.0 INTRODUCTION
1.1 Administrative Boundaries The three district of Kisii, Nyanira and Gucha covers a total land area of 648.9, 896.4 and 660.8 sq. km (Statistical Abstract 1995). Kisii district borders Rachuonyo to the North, Nyamira to the East, Transmara to the south, Migori to the west and Gucha to the Southwest. Nyamira district borders Rachounyo to the North, Buret to the East, Bomet to the Southeast, Transmara to the South and Kisii to the west. Gucha district borders Kisii to the North, Transmara to the south and Migori to the west.
Table 1.1 shows the district information and administrative units. Nyamira district is the largest in terms of area covering roughly 896 Km2, followed by Gucha district which covers 661 Km2, and lastly is Kisii district that covers 649 Km2. Nyamira district has 7 division, 24 locations, and 74 sub- locations. Nyamira district has three political constituencies, with four local authorities and 40 wards which have elected councilors to the local authorities. Gucha district has 7 division, 30 locations, and 78 sub-locations. Gucha district has three political constituencies, with five local authorities and 44 wards. Kisii district has 6 division, 31 locations, and 92 sub-locations. Kisii district has four political constituencies, with five local authorities and 63 wards.
In Kenya we have the administrative units which are provinces, districts, division, location and sub- locations. There are also political administrative units which is constituencies and local authorities. A constituency has an elected member of parliament; it is based on the population of potential electors. The local authorities are composed of town or urban councils and county or rural council.
Table 1.1: District Areas and Administrative Units Kisii Central District Nyamira District Gucha District Area 648.9Km2 896.4 Km2 660.8Km2 Division 6 7 7 Locations 31 24 30 Sub-locations 92 74 78 Constituencies 4 3 3 Local Authorities 5 4 5 Wards 63 40 44 Source: Development Plan
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1.2 Topography and Climate
Table 1.2 shows the topography and climate of the three districts. Nyamira district has 818Km2 arable land or 91 % of the district with 40km2 of non arable land. Gucha district has 529 Km2 of arable land and 132 Km2of non-arable land area. Kisii district has 506 Km2 arable land area and 143 Km2 of non-arable land. The average altitude for the three district range are as follows; 1,400 m above sea level (a.s.l) for Kisii, 1, 600 m a.s.l for Nyamira and 1,700 m a.s.l. The entire three districts have two rain periods. The long rains for Gucha and Kisii come from February to June and short rains September to November with a temperature of 21 o C and 21.5 o C respectively. Nyamira district on the hand has a longer rainy period with the long rains coming from December to June and short rains come between the months of July to November with an average temperature of 19o C
Table 1.2: Topography and Climate Kisii Nyamira Gucha Arable Area 506.2 Km2 818Km2 528.6Km2 Non-Arable Area 142.7 Km2 40Km2 132.2Km2 Water & Forest 0 2Km2 0 Area Ave Altitude (a.s.l) 1,400 m 1,675 m 1,730 m Ave Annual 1,500 mm 1,200 mm 1,500 mm Rainfall Rainfall by Seasons Short Rains Sept – Nov. Jul – Nov. Sept – Nov. Long Rains Feb – June Dec – June Feb - June Average 21.5 oC 19 oC 21oc Temperature Source: Development Plan
1.3 Demographics and Population Profiles Table 1.3 below shows the demographic and population profiles for the three districts. Nyamira district has the highest population of 535, 288 people. Kisii district has a population of 522, 197 people and Gucha has the lowest population of 491, 704 people. The female to male ratio is not very different in the three districts; it is 100:91, 100:93 and 100:92 in Kisii, Nyamira and Gucha respectively. The total labor force in the three districts is 266,728; 271,531 and 253,161 in Kisii, Nyamira and Gucha respectively. Nyamira district has the biggest labor force. The dependency ratio again is not very different it ranges 100:96; 100:97 and 100:94 for Kisii, Nyamira and Gucha respectively. The population growth is highest in Gucha at 2.8% and lowest in Kisii with 2.2%. Nyamira has a rate of 2.4%. Gucha district is the most densely populated with 759 persons per Km2 ,
6 CIDR Gusii SACCO Report followed by Kisii with 693 persons per Km2 and Nyamira with 609 persons per Km2. Infant mortality is highest in Kisii at 90/1000 and similar for both Nyamira and Gucha at 80/1000.
Table 1.3: Demographic and Populations Profiles Kisii Nyamira Gucha Population 522,197 535,288 491,704 Rural Population 356,852 (68%) 346,931 (65%) 346,050 (70%) Urban Population 169,299 (32%) 188,358 (35%) 145,664 (30) Female: Male Ratio 100:91 100:93 100:92 Labor Force (15-64) 266,728 271,531 253,161 Dependency Ratio 100:96 100:97 100:94 Pop. Growth Rate 2.2% 2.4% 2.8% Ave Pop. Density 693 Persons/Km2 609Persons/Km2 759 Persons/Km2 Infant Mortality Rates 90/1000 80/1000 80/1000 Source: Development Plan
1.4 Socio-Economic Indicators Table 1.4 shows the total number of households in the three districts. There are 100,315 households in Kisii, 107, 000 households in Nyamira and 89, 776 households in Gucha. A household is a group of people eating from the same pot. The average household has 5 people in Kisii and Nyamira but with 6 persons in Gucha. The absolute poverty in the three districts is 57%, 62% and 57% in Kisii, Nyamira and Gucha respectively. In terms of contribution to national poverty Nyamira leads by contributing 2.2% followed by Gucha 1.7% and last is Kisii with 1.5%.
Table 1.4: Socioeconomic Indicator Kisii Nyamira Gucha Total No. of H/Holds 100,315 107,000 89,776 Ave H/Hold Size 5 5 6 Absolute Poverty 56.9% 62.3% 57% Contrib. to Nat. Poverty 1.5% 2.2% 1.7% Source: Development Plan
Table 1.5 shows the sector contribution to the household income. Agriculture is the biggest contributor to household income in Gucha by contributing 70%; in Kisii it contributes 44% and Nyamira 43%. Wage employment is the second contributor to household income in Kisii contributing 34% and Nyamira 41% and 15% in Gucha. Unemployment is highest in Kisii with 9.9% of the population, followed by Nyamira with 5.1% and lastly Gucha with 4.8 % unemployed (Source: Labor Force Analytical Report Volume IX, 1996).
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Table 1.5: Sector Contributions to the Household Income
Kisii Nyamira Gucha Agriculture 44% 43% 70% Wage Employment 34% 41% 15% Others 22% 16% 15% No. of Unemployed 9.9% 5.1% 4.8% Source: Development Plan
Table 1.6 shows the agriculture sector statistics. The average farm size is 0.4 ha in Kisii, 0.45ha in Nyamira and 0.5 ha in Gucha. The food crops grown in all districts include maize, finger millet, sorghum, beans, groundnuts, traditional vegetable and bananas. The cash crops include tea, coffee, pyrethrum, sugarcane and bananas. The acreage under food crops was 25, 000 acres in Kisii, 65,500 in Nyamira and 45, 847 in Gucha. The total acreage under cash crops is 13,500 acres in Kisii, 13,960 in Nyamira and 10, 913 in Gucha district. The total number of people in the population involved in agriculture is 85% in Kisii, 80% in Nyamira and 79% in Gucha.
Table 1.6: Agricultural Sector Statistics Kisii Nyamira Gucha Ave. farm size (s/scale) 0.4 ha 0.45 ha 0.5 ha Food Crops Maize, beans, bananas, Maize, Beans, Maize, bananas, finger sweet potatoes, finger sorghum & finger millet, sweet potatoes millet, ground nuts, millet traditional vegetable Cash Crops Tea, coffee, pyrethrum, & Tea, pyrethrum, & Tea, coffee, sugarcane, sugarcane coffee pyrethrum, bananas. Total acreage food crops 25,000 acres 28,000 acres 45,847 acres Total acreage cash crops 13,560 acres 13,960 acres 10,913 acres Total No. of Pop. 85% 80% 79% Working in Agric Sector Source: Development Plan
Table 1.8 below shows the other development indicator for the three districts. Kisii district in terms of all other indicators such education, health, energy, transport facilities, communications, trade & commerce. Kisii has over 19,000 households with piped water compared with 4,900 in Nyamira and 5,500 in Gucha. Gucha district has more primary schools at 565, followed by Kisii with 391 and Nyamira with 388. In terms of secondary schools Nyamira has 128, Gucha has 126 and Kisii has 105. Kisii leads in tertiary institutions with 65 of them with one university located here, Nyamira has 37 and Gucha has 10. In terms of Health, Kisii has 5 hospitals and Nyamira and Gucha each has 2. In terms energy, Kisii has over 13,000 households with electricity, over 6,000 in Nyamira and over 2,000 in Gucha. Nyamira has 14 trading centers with electricity,
8 CIDR Gusii SACCO Report followed by Kisii with 10 and last is Gucha with 7. In terms of road network Nyamira has 662 Km, Kisii has 482 Km and Gucha has 436 Km. In terms of communication, Kisii lead with over 4,000 households with telephone and 15 post and sub-post offices, followed by Nyamira with 388 household and 15 post and sub-post offices. Gucha has 38 households with telephone and four post and sub-post offices. In trade and commerce Gucha has 55 trading centers, followed by Nyamira with 53 and Kisii with 64.
Table 1.7: Development Indicators by District Kisii Nyamira Gucha Water No. of H/Holds with piped water 19,435 4,880 5,500 Education No of Primary Schools 391 388 565 No. of Secondary Schools 105 128 126 No. of tertiary institutions 65 37 10 Health No. of Hospitals 5 2 2 Energy No. of H/Holds with Electricity 13,500 6,099 2,240 No. of Centers with Electricity 10 14 7 Transport Facilities Road Network 482 Km 662 Km 436Km Communication No. of H/Holds with telephone 4,051 388 38 No of Post & sub-post office 15 15 4 Trade & Commerce No. of trading centers 64 53 55 No. of licensed business 9,289 7,098 1,500 No. of informal Business 300 1,088 200 Source: Development Plan
1.5 Formal and Semi-Financial Institutions Table 1.8 below shows the formal and semi formal financial institutions found in the three districts. There are four banks (Kenya Commercial Bank (KCB), Barclays Bank, National Bank and Cooperative Bank) in Kisii, two banks KCB and National Bank in Nyamira and no banks in Gucha. There are four other financial institutions in Kisii, two in Nyamira and three in Gucha district these are Kenya Industrial Estates (KIE), Industrial Commercial Development Corporation (ICDC) and Agricultural Finance Corporation (AFC) and Post Bank. There are 7 NGOs in Kisii, two in Nyamira and four in Gucha these NGOs include microfinance institutions, that is, WEDCO with an outstanding portfolio of Ksh25 million, FAULU Kenya with an outstanding portfolio of Ksh11 million, Kenya Women Finance Trust (KWFT) with an
9 CIDR Gusii SACCO Report outstanding portfolio of Ksh4.5 million. K-Rep Development Agency (KDA) has their smallholder agriculture project operating in the area with an outstanding portfolio of Ksh6 million. There are 33 different marketing cooperatives in Kisii, 41 in Nyamira and 28 in Gucha. Out of these cooperatives there are 13 SACCOs in Kisii, 5 in Nyamira and 7 in Gucha.
Table 1.8: Statistic on Financial Institutions Kisii Nyamira Gucha No of Banks 4 2 0 No. of other Fin. Inst. 4 2 3 No. of Microfinance Inst. 7 2 4 No. of Cooperatives 33 41 28 SACCOS 13 5 7 Others 20 36 21 Source: Development Plan
Table 1.9 shows the selection criteria summary for the three districts that were being assessed. Looking at the various areas of development the district was given a ranking of 1 for best, 2 better and 3 for good. If you are looking for good infrastructural development and linkage to markets then Kisii district would be the best to target but if one is looking for rural development and poverty reduction then Gucha district would be the best to target. Gucha and Nyamira districts are relatively new hived out of the greater Kisii district, they are more agriculturally endowed and more rural than Kisii district In terms of community cohesiveness given the rural nature Gucha would probably give the better results.
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Table 1.9: Selection Criteria Summary
KISII NYAMIRA GUCHA
District with Economic Potential: Favorable climatic conditions 3 1 2 Fertile lands 3 1 2 Cash crops 3 1 2 Diversified agricultural and economic activities 1 2 3 Access to distribution channels 1 2 3 Market prices stability 1 2 3 Populated Zone: High population density 2 3 1 Village size above 2000 inhabitants 1 3 2 Socio-economic features: Literacy level 1 3 2 Employment level 1 3 2 Strong, Social Dynamics, Identity and Cohesion: Inter-village collaboration 3 2 1 Dynamic socio-professional groups 1 2 3 Practices of mutual help and solidarity / traditional self- helped groups 3 2 1
Financial Sector and Services: Developed banking sector 1 2 3 Informal financial services 3 2 1 Few microfinance initiatives 3 2 1 Local savings to be mobilized 3 2 1 Good loan repayment history 3 2 1 Willingness of community to acquire new skills in financial management 3 2 1 Partners: NGOs involved in community development, strengthening capacities 1 2 3 Microfinance institutions 1 3 2 Commercial banks 1 2 3 Total 43 46 43 Ranking 1 2 1
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2.0 OVERVIEW OF RURAL SACCOS IN KENYA
2.1 Introduction In Kenya the cooperative movement started in 1908 with societies formed by the white settlers to market dairy products. It was not until 1931 that the first Cooperative Societies Ordinance was enacted. In 1945 due to problems experienced the Co-operative Societies Ordinance was repealed. The indigenous Kenyans became involved in co-operatives activities after independence when the Government embarked on the africanization of the economy. The initial attempt to involve the African farmers is linked to the recommendations of the “Swynnerton Plan” of 1953 which encouraged African farmers to grow cash crops and this in turn encouraged the growth if African cooperatives. Currently, there are a total of over 4, 000 registered SACCO societies which represent forty percent of all registered cooperative societies. The co-operative movement contributes well over forty-five (45) per cent of Kenya’s GDP. It is estimated that at least one out of every two Kenyans directly or indirectly derives his/her livelihood from the Cooperative movement.
Recently in the late 1990s, most urban and rural SACCOs have started or are in the process of starting front office services (FOSA or SASA), which introduced savings services to members and non-members. During the 1990s, the Cooperative sector was liberalized in Kenya; SACCOs are autonomously administered and managed with no interference from Department of Cooperative or funding agencies. The SACCO is controlled by an elected (either by delegate system or directly by members through electoral boundaries) management committees and staff. The SACCO members have a common bond to ensure social control. They are registered under the Cooperative Act. There are several actors in the SACCOs movement, for example, Department of Cooperatives under the Ministry of Agriculture and Rural Development (MARD), Kenya National Federation of Cooperatives (KNFC), Cooperative bank, Kenya Union of Saving and Credit Cooperative (KUSCCO), Kenya Rural Savings and Credit Co-operatives Union (KERRUSU), and Cooperative Insurance Company (CIC).
2.2 Historical Development of Rural SACCO Movement in Kenya
2.2.1 Overview Co-operative movement in Kenya has evolved over time. In the 1960s, the Government put a lot of emphasis on the movement as a vehicle to mobilize domestic financial resources for the overall development of the country. The major policy statement is contained in the Sessional paper No.10
12 CIDR Gusii SACCO Report of 1965 whereby a tripartite system of mobilizing savings and availing the same in form of short and medium term softer loans to co-operative members.
Rural savings and credit co-operatives emerged and flourished in Kenya soon after independence. The aim of the Cooperatives was mainly to provide funds for rural credit because the existing credit institutions were not in favor of providing rural credit. Initially, the Government launched the Co-operative Production Credit Scheme (CPCS), which had a saving component. The savings component became known as the Co-operative Savings Scheme (CSS) and this savings product later transformed to become banking units of marketing of produce cooperatives (MPCs). In Cooperative Unions operating both the CPCS and CSS, Union Banking Sections (UBS) were established; the first was registered in 1964 as “thrift licensee” cooperative societies. Their development was in response to the scarcity of domestic savings. Throughout 1970s the UBS´s flourished.
2.2.2 Development and Transformation of UBS
The unions were established as secondary (2o) structures supported by the primary (1o) cooperatives, which in turn were answerable to its members. By early 1980s, most of the Unions were experiencing debt problems that exposed depositor’s funds to creditors of the union. This was as a result of the by laws that did not differentiate between member’s funds and union assets.
By early 1980s it was realized that UBSs were founded on shaky legal and institutional framework as appendages of marketing union. Concern was raised over security of members’ funds. The following problems mitigated the existence of the UBSs and led to their transformations: -
When the mother union was not financially sound and UBS staff was subordinate to General Manager there was a likelihood of misapplication of funds to bail out the union general. If the mother union went under, the UBS with depositors’ funds would also sink. Members’ funds could easily be attached for income tax and creditors of the mother union.
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In 1985 an attempt was made to de-link UBS from the Union. There was a deliberate effort by Government to transform the UBS into autonomous SACCOs. The first Rural SACCO society was registered in 1986.
Currently, only two Unions (Kiambu Dairy and Pyrethrum Farmers Union and Meru Central Farmers Union) have not undergone a transformation. Most of the others have transformed. In some of Unions like Mugama Farmers in Muranga with its SACCO called Murata, Kirinyaga Farmers in Kirinyaga and the offshoot SACCO, and Aembu Farmers and the SACCO the transformation were not managed well and have resulted in infighting and several litigations. Mugama Farmers Union has started another UBS and is now competing with Murata SACCO. Most of the coffee unions like Kiambu Farmers Union, Masaku Farmers Union, Aembu Farmers Union and Gusii Farmers Unions became dormant with the collapse of the coffee sector. The SACCO offshoot for Gusii and Aembu Farmers Unions that sprouted after the transformation are quite strong and self-reliant.
Most of the original large coffee Unions has collapsed as a result of the collapse of the coffee sector. The Unions that survived the collapse of the coffee sector were those that had diversified to other services provision to members. For example in the 1970 the giant Meru district Cooperative split into three unions namely: Meru Central, Meru North and Meru South Farmers Cooperative Union. Meru Central is by far the strongest with 75 primary societies; 50 coffee societies and 25 dairy societies. The Union has various sections that operate independently to provide services to members such as coffee, dairy, Banking, Hotel, Maintenance section, Stores and consumer shop and petrol and garage workshop.
2.2.3 Current Legislative Framework
The Government has followed the development of the sector keenly. Department of cooperatives has developed manual both for the urban and rural SACCOs. Where trends have demanded they have revised the manual through issuance of circulars and policies for example the revised loan policy No. 1 of 1992 and the investment guidelines for SACCOs of November 1985. In 1997 the Government revised the Cooperative Societies Act and introduced section 35 to ensure the operations of SACCOs were not disrupted by non-remittance of members check off by employers.
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Stakeholders in the cooperative sector have presented proposals requesting more legislation be enacted to cater for SACCOs with Front Office services. Some of the proposals are close to the requirement of the Banking Act. The aim of the legislation is to cater for the safety of member funds deposited in the front office and to reign on any errant management committee.
Another bill is to be tabled in parliament recommending a repeal of section 91 to create a regulatory authority in the regulatory Act called Cooperative Finance Regulation Authority (CFRA), which would check on management of SACCOs and separate management from governance of SACCOs. It is also suggesting the formation of SACCO development fund.
2.2.4 Rural SACCO Institutional Design
SACCOs are organized under rules and regulations that are fairly uniform wherever a SACCO exists. The SACCOs are members owned and member operated non-profit organizations that operate as cooperative financial institutions.
SACCOs have a common bond that links their members. In open bond, or community based SACCOs members hail from the same community, village or area of residence. In a closed bond or occupational SACCO members belong to the same profession, are engaged in the same occupation or work in the same company or grow the same cash crop like tea, sugarcane, coffee etc. Thus occupational have a more homogenous membership than community based SACCOs. Most SACCOs in Kenya are closed bond organizations although there is a push to open up the bond. Most of the SACCOs have opened front offices and provide banking services to members and a savings facility to non-members.
A management committee and salaried employees run each SACCO. The committee comprises a board of directors, a credit committee, a loan monitoring committee and training and marketing committee.
The Credit committee analyzes all loan requests and makes final decision on granting loans. Large loan requests are submitted to the board of directors for final approval. On average, one third of management committee members are women in SACCOs with mixed (male and female) membership. The Manager of the SACCO is responsible for the day-to-day decisions; the ultimate control of the organization belongs to the general assembly of member-owners.
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Figure 2.1 Generic Organizational Outline of a Rural SACCO in Kenya, 2002
General Assembly
Supervisory Board of Credit Training & Committee (3 Directors (7- Committee (3- Marketing Members) 11 members) 6 Members) Committee (3 Members)
Management Committee (3-5 members)
Manager & other staff (Salaried)
Source: Survey May 2002
2.2.5 Rural SACCO Policies
2.2.5.1 Membership Policy Membership in the Kenya SACCOs follows a closed bond of either employee based or crop based. Minimum membership fees requirement vary from SACCO to SACCO with the average being Kshs200 (US$3) and differ between the rural and in urban SACCO. Membership fees include a minimum deposit of member’s shares. The membership fees are treated as income for the SACCO and there is usually a proposal to increase it.
2.2.5.2 Share Capital For most of the Kenyan SACCOs, share capital cannot be traded or sold to others outside of the institution. Members get restitution of their share upon resignation from the SACCO. The rate of return on share capital is quite low, but most of the SACCOs do pay dividends by distributing profits to members usually 5-8 per cent the value of shares. Some confusion arose in most of the SACCOs regarding members savings were transformed into un-withdrawable deposits or share capital. The demand for withdrawable savings led to the front offices.
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2.2.5.3 Lending Policies Rural SACCOs mobilize deposits from their members and provide loans to their members only. The member’s shares ownership and crop production is crucial in determining eligibility for credit and the size of the loan. In general, rural SACCOs members have a right to borrow a multiple of their share or a fraction of their crop production, frequently two to one with shares (2:1) and a certain ratio of last six months crop production. If the ratio increases to three to one then the effective rate implicitly charged on the net proceeds of the loans is reduced. For example, the effective rate of interest is twice the contractual rate when the multiple is only 2:1 and one and half times the contractual rate when the multiple is 3:1. The SACCOs also have a formal limit on the size of a single loan to an individual member.
2.2.6 Rural SACCO Loans
Loans from the SACCOs are granted to individual only; there are no group loans. Loan characteristics are fairly similar across SACCOs. In some SACCOs, not more than 10 percent of the loan portfolio can be given in terms of a single individual. There are no targeted loans in the SACCOs. Management is fully aware that money is fungible. Thus, loans are granted for a variety of purposes, such as healthcare, funerals and school fees as well as for production purposes. Majority of the loans is granted for a year or less, and an average term to maturity of a loan in all SACCOs is twelve months. Most of the loans are used for the following purposes:- Development loans for capital investment (purchase of agricultural equipment), land preparation, land purchase, housing, etc. Crop Advances for working capital; Education of children through school fees loans; Medical expenses for cooperators.
2.2.7 Growth of Rural SACCOs in Kenya
By the end of 1985, there were sixteen (16) UBSs, throughout the country with 540, 700 savings accounts and Ksh726 million in member’s deposits (Department of Cooperatives). The SACCOs movement in Kenya despite adverse political and socio-economic conditions has had impressive success, there are one hundred and fifteen (115) rural SACCOs serving over one million smallholder farmers (see Table 4.1 below). Forty-five of these rural SACCOs offer front office services. The rural SACCOs have mobilized Ksh5.2 billion in deposits and have disbursed loans worth Ksh4 billion. The rural SACCOs vary in size from very large for example the Meru Central
17 CIDR Gusii SACCO Report with 150, 000 members to small SACCOs like Uruku rural with 300 members; an average rural SACCO would have 9, 000 to 10, 000 members.
Table 2.1 Growth of Rural SACCO Societies from 1974 – 2001 Year No of Societies No. of Accounts (in Total Deposits Loans Granted 000) (million Ksh) (Million Ksh) 1974 12 113 37 15 1984 16 470 522 331 1994 51 655 3, 300 970 1999 102 910 4, 700 1,500 2001** 115 1,200 5, 200 4, 000 Source: Department of Cooperative Development Annual Reports
** Provisional figures
2.2.8 The Rural SACCO Apex – KERUSSU
The rural SACCOs that were operating the CSS and CPCS became associated to the Cooperative Bank of Kenya. Later Kenya Rural Savings and Credit Union (KERUSSU) an apex of rural banks was established in 1998 and the secretariat is housed in the Cooperative Bank of Kenya.
KERUSSU on the hand was set up to provide support to the rural or crop based SACCOs. For a rural SACCO to join they are required to pay membership fees of Ksh10, 000 (US$128) and also purchase shares worth Ksh10, 000 (US$128).
KERUSSU provides various services to its members, which include training (training for Managers and Committee members charge is Ksh10, 000 – 15, 000 per participant), research, and inspection of rural SACCO (the fee is Ksh80, 000 – 200, 000 depending on the size of the SACCO). In future KERUSSU would like to start a central finance facility for rural SACCOs where SACCOs deposit and borrow from the fund.
KERUSSU membership is also countrywide apex of rural SACCOs. By June 2002 they had thirty five (35) members. KERUSSU had also accumulated Ksh550, 000 (US$ 7, 051) in share capital from members’ contributions.
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3.0 MARKET ASSESSMENT FOR GUSII SACCO
3.1 Introduction The Gusii SACCO was created in 15th January 1976 as a union banking section of the Kisii Union Farmers Union. It was responsible for paying members of coffee primary societies their income. The need for banking services and credit facilities necessitated its transformation into a rural based SACCO and was registered as an independent SACCO (in terms of management) in 1992.
The SACCO is determined to improve on the services it offers its customers, 97 per cent of whom constitute small scale tea and coffee farmers. The SACCO is rural based with its head office in Kisii town. Its operational areas cover three districts of Kisii, Nyamira and Gucha districts of the twelve districts in Nyanza province.
The mission from Gusii SACCO is “to serve all tea and coffee farmers through provision of credit to eradicate poverty”.
3.2 Current Status of the SACCO Currently the SACCO has eight branches spread in the three districts. Kisii has two branches, Nyamira has three branches and Gucha has three branches. The service delivery is handled by 161 employees. The SACCO has eleven board members. There is a management committee that is involved in the day to day running of the SACCO which includes the Chairman, Treasurer, Secretary and General Manager. The SACCO has developed a marketing department that is involved in outreach to the villages. The SACCO has an internal audit department which puts checks and controls internally. There is also an annual external audit done by Omato and Company Certified Public Accountants. The SACCO uses a four year work plan with annual adjustments.
The SACCO has nine mobile services to bring financial services closer to the members. By 31st December 2002, the SACCO had a total of 15, 000 shareholders (members) with over 95,000 customers. Table 3.1 below shows the breakdown of members and customers, over 74, 000 are coffee farmers, 32,000 tea farmers, 1,552 are teachers, Pensioners are 570 and 500 unclassified members.
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Table 3.1: Breakdown of Members and customers Type of Farmers Number 1 Tea farmers 32,000 2 Coffee Farmers 74,919 3 Teachers 1,552 4 Pensioners 570 5 Civil Servants 459 6 Others 500 Source: Gusii Farmers Reports
The share capital for the SACCO stood at Ksh66, 500, 000 (USD886, 667)2. The SACCO has lent 5,000 loans worth Ksh84, 800,000 (USD1, 130,667). The member savings as at 31.12.2002 stood at Ksh234, 000,000 (USD3, 120,000). Gusii SACCO has built one banking hall at Ogembo branch which is soon to become operational. The SACCO has purchased one acre plot in Kisii in order to build the headquarters and Kisii branch. The rest of the banking halls are rented.
The common bond for the membership of the SACCO is that you must own tea and coffee bushes. Women are naturally excluded because very few own tea or coffee bushes. Through the front office (FOSA) the women have been able to access a saving facility. The women participation in the SACCO is roughly estimated to be 20 per cent.
3.3 SACCO Product and Services Currently the SACCO is offering the following products and services to members and their customers: Savings and fixed deposit accounts Shares Loans – there are three types of loans namely: welfare (short term loans); working capital (medium term loans) and capital development (long term loans). Education to members and customers Mobile services to take services closer to the farmers.
3.3.1 Shares Investment Shares are a long term investment for members in return for shares. The shares are sold to the members of the public at Ksh200 per share and one is required to have a minimum of five shares. Dividends on the shares are very attractive.
20 CIDR Gusii SACCO Report
3.3.2 Loan Products a) Crop advances – cover all loans less 12 months. These include school fees loans, emergency loans which are based on tea or coffee production over a period of six months. The total crop advances is calculated at Ksh6 per kg and the interest charged is 16 per cent per annum. The repayment period is 12 months. b) Development loans – these loans are based on members’ shareholding plus 60 per cent of the production levels over three years. The loan duration is between 18-24 months. The interest rate for these loans is 16 per cent per annum. c) Capital development loans – these are capital investment loans which are 36 months in duration. It is based on 80 per cent of average production levels over 5 years. The interest rate is 16 per cent per annum.
Processing fees arise to 2% of loan amount disbursed.
3.3.3 Savings Products There is a ledger on all savings accounts of Ksh300 per year. a) Ordinary Savings – Minimum balance is Ksh1, 000 and Ksh5, 000 for interest bearing balance. The interest paid on this account is 1-4 per cent per annum. Members can withdraw up to Ksh20, 000 without notice. b) Fixed Deposits – the minimum amount accepted is Ksh50, 000 and the interest rate is negotiable but not less than 2.5 per cent per annum. c) School accounts – this is facility used by schools both primary and secondary schools. The opening balance is Ksh1, 000. It has flexible withdrawals periods depending on the school needs.
3.3.4 Other Services i) Sale of Bankers Cheques – the Cooperative Bank of Kenya has an arrangement with the Gusii SACCO to sell bankers cheques to the members. The charges for banker’s cheque are Ksh600. ii) Process Salaries and Produce Payments – the SACCO processes members’ payments for coffee and tea farmers
21 CIDR Gusii SACCO Report
3.4 Assessment of Members
3.4.1 Introduction The questionnaires were administered by the staff of the Gusii SACCO from the marketing department. The selection criteria were agreed by with the interviewees considering that the member must come from the three districts of Kisii, Nyamira, and Gucha. Table 3.2 below shows the distribution of the members interviewed, 40 per cent from Gucha and Nyamira and 20 per cent from Kisii district. Table 3.3 shows that 95 per cent of the respondents were male. This is an indication of the condition of the closed bond of the SACCO requiring that members must have some tea or coffee bushes which leaves out of the women due to ownership structure of the land in Kenya. Most of the respondents were in marital union with most of them being the heads of their households. Over 65 per cent of the respondents were between 30-55 years of age.
Table 3.2: District of the Respondent Valid Cumulative Frequency Percent Percent Valid Gucha 16 40.0 40.0 Kisii 8 20.0 60.0 Nyamira 16 40.0 100.0 Total 40 100.0
Table 3.3: Sex of the respondent Valid Cumulative Frequency Percent Percent Valid Male 37 94.9 94.9 Female 2 5.1 100.0 Total 39 100.0
Table 3.4 below shows the size of the loans that members have currently or the last loan they had from the SACCO. The result shows that 70 per cent of the loans were between Ksh 1, 000 to 20,000 which indicate relatively small loans. The staff reported that 69 per cent of the loans were on schedule in repayment and 31 per cent of members were experiencing some repayment difficulties. Fifty seven per cent of amount in arrears is between Ksh1, 000 and 5,000. Table 3.5 shows that 46 per cent was used for school fees, 23 per cent for small trading and 14 per cent for agriculture.
22 CIDR Gusii SACCO Report
Table 3.4: Size of Current or Last Loan Valid Cumulative Frequency Percent Percent Valid Less than Ksh5,000 8 24.2 24.2 Ksh5,001-15,000 14 42.4 66.6 Ksh15,001-30,000 6 18.2 84.8 Ksh30,001-50,000 3 9.2 94.0 Ksh50,001-100,000 1 3.0 97.0 Over Ksh100,001 1 3.0 100.0
Total 33 100.0 Source: Survey May 2003
Table 3.5: Type of Business Financed by Last Loan Valid Cumulative Frequency Percent Percent Valid Petty trade 8 22.2 22.2 Service 1 2.8 25.0 Handicraft 1 2.8 27.8 Agriculture 5 13.9 41.7 Livestock 1 2.8 44.5 Purchase an Oxen 1 2.8 47.3 School Fees 16 44.3 91.6 Repayment of Debt 1 2.8 94.4 Medial /Funeral 1 2.8 97.2 Building 1 2.8 100.0 Total 36 100.0 Source: Survey May 2003
Table 3.6 below shows the saving of the member’s with the SACCO. It indicates that 82 per cent of the members on average had between Ksh1, 000 – 15,000 as savings. At least 75 per cent for respondents were involved in 1-3 local associations.
Table 3.6: Current Savings Amount with SACCO Valid Cumulative Frequency Percent Percent Valid Less than Ksh1,000 3 7.7 7.7 Ksh5,000-15,000 29 74.4 82.1 Ksh15,001-30,000 2 5.1 87.2 Ksh30,001-50,000 1 2.6 89.7 Ksh50,001-100,000 3 7.7 97.4 Over Ksh100,001 1 2.6 100.0 Total 39 100.0 Source: Survey May 2003
23 CIDR Gusii SACCO Report
Table 3.7 shows 63 per cent were involved in at least one ROSCA, 21 per cent were involved in two and another 13 per cent were involved in three ROSCAs. Accumulating Saving and Credit Association (ASCA) was reported present in the districts and 62 per cent of the members were involved in one and 38 per cent were involved in two local associations.
Table 3.7: No. of Local Associations Engaged In Valid Cumulative Frequency Percent Percent Valid 1 12 35.3 35.3 2 13 38.2 73.5 3 6 17.6 91.2 4 3 8.8 100.0 Total 34 100.0 Source: Survey May 2003
3.4.2 Loan Use and Individual Income
Table 3.8 shows that 34 per cent of those interviewed used their last loan for agriculture mainly for crop production, 31 per cent said they used it for school fees and 20 per cent used it for petty trade and commerce. Table 3.9 shows that when the members were asked about their income in the last one year, 58 per cent felt the income have decreased and 39 per cent felt it has increased.
Table 3.8: Expenditure of your last loan Valid Cumulative Frequency Percent Percent Valid Commerce/Trade 7 20.0 20.0 Manufacturing 1 2.9 22.9 Agriculture 12 34.2 57.1 School Fees 11 31.3 88.4 Repayment of Debt 1 2.9 91.3 Medial /Funeral 1 2.9 94.2 Purchase an Oxen 1 2.9 97.1 Retail Trade 1 2.9 100.0 Total 35 100.0 Source: Survey May 2003
Eighty per cent attributed the poor performance to tea and coffee low sales and prices in the world market. The reason for the increase in income was attributed to expansion of existing enterprise. When asked whether loans had helped their household 91 per cent agreed loans had helped them. The loans assisted them to have better food and educate their children.
24 CIDR Gusii SACCO Report
Table 3.9 How has your Income been in last 12 months? Valid Cumulative Frequency Percent Percent Valid Decreased Greatly 12 33.3 33.3 Decreased 9 25.0 58.3 Stayed the Same 1 2.8 61.1 Increased 10 27.8 88.9 Increased Greatly 4 11.1 100.0 Total 39 100.0 Source: Survey May 2003
3.4.3 Income Generating Activities
Table 3.10 shows that in terms of sources of income ninety two per cent of the interviewed members ranked crop cultivation as their first source of income. Table 3.11 shows that 35 per cent ranked traditional vegetable cultivation as their second source of income and livestock production was their third source of income. Table 3.10: 1st source of income for your household Valid Cumulative Frequency Percent Percent Valid Crop Cultivation 37 92.5 92.5 Business 1 2.5 95.0 Wage Employment 2 5.0 100.0 Total 40 100.0 Source: Survey May 2003
Table 3.11: 2nd source of income for your household Valid Cumulative Frequency Percent Percent Valid Crop Cultivation 2 5.1 5.1 Vegetable Cultivation 18 46.2 51.3 Livestock – Subsistence 3 7.7 59.0 Livestock –Commercial 13 33.3 92.3 Business 2 5.1 97.4 Poultry 1 2.6 100.0 Total 39 100.0 Source: Survey May 2003
Table 3.12 shows that when members were asked about their suppliers Kenya Tea Development Authority (KTDA) was ranked by ninety three per cent as the first supplier of inputs and 52 per cent indicated that local dealers was their second supplier of inputs. Table 3.13 shows 93 per cent indicated that KTDA was the major outlet of their products which is mainly tea and 83 per cent ranked local markets as the second outlet. Table 3.14 shows that the product cycle for this activity
25 CIDR Gusii SACCO Report was indicated by 80 per cent of the respondents as weekly. Table 3.15 shows 60 per cent of the respondent indicated that their largest expense was hiring labor followed by purchase of inputs.
Table 3.12: 1st rank activity of suppliers Valid Cumulative Frequency Percent Percent Valid KTDA 37 92.5 92.5 Local Dealer 1 2.5 95.0 Cooperative Society 1 2.5 97.5 Sony Sugar 1 2.5 100.0 Total 40 100.0 Source: Survey May 2003
Table 3.13: 1st rank activity of suppliers Valid Cumulative Frequency Percent Percent Valid KTDA 37 92.5 92.5 Local Markets 1 2.5 95.0 KPCU 1 2.5 97.5 Sony Sugar 1 2.5 100.0 Total 40 100.0 Source: Survey May 2003
Table 3.14: Product cycle for this activity Valid Cumulative Frequency Percent Percent Valid Weekly 31 79.5 79.5 Every Two Weeks 7 17.9 97.4 Monthly 1 2.6 100 Total 39 100 Source: Survey May 2003
Table 3.15: Expense for your last product cycle Valid Cumulative Frequency Percent Percent Valid Inputs 15 37.5 37.5 Transportation 1 2.5 40 Hired Labor 24 60 100 Total 40 100 Source: Survey May 2003
3.4.4 Household Economic Base
Table 3.16 -3.17 shows interestingly, 85 per cent of the members saved if there was more income, second was to make some investments and thirdly is to use it for consumption.
26 CIDR Gusii SACCO Report
Table 3.16: 1st Important Thing done when there is more Income Valid Cumulative Frequency Percent Percent This Never Valid Happens 3 7.5 7.5 Save 34 85.0 92.5 Investment 3 7.5 100.0 Total 40 100.0 Source: Survey May 2003
Table 3.17: 2nd important thing done when there is more income Valid Cumulative Frequency Percent Percent Valid Make investment 24 80.0 80.0 Lend it out 2 6.7 86.7 Pay expenses incurred in the past 2 6.7 92.4 Spend on an expenditure item 1 3.3 96.7 Contributions 1 3.3 100.0 Total 30 100.0 Source: Survey May 2003
3.4.5 Wealth Ranking of Members
Table 3.18 shows wealth ranking of the members. The members of the SACCO interviewed eighty two per cent owned 1-5 acres of land and 78 per cent owned 1-4 livestock. Ninety seven per cent lived in their own houses which 95 per cent was build with iron sheet roofs. Members had radios or tape recorders, chairs, beds with mattress. In the assessment of the interviewee 95 per cent of the members belonged to the middle household, 26 per cent belonged to the poor household and 5 per cent to the rich household.
Table 3.18: Assessment of Household the respondent belongs Valid Cumulative Frequency Percent Percent Valid Poor H/Hold 10 26.3 26.3 Middle H/hold 26 68.4 94.7 Rich H/Hold 2 5.3 100.0 Total 38 100.0 Source: Survey May 2003
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3.4.6 Members Satisfaction
Table 3.19 shows the loans borrowed by the members, 45 per cent felt the repayment was within their capacity, 40 per cent felt they had a difficult time paying their loans and 15 per cent felt the loans were too small to meet their business needs. For those who experienced difficulties in loan repayment their reasons were varied; 22 per cent attributed it to lending conditions, 17 per cent animals purchased with loan died, another 17 per cent blamed bad weather or drought, 11 per cent attributed it to use of loan for consumptive purposes.
Table 3.19: Best Description in your Loan Repayment Experience Valid Cumulative Frequency Percent Percent Valid Difficult to pay 15 39.5 39.5 Within my capacity to pay 17 44.7 84.2 Meet the business need 6 15.8 100.0 Total 38 100.0 Source: Survey May 2003
One interesting thing to point out is that 92 per cent of those members interviewed belong to some group like church organizations, ROSCAs etc. Of those interviewed 55 per cent indicated that the groups provided advice and support when they needed it, offer friendship and 36 per cent said the group helped them to make repayments.
Table 3.20 shows the things members liked most about their SACCO is that 61 per cent indicated they liked the low interest rate compared to other informal sources of credit and 40 per cent said they like the steady source of working capital which one of the loans provided by the SACCO. Table 3.21 shows that the second thing they like about the SACCO by 39 per cent of the member is the availability of other financial services such as savings and third thing mentioned by 59 per cent is easy guarantee mechanism than most other loans alternatives.
Table 3.20: 1st thing you liked most about the SACCO Valid Cumulative Frequency Percent Percent Lower interest rate than Valid informal sources 23 60.5 60.5 Steady source of working capital 15 39.5 100.0 Total 38 100.0 Source: Survey May 2003
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Table 3.21: 2nd thing you liked most about the SACCO Valid Cumulative Frequency Percent Percent Steady source of working Valid capital 11 30.6 30.6 Group solidarity 5 13.9 44.4 Technical assistance 1 2.8 47.2 Other financial services 14 38.9 86.1 Easy guaranteeing 5 13.9 100.0 Total 36 100.0 Source: Survey May 2003
Table 3.22 looked at the things specific problems of being a member of the SACCO, 27 per cent of the respondents indicated that the SACCO never gave the amount of loan requested, 50 per cent indicated huge deductions on deposits (repayment of defaulting loans) and low dividends.
Considering the things that were least liked about the SACCO services 65 per cent said the high service charges, 32 per cent indicated the size of initial and subsequent loans were very small and third issue indicated by 32 per cent was the lack of grace period.
Table 3.22: 1st thing you disliked most about the SACCO Valid Cumulative Frequency Percent Percent High interest rates/high Valid services charges 26 65.0 65.0 Size of initial loans small 4 10.0 75.0 Loan cycle too long 2 5.0 80.0 Lack of grace period 2 5.0 85.0 SACCO Policies 1 2.5 87.5 Forced savings /insurance 1 2.5 90.0 Guarantees 1 2.5 92.5 Dislike customer care 3 7.5 100.0 Total 40 100.0 Source: Survey May 2003
29 CIDR Gusii SACCO Report
3.5 Assessment of Non-members
3.5.1 Introduction We also interviewed non members of the SACCO on the various aspects. Table 3.23 shows the distribution was such that 42 per cent from Nyamira, 23 per cent from Kisii and 34 per cent from Gucha and 70 per cent were men and thirty per cent were women. 30 per cent of the non members had received some training in teaching and 13 per cent masonry/carpentry. Sixty nine per cent indicated that their main source of income was crop cultivation and 18 per cent wage employment. Most of the non members interviewed were customers of the GRFS using their saving services. Seventy four per cent of non members indicated that the first thing they do when they have more income is to save. Secondly invest and thirdly is to spend more on the purchase of expenditure items.
Table 3.23: 1st important thing done when there is more income Valid Cumulative Frequency Percent Percent Valid This never happens 13 14.6 14.6 Save 26 74.2 88.8 Make investment 2 2.3 91.1 Lend it out 1 1.1 92.2 Assist other 1 1.1 93.3 Pay for anticipated expenses in advance 3 3.4 96.7 Pay for expenses incurred in the past 1 1.1 97.8 Spend more on expenditure item 1 1.1 98.9 School fees 1 1.1 100.0 Total 89 100.0 Source: Survey May 2003
Table 3.24 asked a question on what do when the immediate expenditure exceed household income 43 per cent said they withdraw their savings, 50 per cent indicated if there is no savings they would borrow money to meet the expenses and thirdly 61 per cent indicated they would do without the expense item.
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Table3.24: 1st things done when Immediate Expenditure is more than Income Valid Cumulative Frequency Percent Percent Valid This never happens 7 8.0 8.0 Withdraw savings 38 43.2 51.1 Borrow money 33 37.5 88.6 Incur the bill on credit 3 3.4 92.0 Sell property 2 2.3 94.3 So without expense item 5 5.7 100.0 Total 88 100.0 Source: Survey May 2003
3.5.2 Wealth Ranking
In assessing the size of acreage, type of houses and the type of items in their houses, Table 3.25 shows the interviewee indicated the non members 51 per cent were middle income household and 42 per cent were low income households.
Table 3.25: Assessment of Household the respondent belongs Valid Cumulative Frequency Percent Percent Valid Poor H/Hold 36 42.4 42.4 Middle H/hold 43 50.6 92.9 Rich H/Hold 6 7.1 100.0 Total 85 100.0 Source: Survey May 2003
3.5.3 Savings Behavior
Table 3.26 and 3.27 shows that most of the members interviewed had accounts with GRFS and 94 per cent had single accounts. Table 3.28 shows that the first reason indicated by 31 per cent was that the SACCO was the only financial institution available in the area, and 33 per cent indicated they chose it because of the proximity to them.
Table 3.26: Number of accounts Valid Cumulative Frequency Percent Percent Valid 1 63 94.0 94.0 2 1 1.5 95.5 3 2 3.0 98.5 8 1 1.5 100.0 Total 67 100.0 Source: Survey May 2003
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Table 3.27: Bank/MFI/Sacco with which you have an account Valid Cumulative Frequency Percent Percent Valid Service Coop 1 1.4 1.4 Tea Sacco 1 1.4 2.8 Gusii 51 72.9 75.7 NISCO 2 2.9 78.6 Shilana Coop 1 1.4 80.0 Barclays 6 8.6 88.6 Mwalimu Coop 6 8.6 97.2 ROSCA 2 2.8 100.0 Total 70 100.0 Source: Survey May 2003
Table 3.28: 1st Reason for Choosing this Bank, MFI, SACCO Valid Cumulative Frequency Percent Percent Only bank/SACCO Valid available 22 31.9 31.9 Proximity 19 27.5 59.4 Stability of the bank 12 17.5 76.9 Low opening/min bal 6 8.7 85.6 Easy procedures 6 8.7 94.3 Easy credit 1 1.3 95.6 Other services available 3 4.4 100.0 Total 69 100.0 Source: Survey May 2003
Table 3.29 shows that the non members indicate the motivation to save differently would be the availability of a saving facility near enough by 52 per cent. 29 per cent indicate higher interest on deposits would make them change and save some other place.
Table 3.29: Motivation to save differently than current Valid Cumulative Frequency Percent Percent Valid Availability of saving facility 41 51.9 51.9 Appropriate acct opening requirement 3 3.8 55.7 Higher interest on deposits 23 29.2 84.9 Suitable operating hours 2 2.5 87.4 Lower min balance 1 1.3 88.7 Access to credit 5 6.3 95.0 Reliable institutions 2 2.5 97.5 Easy account operating procedures 2 2.5 100.0 Total 79 100.0 Source: Survey May 2003
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Table 3.30a shows that 89 per cent of non-members were depositing between Ksh1-5, 000. The frequency of the deposits was indicated by 96 per cent as monthly. The average withdrawal for 95 per cent was between Ksh1-5,000. Table 3.30b shows the frequency of withdrawals of savings was monthly for 53 per cent and weekly for 32 per cent. The lowest interest they were willing to accept for their deposits for 58 per cent was Ksh4-10 per Ksh100.
Table 3.30a: Average amount per deposit Valid Cumulative Frequency Percent Percent Valid Less than Ksh5,000 23 39.7 39.7 Ksh1,001-5,000 28 48.3 87.9 Ksh5,000-15,000 5 5.6 96.6 Ksh15,001-50,000 1 1.7 98.3 Ksh50,001-100,000 1 1.7 100.0 Total 58 100.0 Source: Survey May 2003
Table 3.30b: Frequency of deposits Frequency Valid Cumulative Percent Percent Valid Weekly 1 1.8 1.8 Monthly 53 96.4 98.2 Annual 1 1.8 100.0 Total 55 100.0 Source: Survey May 2003
3.5.4 Credit History
Table 3.31 shows 78 per cent indicated that they had attempted to borrow substantial amounts. Those who had not tried to borrow indicated they were scared of borrowing. Table 3.32 shows that the main sources of loans for 39 per cent were relatives/friends and ROSCAs. Table 3.33 shows the interest rate charged ranged from 1-5% for 3 months. Table 3.34 shows that for those who did not get loans the reason was that they did not meet the lenders requirements.
Table 3.31: Any attempt to borrow substantial amt of money Frequency Valid Cumulative Percent Percent Valid Yes 69 78.4 78.4 No 19 21.6 100.0 Total 88 100.0 Source: Survey May 2003
33 CIDR Gusii SACCO Report
Table 3.32: Main sources targeted Valid Cumulative Frequency Percent Percent Valid Relatives/Friends 23 39.0 39.0 Money lenders 1 1.7 40.7 Traders 1 1.7 42.4 ROSCAs 5 8.5 50.9 SACCO 19 32.1 83.0 Service Coop 8 13.6 96.6 Employer 1 1.7 98.3 NGO 1 1.7 100.0 Total 59 100.0 Source: Survey May 2003
Table 3.33: Duration of Payments in Months Frequency Valid Cumulative Percent Percent Valid 1 11 25.0 25.0 3 27 61.3 86.3 5 1 2.3 88.6 6 3 6.8 95.4 11 1 2.3 97.7 12 1 2.3 100.0 Total 55 100.0 Source: Survey May 2003
Table 3.34: Reason for failing to sought credit Frequency Valid Cumulative Percent Percent Could not meet lenders Valid requirements 4 50.0 50.0 Lenders did not have enough money 2 25.0 75.0 Could not reach the lender 2 25.0 100.0 Total 55 100.0 Source: Survey May 2003
Table 3.35 shows 96 six per cent indicated they needed loans for future financial needs with 54 per cent indicating that they would wish to borrow over Ksh100, 000. Table 3.36 shows that they are willing to pay an interest of Ksh10-20 per Ksh100. These non members already belong to local association and have no problems working in groups for loans or savings.
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Table 3.35: Any future financial needs through loans Valid Cumulative Frequency Percent Percent Valid Male 86 95.6 95.6 Female 4 4.4 100.0 Total 90 100.0 Source: Survey May 2003
Table 3.36: Maximum amount interest willing to repay (per annum) Valid Cumulative Frequency Percent Percent Valid 1-10 77 92.8 92.8 10-20 6 7.2 100.0 Total 83 100.0 Source: Survey May 2003
3.5.5 Gusii SACCO Views
Table 3.37 shows 98 per cent of the non member had heard about Gusii SACCO and most of them were already customers of the SACCO. Table 3.38 shows that when asked about why they are not members of the SACCO 51 per cent cited lack of information and 30 per cent indicated they were low income.
Table 3.37: Ever heard of Gusii SACCO Valid Cumulative Frequency Percent Percent Valid Yes 86 97.7 97.7 No 2 2.2 100.0 Total 90 100.0 Source: Survey May 2003
Table 3.38: If yes, Why not a member Valid Cumulative Frequency Percent Percent Valid No Information 44 50.6 50.6 Already in another SACCO 8 9.3 59.9 High cost 7 8.0 67.9 Slow service 1 1.1 69.0 Low income 26 29.9 98.9 Target farmers 1 1.1 100.0 Total 87 100.0 Source: Survey May 2003
35 CIDR Gusii SACCO Report
3.6 Members Exit Survey
3.6.1 Introduction
Ten members who had exited from the SACCO were interviewed and their distribution is shown in the table 3.39 below. Fifty six per cent were from Nyamira and 22 % each from Kisii and Gucha. One of the problems was the member who had exited because of default were not very cooperative in sharing their feelings freely given the staff of GRFS was present. Table 3.40 shows that the exit member interviewed came from Manga, Marani, Ogembo, and Nyamache branches.
Table 3.39: District of the respondent Valid Cumulative Frequency Percent Percent Valid Nyamira 5 55.6 55.6 Kisii 2 22.2 77.8 Gucha 2 22.2 100.0 Total 9 100.0 Source: Survey May 2003
Table 3.40: Division of the respondent Valid Cumulative Frequency Percent Percent Valid Manga 4 44.4 44.4 Marani 2 22.2 66.7 Ogembo 1 11.1 77.8 Nyamache 2 22.2 100.0 Total 9 100.0 Source: Survey May 2003
The table 3.41 below it shows that 75 per cent of those interviewed had actually repaid their loans and 25 per cent had exited with a loan arrears. Table 3.42 shows that when asked about the last loans they accessed from the SACCO 40 per cent used it for school fees and 20 per cent for agriculture, trade and medical. The table 3.43 shows that the decision to leave the SACCO, 78 per cent they made the decision themselves, 11 per cent were influenced by family members or group members to leave the SACCO.
Table 3.41: Was Final Loan Repaid by Borrower Valid Cumulative Frequency Percent Percent Valid Yes 3 75.0 75.0 No 1 25.0 100.0 Total 4 100.0 Source: Survey May 2003
36 CIDR Gusii SACCO Report
Table 3.42: Type of Business Financed by Last Loan Valid Cumulative Frequency Percent Percent Valid Retail/Petty trade 1 20.0 20.0 Agriculture 1 20.0 40.0 School fees 2 40.0 80.0 Purchase of medicine 1 20.0 100.0 Total 5 100.0 Source: Survey May 2003
Table 3.43: Decision Maker on your Discontinuation of being a Member Valid Cumulative Frequency Percent Percent Valid Group made decision 1 11.1 11.1 I made the decision 7 77.8 88.9 Some in family made decision 1 11.1 100.0 Total 9 100.0 Source: Survey May 2003
Table 3.44 and 3.45 shows the exit member were asked about the three most important reasons that made them leave the SACCO; first 50 per cent of those interviewed said they found a program with better terms and 75 per cent said they joined Nyamira Tea Sacco which was new in the area and closer in proximity to them. Table 3.46 shows 68 per cent stated their personal reason for leaving was that they faced a crisis. The community and economic reason by 50 per cent of the respondents was that the poor economic circumstances left them with no money. Table 3.47 shows that other reason includes high bank charges which were stated by 40 per cent of the respondents.
Table 3.44: Problems with SACCO Policies or Procedures Valid Cumulative Frequency Percent Percent I did not like the repayment Valid schedule 1 12.5 12.5 Loan became expensive 1 12.5 25.0 I was wiling to borrow because of other conditions 1 12.5 37.5 I did not treatment by staff 1 12.5 50.0 I found a program with better terms 4 50.0 100.0 Total 5 100.0 Source: Survey May 2003
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Table 3.45: Better SACCO that has Better Terms Valid Cumulative Frequency Percent Percent Valid Nyamira Tea Sacco 3 75.0 75.0 Post Bank 1 25.0 100.0 Total 4 100.0 Source: Survey May 2003
Table 3.46: Community and Economic Reasons Valid Cumulative Frequency Percent Percent My business was ruined by Valid disaster 2 33.3 33.3 Major competitor moved into the area 1 16.7 50.0 Poor economic conditions has left me with no money 3 50.0 100.0 Total 6 100.0 Source: Survey May 2003
Table 3.47: Other reasons Valid Cumulative Frequency Percent Percent Valid Tried to rejoin Gusii but failed 1 20.0 20.0 Small income compared to deductions 1 20.0 40.0 Banks charges expenditure 2 40.0 80.0 Not treated well by Sacco staff 1 20.0 100.0 Total 5 100.0 Source: Survey May 2003
Table 3.48 shows that indeed the exit members indicated their position had worsened in the last one year. Table 3.49 shows 50 per cent indicated their business had decreased somewhat or greatly. Table 3.50 shows that 70 per cent indicated loans helped their household mostly the loans were used for education of their children.
Table 3.48: Position of business in last 12 months Valid Cumulative Frequency Percent Percent Valid Increase some 2 28.6 28.6 Decrease some 2 28.6 57.2 Decrease greatly 3 42.8 100.0 Total 7 100.0 Source: Survey May 2003
38 CIDR Gusii SACCO Report
Table 3.49: Did the loan help your family Valid Cumulative Frequency Percent Percent Valid Yes 7 70.0 70.0 No 3 30.0 100.0 Total 10 100.0 Source: Survey May 2003
Table 3.50: If yes, name how Valid Cumulative Frequency Percent Percent Valid Educate children/self 3 49.9 49.9 Improve housing 1 16.7 66.6 Medial costs/improved health 1 16.7 83.3 Business improvement 1 16.7 100.0 Total 6 100.0 Source: Survey May 2003
Table 3.51 shows that 71 per cent of those interviewed said they experienced problems in repaying their last loan. Table 3.52 shows 56 per cent of those interviewed said they benefited from being members and 44 per cent said they did not benefit.
Table 3.51: Experience in Paying your Last Loan Valid Cumulative Frequency Percent Percent Valid Difficult to pay 5 71.4 71.4 Within my capacity to pay 1 14.3 85.7 Easy to pay but small for business needs 1 14.3 100.0 Total 7 100.0 Source: Survey May 2003
Table 3.52: Do you think you benefited from being a member Valid Cumulative Frequency Percent Percent Valid Yes 5 55.6 55.6 No 4 44.4 100.0 Total 9 100.0 Source: Survey May 2003
Table 3.53 shows 22 per cent of the members indicated that the mobile services, the loans and safety provided by the SACCO were the things they liked most about the SACCO. Table 3.54 shows that the one most important thing members gave to improve the services was that the staff needed customer service training on policies and understanding the clients.
39 CIDR Gusii SACCO Report
Table 3.53: 1st thing you liked best about the Sacco Valid Cumulative Frequency Percent Percent Valid Mobile services/good 2 22.2 22.2 Flexible loan products 2 22.2 44.4 Safety of money proximity 2 22.2 66.7 Proximity 1 11.1 77.8 Give loans when needed 1 11.1 88.9 Good management/efficiency 1 11.1 100.0 Total 9 100.0 Source: Survey May 2003
Table 3.54: What you Think should be done to Improve Services Valid Cumulative Frequency Percent Percent Fully train the customer about Valid policies 3 30.0 30.0 Small income compared to deductions 1 10.0 40.0 Streamline the service charge 1 10.0 50.0 Improve customer services /listen/pay attention 2 20.0 70.0 Given reasonable loans 1 10.0 80.0 Adjust repayment period 1 10.0 90.0 Have qualifies personnel 1 10.0 100.0 Total 10 100.0 Source: Survey May 2003
Table 3.55 per cent of those interviewed stated that they would probably rejoin the SACCO. This indicates that they still had confidence in the SACCO management and services provided during their membership.
Table 3.55: Any thought of rejoining SACCO in future Valid Cumulative Frequency Percent Percent Valid Yes 4 40.0 40.0 Probably 3 30.0 70.0 Only if specific changes are made 3 30.0 100.0 Total 8 100.0 Source: Survey May 2003
40 CIDR Gusii SACCO Report
4.0 PRODUCT ATTRIBUTES FOR GUSII SACCO SERVICES
4.1 Financial Sector Analysis The focus group discussions were conducted for both members and non members on the financial sector analysis. The farmers were asked to rate the different financial providers using the (Rating 5: Very good/Useful; 4: Good/useful; 3: Fair; 2: Poor/Not very useful; 1: Not satisfactory/ no other option) two years ago and currently. According to the farmers the SACCO has become very useful.
Table 4.1 shows the financial sector analysis for credit services. For loans services the farmers felt the SACCOs and ROSCAs were playing a key role in the credit services in the districts. The rating for the SACCOs improved due to improved loan services to members and better interest rates. The ROSCAs seem to have gained prominence because they are user owned and peer pressure works for members to repay loans and there is easy guaranteeing mechanism used.
Table 4.1: Financial Sector Analysis – Credit Services
Loans Services 2 Yrs Ago Now Explanations SACCOs 3 5 Increased importance due to affordable interest Loans are pegged to crop production rather than employment Loans are only available to members Valuation not tedious. ROSCAs 2 5 Availability of money always High interest earnings Peer pressure mechanism used Easy guaranteeing Commercial Banks 3 2 Demand securities e.g. title deeds and log books etc. Out of reach for most farmers Money Lenders 1 3 Used when one has no option Gives in lump sum and security is title deed Run away members of a ROSCA Relatives & Friends 4 3 Interest free Based on trust / Family problems due loans Non repayment common NGOs 0 2 Most of the NGO are urban based, provide micro enterprise loans Products are not suitable for farming.
Commercial banks have remained the same over the years because of their use of securities such as title deeds which over this last years have proved to be not very useful because of realization of securities in case of default. Relatives and friends still play a major role in times of need but sometimes result in family feuds therefore not very used now. Money lenders still play a role
41 CIDR Gusii SACCO Report especially as a lender of last resort. NGOs on the other hand are recent but are urban based and provide micro enterprise loans not suitable for farming.
Table 4.2 below shows the financial sector analysis for savings providers. For the savings services the farmers still indicated that SACCOs play a major role in providing safe keeping facilities. Though they think the ledger fees for SACCOs are high, but it offers a re-distribution of accumulated asset to the owners than commercial banks or NGOs. Informal financial service providers like ROSCAs & ASCAs is the most convenient way for most farmers to build up their savings for a lump sum amount which they can use for various needs. Post Bank is popular in terms of savings for most people because of it low minimum balances and minimum ledger fees. Post Bank gets a lot of support to provide saving facilities from government. The commercial banks have had problems in the recent past with a lot of closures of branches in the rural areas and their high minimum balances.
Table 4.2: Financial Sector Analysis – Savings Services
Savings Services 2 Yrs Ago Now Explanations My SACCO 4 5 Availability of funds for emergencies Safety of funds Commercial Banks 3 2 Far away from the farmers in urban centers High minimum balances Post Bank 3 4 Very low minimum balance & no ledger fees Promotion on radio on new products such as premium bands etc. Has strong Government support to provide services to most people who can’t access banks. ROSCAs 3 5 High interest / dividend Proximity
4.2 SACCO, Commercial Bank and Post Savings Bank Preference Matrix
Table 4.3 shows a matrix which was improvised to assess the overall preference of member and non-members of the financial services. In terms of:-
Efficiency = Get your money and you are sure your records are kept well. Service Charges = Preference because of its charges. Proximity = Nearness but also customer care. Access to money = Surety that you have your money and are going to get it at the service provider. Procedure = simple and clear procedures.
Although banks are efficient they are out of reach to most farmers. In terms of service charge the banks charge very highly; for proximity the SACCO is the nearest even though customer care is
42 CIDR Gusii SACCO Report not the best. Access to money is problematic in SACCO and Post bank because you have to give notice but they are the cheapest for farmers. Procedures are simple in post bank and SACCOs and the farmers prefer them because they do not understand English which is used in commercial banks.
Table 4.3: SACCO, Commercial Banks and Post Bank Preference Matrix
Overall COM. Post Gusii Comments Preference BANK Bank SACCO It’s rare to have complications with the banking Efficiency **** *** ** process in a bank. But it is out of reach for most farmers, so there is trade-off on efficiency for service in post bank and the SACCOs. Post Bank is perceived to have low charges, near Service charges * **** *** free services but the SACCO’s is high but lower than banks. Even though banks are in the same town, Post Proximity ** *** ***** Bank is seen as more friendly and approachable hence scores more on preference in terms of proximity, but the SACCO is always the nearest. Most participants were confident with SACCOs Accessibility *** **** ***** were the most accessible and that they will get their money whenever they go to withdraw. Commercial Bank is perceived to be procedural Procedure * *** **** in its service delivery. This involves filling in of forms, speaking English, etc.
43 CIDR Gusii SACCO Report
4.3 Gusii SACCO Product Attributes
Table 4.4: Positive Attributes for Credit Services
Rank Positive Attributes Comments 1. There are various loans products for Respondents said this allows them to take the various needs with various terms and appropriate loan for the appropriate purpose. conditions. 2. Repayment period of loans was good. It Respondents felt this allowed better is tailored to fit the use of the loan and repayment of the loans because receipts on repayment depends on the purpose. crop will match the repayment period. 3. Grace period is very important to Respondents felt grace periods helped the farmers given the type of farm farmers repay loans from proceeds of the investment. enterprise they borrowed for. 4. Interest rate is important in as far as Respondents felt the popularity of SACCO is farm enterprise is concerned. It in the interest rate that they charge compared involves a relatively large expenditure, to other financial institutions. Interest rates are high interest is not feasible. reasonable at 1-5% per month. 5. Amount of the loan depends on shares, Respondents said this allowed them to pay crop production and other properties slowly over a long period of time hence they owned. Long term loans with long don’t feel the pressure. repayment period e.g.5 years.
Table 4.5: Negative Attributes Credit Services
Rank Negative Attributes Comments 1 The processing period is long. This Respondents felt farming is sensitive to time means you don’t get your loans and inputs or working capital is required at a when you really need it. certain time. 2. Other charges on top of interest Respondents felt the price of the loan should rates make loans expensive. just be the interest rates and no other charges added. 3. Immediate access to follow up Respondents felt immediate access to loans loans is not efficient – involves would improve cash flow for farmers and long waiting period. improve investment on the farm. 4. Dividends are very low to Respondents higher dividends would make encourage investment. farmers invest more in shares.
44 CIDR Gusii SACCO Report
Table 4.6: Positive Attributes for Savings Product
Rank Positive Attributes Comments 1. The front offices provides very The respondents felt this was good because efficient savings services. their money is safe and earns some more rather than staying idle. 2. Opening procedures are simple and They felt exiting should be simple and straight forward. straight forward. 3. Mobile services to remote rural areas This helps farmers spend more time on the are very convenient. farms rather traveling to do banking in urban areas.
Table 4.7: Negative Attributes for Savings Product
Rank Negative Attributes Comments 1 The minimum balance is high. It’s - This is too high for small-scale business about Ksh1, 000. people like us. “Tell them to reduce it so that we can also have accounts”.
2 Ledger fees & charges are high. - Our wish is that they should focus on small farmers and lower these charges.
3. Restrictions on withdrawal deter - Withdrawals are done once weekly and farmers from banking in the front notice must be given for withdrawals of office. Ksh20, 000. 4. Fixed amounts per deposit are good - Respondents felt this is high for small but the minimum deposit of Ksh1, scale farmers and businesses. 000 is high. 5. It is hard to close an account. One - Respondents felt there should easy entry needs six months notice (shares). and exit.
45 CIDR Gusii SACCO Report
5.0 CHALLENGES FACING GUSII SACCO
The diversification of rural SACCOs like Gusii to embrace the provision of front office services continues to be a challenge in providing access to financial services to rural areas. The collapse of the coffee sector in Kenya, which sustained many banking units of the union, drove many giant district unions into liquidation. However this was not the case of Kisii Farmers Union (KFU). The continued reliance of the rural SACCOs on traditional cooperative banking in this changing economic environment poses a number of challenges. Some of the challenges to sustainability and outreach include governance, delinquency, business orientation and innovation, and lack of external supervision.
5.1. Governance While effective external regulations and supervision are important to the health of the financial system, no amount of external oversight can replace accountability that stems from proper governance and supervision by the owners and Board of directors in SACCOs. For small institutions like SACCO´s that are self regulated the importance of governance is heightened.
For some time SACCO´s has lacked adequate oversight of management from the Ministry of Cooperatives therefore they face ownership and governance risk. Owners and directors do not have the capacity to provide adequate management oversight. Most of the Boards of Directors of the SACCOs have low education levels; let alone skills and experience, to exercise fiduciary responsibilities of a financial institution. The apex institutions like KERUSSU or Co-operative Bank have developed training modules for this user owned institutions but low understanding of financial management amongst Board members make the training ineffective.
5.2. Delinquency Gusii SACCO has a common bond, which uses check off system for loan repayments, and members share contributions. One of the problems leading to high delinquencies is non- remittance through the check off from the employers and marketing agencies like Kenya Tea Development Authority (KTDA). The other problem that makes the check off ineffective is that members change their pay point after taking loans. Fortunately for Gusii the check off system with KTDA seems to be working very well therefore problems of delinquency are low.
46 CIDR Gusii SACCO Report
5.3. Business Orientation and innovation Whereas there have been some changes, Gusii SACCO has remained with the traditional products of savings and credit and this has limited their sources and livelihood. Since 1992, Gusii SACCO started front office services or banking activities with new products such as Emergency loans, school accounts, and crop advances on reasonable terms and conditions.
Gusii SACCO faces lack of sufficient capital even though they mobilize savings from non- members. It is risky to intermediate this savings. Most members purchase minimum share capital in the SACCO to allow them to access loans because the dividends return is low. The mobilization of resources to create a pool that the SACCOs can afford members credit demands is a big challenge, especially because interest rates requested from financial institutions like Cooperative Bank of Kenya are high (e.g. 24%).
The under-developed banking infrastructure in the rural areas creates additional problems for the SACCO. Banking facilities require minimum banking infrastructure. These include secure banking premises, minimum capital requirement, minimum staff requirement that meet basic qualifications, size of membership etc. Lack of human resource development given that most of their staff have grown on the job. The SACCOs has insufficient trained staff and ill equipped, some have no basic banking background.
5.4. Regulation and Supervision Currently SACCOs in Kenya have insufficient regulatory and legislative framework. For example Cooperative-banking legislation is carried through circulars and manuals from the Ministry of Cooperatives. Whereas these have been sufficient in the past they may not meet the future needs of the cooperative banker.
There is lack of Unified Co-operative Banking system and procedures. Currently each SACCO operates unique banking systems and procedures. It is only Rural SACCOs societies that operate a unified co-operative banking system documented in the Rural Banking Manual. A management information system adopted should be member friendly, easy to understand and implement. Currently the Cooperative Bank of Kenya has developed a franchise banking system for the SACCO, which enables the SACCO to conduct all banking services at the SACCO and real time transactions with the bank, but it is not used by every SACCO. The Cooperative Bank has developed software and will need to improve the management information system of the SACCO to enable them provide efficient services.
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6.0 RECOMMENDATIONS TO CIDR
The Gusii SACOO indeed has tried to provide services deeper into the rural area but has managed to reach the medium income farmer. The deepening has been facilitated by the mobile services at least 10 mobile service points per branch. One way could be to work with the SACCO in their expansion and branch network through the similar ownership arrangements such as the village bank or village based financial models owned by small-scale farmers. These village banks would be owned by lower income households through a shareholding arrangement just like in Gusii SACCO but probably reduce minimum shares to accepting levels for the poorer farmers. These village banks would then be linked to the main SACCO. The mobile units would be used to transport money back and forth from the village banks.
Another way would be to create a microfinance unit within the SACCO that would be charged with the responsibility of promoting the deepening and widening of the SACCO membership. The staff should have microfinance background to help in developing the peer guaranteeing mechanism at the village level. The existing SACCO staff might not be used to dealing with poorer farmers and therefore there might be need to recruit staff who are knowledgeable in microfinance.
Direct hand on technical assistance is important particularly in the early years of a program; therefore CIDR would plan to provide comprehensive and fairly long-term assistance to build capacity within the Gusii SACCO. The literacy level among the rural poor is low and therefore the understanding of banking is very remote. It is important to have this perspective in mind when considering the support duration. In addition, before technical assistance ends, local support base for technical support should be in place such as auditors, supervisory units, etc.
For poorer farmers it will take them very long to mobilize enough shares to allow sizable loans for meaningful investment. CIDR can leverage the SACCO’s share equity or risk capital by providing loans through introduction of Gusii SACCO to potential lenders. The SACCO would be able to charge interest rates on loans which are much lower. From this standpoint they would be able to provide affordable loans for agriculture development.
Product development of exiting products and introduction of new products is essential for effective provision of demand led services for members of the SACCO. The SACCO and CIDR
48 CIDR Gusii SACCO Report should be in the forefront is providing innovative services to members. Currently there is no product development for agricultural loan products, health insurance loans, low housing loans, money transfers, etc. These products would need to be piloted in a branch or two with some external funds. After proving profitable it can then be rolled over to the other branches.
Governance & management remains a big challenge for the SACCO. The manpower in rural areas cannot cope with growth of the SACCO after some time more professional staff is required. Oversight of the staff becomes a challenge given the Boards are not always financially literate. One way of enhancing the effectiveness of the Boards and management is to develop their capacity through training scholarships and/or exchange visits to successful village banks or similar institutions.
The SACCO would link the village banks to the formal financial system through their link banks. There is need to facilitate a mutual benefit between the SACCO and the village banks. Currently, the possibility is to provide safe keeping facility for excess liquidity. The SACCO and link banks can be provided with some incentive to provide financial management training & auditing in return for savings mobilization by the village banks. The village banks can also provide an outlet for loans from the link banks and reduce the banks transaction costs while increasing and deepening their outreach.
By having the village banks linked to the SACCO we will avoid to challenge the regulatory framework. The SACCO is recognized legal entity and the current government is very keen to develop this sector. A key component in the regulatory framework is the provision of a deposit protection fund by the village banks through the SACCO. The other area is the supervision of these institutions, which requires that if they will be self-regulating then provide the implementing institutions with carrot and stick to be effective in their supervision.
Management Information System (MIS) in the SACCO and Village Bank is manual at the moment but as they grow increasing transactions will need computerization. Gusii SACCO has just one branch computerized. The SACCO will need support in the MIS systems especially which can incorporate the expansion activities. The MIS needs to be selected carefully given that there are few off the shelf SACCO softwares which are not proven. One MIS that could be tried is the Loan Performer used by several MFI and SACCO. This is a product developed by Crystal Clear Systems Ltd based in Kampala Uganda, their website is www.loanperformer.com.
49 CIDR Gusii SACCO Report
The village financial structures to provide banking services are not very secure (as compared to the SACCO front offices), maybe assistance to strengthen the premises would go along way in enabling the SACCO to get insurance covers, etc and increase confidence within the communities in the institutions.
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