Chapter 5 Were Legally Registered and the Ones That Had Identified, 194 Were Not in the Register Were Found Operational by the Census Team
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A SACCO Annual General Meeting in Lango, Northern Uganda Chapter Five SACCOs and MFIs 125 5.1 Failing SACCOs: Who Cares?1 Visiting a member of MAMIDECOT, a successfully managed SACCO in Masaka. Section 1 Evidence of Failure Why should anybody care about failing, – thus SACCOs seldom live their “full missing or untraceable SACCOs? Are not lives”. They therefore do not serve their institutions, like biological organisms, full purpose before dying. supposed to be subject to the immutable ii) In the remote rural areas, SACCOs are law of entropy? Are they not supposed to be often the only providers of financial born, grow, decline and die? And, given this services for most people. When the pattern, should the failing of SACCOs be an SACCOs fail, this leaves people with issue? little or no alternative services. There are three principal reasons why we iii) SACCO collapses leave people poorer should all be concerned about the failure rate and more desperate as they lose their of SACCOs in Uganda: meager savings i) Whereas in countries like Kenya the iv) Losing their money in failing SACCOs life of a SACCO spans over decades, makes poor people more cynical of the failure rate in Uganda suggests that using financial institutions. Such a most SACCOs fail after only a few years 1 Author: Andrew Obara, FRIENDS Consult 126 polluting effect entrenches financial iii. While the census team was remarkably exclusion as more low-income / poor thorough, there may have been some people get discouraged from accessing institutions which exist but were simply financial institutions’ services. hard to find; Therefore, SACCO failures have overall iv. An unknown number of institutions adverse negative effects on the rural economy have become dormant or collapsed and and on the fight against poverty. disappeared; There has always been confusion over the v. Some SACCOs were registered but number of SACCOs in Uganda, with most have never actually operated on the estimates putting it above 1,000. In 2006, ground (briefcase institutions). the Ministry of Finance, Planning and The actual problem was bigger than Economic Development and the DFID- Os and MFIs funded FSDU project conducted a SACCO anecdotal discussions and the MoFPED CC census to ascertain the true number of census had revealed. While reconciling SA 2 SACCOs operating in Uganda. The results of SACCO lists before going to the field, the the census revealed a significant difference FRIENDS Consult study team found that between the number of institutions that of the 628 SACCOs that the MoFPED team Chapter 5 were legally registered and the ones that had identified, 194 were not in the Register were found operational by the census team. of Cooperatives. This meant that only 434 Compared to a number of 1,724 registered of the SACCOs that were in the register by the Department of Cooperatives, the had been identified by the census team. By team found only 628 (about half) traceable implication, 840 or 66% of the SACCOs that and operational SACCOs. then existed in the registry had not been traced by the census team. These were for A follow-on study jointly commissioned the time being labeled “missing SACCOs”. by AMFIU and FSDU and conducted by FRIENDS Consult in 2007 was very A pre-testing of several possible causes found revealing. The assignment was to track and the above hypotheses (i. to v.) to be the most report on the status of “missing SACCOs” credible, and thus the study proceeded to in Uganda. This was to qualify and better empirically test each of them. On the basis of understand the status or fate of the missing a rigorous and robust sampling framework, SACCOs. On the basis of discussions with tool development, field survey, consultative SACCO stakeholders and generally known meetings and document reviews, the study conditions, the study set out to test the concluded that hypothesis iv. (collapse following possible hypotheses about the of SACCOs) accounted for 57% of the reasons for the disparity: missing SACCOs; hypothesis iii. (SACCOs existing but difficult to find) accounted i. The “missing SACCOs” actually operate for 30% while the other three in aggregate but without a fixed location; accounted for 13%. The interpretation was clear: SACCOs were missing because they ii. The “missing SACCOs” were in the collapse and disappear fast, in most cases gap between registration and receipt without anyone keeping track of them. They of their registration certificates, yet the thus continue to appear in the Register even census team only counted institutions after collapsing. that could produce a registration certificate; 2 The one produced by the MoFPED study team and the one drawn from the Dept. of Cooperatives 127 Table 1 below summarizes the study findings on the reasons for the absence of the “missing SACCOs”. Table 1: Reasons for Missing SACCOs according to hypotheses No fixed No Difficult Collapsed3 Never Total Reason for absence locations registration to find operated certificate Proportion (%) 4.3% 1.4% 30% 57.1% 7.1% 100% The foregoing paragraphs present the tenets microfinance industry, a stand-alone rural concerning an otherwise vital sector that financial infrastructure or as financial service is unorganized, poorly facilitated, weak set-ups only remotely related to other drivers and struggling due to macro and micro of the rural economy. level failures – which brings us to the vital question: “Why are the SACCOs failing?” With the production and marketing system fragmented and somewhat unorganized, there are no obvious economic flows that at the local level feed into the SACCOs. Section 2 Overall, failure to resuscitate the whole rural Reasons for the Failures cooperative sector which fuels business culture and strengthens the production- processing-marketing chain in the rural The widespread SACCO failures principally economy is likely to leave SACCOs largely stem from macro (national) level failures that weak and prone to failure. trickle down into regional and eventually institutional (SACCO) failures. Minimal success with implementation of SACCO-focused strategies. Whereas 2.1 National level Government has a well thought-out policy The structures and performance of the rural for rural development, implementation economy are weak. When the people who are has faced chronic challenges ranging from now in their 40s and 50s were school children, poor understanding by implementers, inept cooperatives including SACCOs were the personnel, inadequate logistics and conflicts true engines of rural development. The whole of interest, all the way to fraudulent practices. agricultural production, marketing, input Government’s sound broad policy for -supply and payment system was organized harnessing SACCOs to provide financial in a clear and highly functioning way from services in rural areas has, for instance, not yet the national level (marketing boards) down produced a significant impact. There has for to the village level (primary cooperatives). long been confusion over what, in the context SACCOs were the people-owned financial of the one-SACCO-per-subcounty move, service arm of a highly integrated rural Prosperity for All (which when translated is economy. The integrated system has even more misleading) really means. This since broken down and SACCOs are has not been helped by the sometimes flawed today inappropriately seen as part of the mobilization by inadequately trained and 3 But not de-registered. 128 questionably motivated local leaders (who 2.2 Regional level have founded SACCOs on the expectation that ‘easy’ money will come to them from Geographical location also plays a part in Government). the relative success of SACCOs. SACCOs and other community based financial The “missing SACCOs” study confirmed the organizations are particularly weak in the above observations. According to the study North and North-East regions of the country, findings, the key national-level causes of where conflict and insecurity have adversely SACCO failure are: affected community solidarity. They are relatively stronger in the west and central • SACCOs formed alongside production regions. Part of the reason also lies in the fact and marketing cooperative societies that unlike the central and western regions have collapsed following the change in that rely on coffee (perennial crop with a market trends which have rendered the Os and MFIs ready market and relatively clear marketing business of production and marketing CC channels despite weakness of cooperatives), cooperatives ineffective SA the north and east have traditionally relied • Some institutions which were on cotton which is labour intensive and formed with short-term objectives of needs more market and extension linkages. obtaining resources from Government With the rebuilding of the northern region Chapter 5 programmes such as Poverty Alleviation communities and national efforts to revive Project (PAP) collapsed when and before the entire cooperative system, SACCOs will the programmes ended hopefully be less vulnerable to failure in future. • Inadequate supervision and monitoring of the SACCOs by the District Commercial officers (DCOs) due to 2.3 Micro level inadequate facilitation and low-skills capacity. At the institutional level, things are not any better. SACCOs typically suffer from bad • The closure of the Cooperative Bank in governance, incompetent management, 1999, which affected the performance of interference, abuse by the more powerful SACCOs because the Cooperative Bank members, financial illiteracy of most was the main bank