ACCESS TO CREDIT, FINANCIAL LITERACY, SAVINGS MOBILIZATION, AND SUSTAINABILITY OF SAVINGS AND CREDIT COOPERATIVE
ORGANIZATIONS (SACCOS).
ACASE STUDY OF KALIRO, UGANDA
Background
SACCOs need clear, transparent decision-making processes and a leadership structure that is capable of making informed financial decisions and providing strategic direction (Lin et al., 2023).
SACCOS have made it possible for the poor people to access credit with reasonable rates of interest and conditions that favour them, however their expansion is undermined by the lack of capital Financial intermediation this makes their work difficult when the need for money becomes more than the supply (Burlando, & Canidio, 2017).
SACCOs are credited globally for poverty alleviation however there is a scarcity of research on the direct impact of financial literacy programs on the sustainability of SACCOs, while financial literacy is widely acknowledged to influence financial behavior, its tangible effects on SACCO sustainability, like for example loan repayment rates, membership retention, and long-term financial health all remain underexplored (Li et al., 2023).
In East Africa, particularly in Kenya, SACCOS contributes 45% of the country’s GDP and the sector has effectively managed to mobilize Ksh 200 billion deposits and assets worth of Ksh 210 billion while in Tanzania there were over 3,500 registered SACCOS in the country with approximately 420,000 (Ndiege, Kazungu, & Moshi, 2014). SACCOS were introduced to alleviate intermediaries in order to make all profits gained go to members. Specifically, they were designed by people who had a common interest or goal so as to mobilize resources for all members in order to ensure financial sustainability of SACCOS (Kuntjorowati et al., 2024).).
The question of sustainability of SACCOs has been asked several times by authors globally, Many SACCOs complain about the restrictive legal requirement, limited financial capacity to handle the demands of their clients and limited knowledge about their operations by many segments of the population ((Ndiege, Kazungu, & Moshi, 2014).).
In Uganda at the end June 2023, SACCOs in Uganda had reached 33,000, the country has 10,594 registered SACCOs under the Parish Development Model (PDM), 6,700 under Emyooga, and 15,706 registered as other SACCOs (Kansiime et al., 2021).
Tier 4 encompasses microfinance institutions and money lenders that are not authorized to accept deposits from the public. These institutions primarily provide credit services to individuals, small businesses, and communities, playing a crucial role in promoting financial inclusion. The Tier 4 Microfinance Institutions and Money Lenders Act of 2016 established the Uganda Microfinance Regulatory Authority (UMRA) to oversee these entities (Ngo, 2024).
SACCOs remain important players in Uganda’s financial sector, but there is an ongoing challenge of failure by the SACCOs to meet the needs of the members including the ability of the SACCOs to mobilize enough savings and more to that members exhibit financial illiteracy needed to alleviate themselves from poverty, this makes the members to be trapped in vicious circle of poverty despite being members of SACCOs (Mtenga, Funga, & Kadigi, 2024), It is against this background that this study intends to investigate into access to credit, financial literacy, savings mobilization, and sustainability of savings and credit cooperative organizations (SACCOs), A case study of Kaliro district.
Statement of the problem
Many SACCOs in Kamuli are facing challenges related to access to credit, financial literacy, and limited savings mobilization all these threaten the sustainability success of SACCOs (Isabyre, 2019).
SACCOs play a pivotal role in fostering financial inclusion, financial literacy, and mobilizing saving from the low income earners of the community to enable them grow their portfolio this presents economic development, particularly in underserved communities and currently millions of people benefit from SACCOs, (Spitzer, & Twikirize, 2023).
In Kaliro Poverty remains a pervasive issue significantly impacting the socio-economic well-being of its inhabitants, this is despite the presence of SACCOs, due to the fact that SACCOs, do not have enough credit to disburse to its members , members also donot have enough financial knowledge on what do with the loans given to them and as result they default on their repayments leading to limited savings from the SACCOs which is born as a result of irregular loan repayments and low savings mobilization (Parlasca et al., 2021).
If the challenges facing SACCOs in kaliro are not addressed poverty levels will increase and the SACCOs will collapse, According to UDHS, (2021) the Poverty levels in Kaliro can be observed by the fact that, more than 20% of the population are living on less than a dollar a day, majority of people cannot afford two meals a day, children miss school frequently due to illness, lack of food at home, and girls often stay home during menstruation, all these factors indicate that there is poverty in kaliro (Mugabi, 2021; Robert, 2021).
Despite various governmental and non-governmental efforts to support SACCOs in kaliro by government, there are still challenges. This study therefore intends to investigate into Access to Credit, Financial Literacy, Savings Mobilization, and Sustainability of Savings and Credit Cooperative Organizations (SACCOs).
Objectives of the study
- To examine the influence of access to credit on sustainability in savings and credit cooperative organizations (SACCOS)
- To assess the impact of financial management on sustainability in savings and credit cooperative organizations (SACCOS).
- To examine the role of saving mobilization on sustainability in savings and credit cooperative organizations (SACCOS).
Research Questions
- What is the influence of access to credit on sustainability in savings and credit cooperative organizations (SACCOS)?
- What is the impact of financial management on sustainability in savings and credit cooperative organizations (SACCOS)?
- What is the role of saving mobilization on sustainability in savings and credit cooperative organizations (SACCOS)?
Conceptual frame work
Access to credit
Financial Management
Savings Mobilization
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This section presents discussion of study in line with study objectives as written by other authors.
2.1 Access to credit
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations (Adeniyi 2013). The recipient (borrower) incurs a debt, and is usually liable to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed (Stephens, Knezevic,, & Best, 2019). The document evidencing the debt, e.g. a promissory note, will normally specify, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower (Segovia‐Vargas, Miranda‐García, & Oquendo‐Torres, 2023). The interest provides an incentive for the lender to engage in the loan. In all of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent (Simatele, & Dlamini, 2020). Acting as a provider of loans is one of the main activities of financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding. A secured loan is a loan in which the borrower pledges some asset as collateral (Kane & Hill, 2023).
SACCOS are community-based financial institutions that aim to provide savings and loan facilities to their members. According to Okwee (2020), SACCOS have become vital vehicles for promoting financial inclusion in many developing economies by offering affordable credit and savings mechanisms to individuals in rural or low-income areas. Access to credit in these institutions is a fundamental resource for funding personal or group-based projects, particularly in agriculture, small-scale businesses, and education. Financial inclusion through SACCOS ensures that members have the necessary resources to sustain projects over the long term. Studies, such as that by Matin and Yasmin (2017), emphasize that credit access is a lifeline for micro-entrepreneurs who depend on affordable loans to initiate and sustain their ventures. Without access to such financing, project sustainability becomes highly uncertain, leading to business failures and income loss (MOSHI, 2023).
2.2 Financial management
Sustainable projects are those that can maintain their operations and financial stability over the long term, ensuring continuous benefit to members. SACCOS often rely on members’ savings and loan systems to finance various projects aimed at improving their economic wellbeing. Financial literacy among members and management ensures that funds are allocated efficiently, reducing the risk of project failure due to mismanagement or poor financial decisions. Members with higher levels of financial literacy are more likely to engage in sound financial behaviors, such as regular savings, prudent borrowing, and timely loan repayment, all of which are essential for maintaining the financial health of the cooperative.
One of the major factors affecting the sustainability of projects within SACCOS is risk management. Financial literacy equips both the management and members with the ability to assess financial risks, such as defaults on loans, market fluctuations, and inflation. By understanding these risks, SACCOS can implement better financial controls, such as establishing credit policies, managing liquidity, and diversifying investments, which are key to long-term project sustainability, with financial literacy, members and management are empowered to make better financial decisions regarding savings, investments, and loans. For instance, members who are knowledgeable about interest rates and loan terms are more likely to choose loans that they can afford to repay, reducing the likelihood of default. Similarly, management can make informed decisions about which projects to fund based on their potential for profitability and sustainability, ensuring that the SACCOS remain financially viable.
2.4 Savings mobilization
Savings mobilization in cooperative societies involves the collection of savings from members, who are both the owners and customers of these societies. The primary purpose is to pool resources, which can be used to provide loans, invest in community projects, and ensure the financial sustainability of the cooperative. This collective financial approach helps members achieve personal and collective economic goals. These societies mobilize savings and extend credit to their members, aiming to enhance their financial stability and economic growth. This paper explores the impact of these activities on members in Kaduna State, Nigeria, focusing on the rate of savings mobilization Armendariz, B., & Morduch, J. (2010) Savings mobilization ensures that cooperative societies have a steady inflow of funds, contributing to their financial stability. This stability is crucial for the societies to meet their operational costs, provide loans, and invest in growth opportunities.
The current world situation leads us to consider that sustainable development, based on the three basic pillars of economic, social and environmental development, needs to be a global priority. All this has encouraged the adoption of new economic approaches and there is growing demand and interest in moving towards a more inclusive form of capitalism and making a transition to a stakeholder-based corporate governance model (Parmar et al., 2010). The basic principle of this model, the maximization of wealth for all stakeholders and not just owners, combined with environmental, social, and governance (ESG) issues, could create a new economic paradigm. In fact, the so-called social economy and social enterprises such as cooperative societies have provided ample evidence of their important role in the international economy and their capacity to combine the three objectives mentioned, namely economic, social, and environmental development (Bernardi et al., 2021; Kim et al., 2020).
Savings and Credit Cooperative Organizations (SACCOS) play a critical role in promoting financial inclusion, particularly in developing economies. They offer an avenue for individuals and communities to pool financial resources, access affordable credit, and invest in income-generating projects. The sustainability of these projects hinges significantly on effective savings mobilization, which serves as the cornerstone for building the financial base of SACCOS (Marango, 2023).
2.3 long term sustainability in savings and credit cooperative organizations (SACCOS)
Effective financial management is paramount for the sustainability of projects within SACCOS. Several studies highlight that sound financial practices such as maintaining liquidity, managing credit risks, and prudent budgeting are crucial for long-term project success. Ofei (2001) emphasizes the importance of establishing strong financial controls and transparency in reporting to ensure that funds are allocated appropriately and that losses due to mismanagement or fraud are minimized. In addition, Ahmed and Malik (2015) stress the role of proper loan recovery mechanisms, where default rates are managed effectively to reduce the risks of capital depletion. Projects within SACCOS that lack robust credit appraisal and loan recovery mechanisms often face difficulties in sustaining their operations, as capital shortages limit their ability to expand or support future projects. Governance plays a pivotal role in ensuring project sustainability in SACCOS. Cooperative governance, characterized by democratic participation and transparency, is essential for decision-making processes that align with members’ needs and objectives (Chavez, 2012). Poor governance structures, such as lack of accountability, ineffective leadership, and failure to adhere to cooperative principles, often lead to the collapse of projects.
METHODOLOGY
Research Design
A descriptive cross-sectional survey will be done to help the researcher, both qualitative and quantitative approaches will be employed.
Area of the Study
The study shall be carried out at Kaliro district
Target population
The entity comprises of 401 village sacco members who are in Saccos
Sample Size, Techniques and Selection
Using Krejcie and Morgan’s (1970) table for sample size determination approach, a sample size of 196 village sacco leaders will be selected from the total population of 401 village sacco leaders.
Research Instrument
Questionnaires shall be used to obtain the necessary primary data to answer the research questions and achieving the research objectives.
Interviewing
The researcher will also use interviews to collect information from sub county chiefs of Kaliro District.
Data Sources
Source of data will be from both primary and secondary sources.
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