Saving and Credit Cooperative Organisations (SACCOs) are by nature supposed to get resources from members and lend back to them at lower interest rates. They are also used for saving purposes.
However, as a SACCO grows, members’ contributions may not be enough to serve its purpose. This explains why many SACCOS borrow from commercial banks.
However, leaders of SAACOs say the high interest rates charged by government’s Microfinance Support Centre (MSC) and commercial banks are pushing them out of business.
The Chairman of Kisenyi Development Works Association (KISEDEWA), Emmanuel Mwanje Kintu says that despite his effort to professionally manage the association by generating savings capital and mobilizing resources from members, the high interest rates charged by commercial banks and Microfinance Support Centre has seen many of their members avoid taking up loans, thus badly affecting their dream of fighting poverty and creating jobs through affordable business loans.
He says that as an association, they decided to shun loans and embark on investing in other business venture using the saving capital to create jobs for the community and members.
“We need special interest rates as SACCOs to be able to contribute to the development process; we lend to our members at a low interest rates compared to the bank loan interest. As an association, we decided to invest our saving capital to other ventures like events management and other businesses to create jobs,” Mwanje said.
He added that while the members were optimistic that the government through the Microfinance Support Centre was going to inject money into SACCOs as the Minister of Microfinance had promised them, this has not been the case because the association couldn’t collateral security asked by the MSC.
The State Minister for Finance, Planning and Economic Development (Microfinance), Kyeyune Haruna Kasolo while commenting on the Presidential initiative to promotes Agro-Industrialization for Local Economic Development (AGRILED) in a phone interview said he directed interest rates for all loans disbursed by Microfinance Support Centre not to exceed 9% per year.
“The Uganda Micro Finance Support Centre must extend affordable credit to SACCOs, farmers, entrepreneurs and other players in AGRILED programmes at an interest that does not exceed 9%,” he said.
The Tier 4 Microfinance Institutions and Money Lenders Act 2016, which came into force on July 1, 2017 requires lending institutions to apply for licenses.
It stipulates the interest to be charged on loans, repayment mode and the right to early repayment. It also requires money lenders to issue a receipt and keep records of every repayment on a loan.
The law also provides for the establishment of: The Sacco Stabilization Fund, to which an equivalent of 0.5 per cent of the total assets of the Sacco is contributed; a Sacco Savings Protection Fund and a Central Financing Facility to license money lenders.
The World Bank Group report on Uganda’s economic update fact sheet 2017 indicates that the challenge and gaps facing financial inclusion in Uganda includes the high cost of credit as a major constraint and that only a very small proportion of Ugandan businesses and households have access to a bank loan. The report adds that the Interest rates often range between 22 and 25% of the total value of the borrowed amount which its states will cause many people to shy away from loan products.
By Drake Nyamugabwa