SAVINGS AND CREDIT COOPERATIVE

SOCIETIES (SACCOS)
 1.7 REGISTRATION

• To qualify for registration as a cooperative society, any

cooperative group must have a minimum of 30
members.
• The membership is based on one of the common
bonds of residence, occupation and profession.
• A minimum of 2 primary cooperative is required to
form a secondary cooperative societies known as a
Union.
• In turn the law also allows two secondary unions to
come together to form a national union.
1.8 MANAGEMENT AND ORGANISATION STRUCTURE OF A COOPERATIVE
SOCIETY

The management of a cooperative society is composed of three

separate and distinct groups which are:
• Members who have fully paid entrance fees and shares are
patronizing their society.
• Committee members who must not be less than 5 and not more
than 9 members. The committee members are elected in a
general meeting to oversee the promotion and operation of
business on behalf of the members.
• The management personnel are the paid staffs who are
entrusted with the day-to-day management of the society. They
have specific duties and general responsibilities to carry out to
ensure an economical viable cooperative society.
FIG:1.0 THE ORGANISATIONAL STRUCTURE OF ANY COOPERATIVE
SOCIETY IS AS FOLLOWS:
1.9 ORGANISATIONAL STRUCTURE OF THE COOPERATIVE MOVEMENT IN
UGANDA

• The organizational structure of the Cooperative Movement in Uganda

is on four(4) tiers system which are inter-linked and inter-dependent.
At the grass roots, individual human beings with a common need
voluntarily come together and form primary cooperative societies in
order to promote their economic and social standards. In turn primary
cooperative societies associate and form cooperative unions. These are
the secondary institutions, commonly referred to as “District” Unions.
Various secondary unions come together and form national unions of
different types like transport, banking and insurance which operate
throughout the country.
• At the top of the organizational structure there is the Uganda
Cooperative Alliance (UCA) which serves as the apex body playing the
role of advocacy, representation locally and abroad, education and
publicity.
FIG. 1.2 ORGANISATIONAL STRUCTURE
• The law governing the Cooperative Movement in Uganda
has been amended a number of times to suit the ever
changing environment. The Cooperative Societies Statute
1991 / CAP 112 (2nd) gave autonomy to cooperatives
requiring them to be independent and self-sustaining.
However, due to the low of education of the members
there is still need for the Registrar of Cooperative Societies
to guide and safe guards the interests of the grass roots
members. Accordingly, by anyone who wishes to work
with the cooperative societies/unions should be versed
with the law governing the Cooperative Movement.
 2.0 COOPERATIVE SAVINGS
• Savings and credit cooperative societies (SACCOS) are financial institutions of a special
type.
• They are cooperative associations, formed primarily and for the purpose of accumulating
savings among members and extending credit to them.
• In performing this role, they closely resemble other conventional banking facilities.
• Their uniqueness lies in their cooperative orientation, which has led them to develop
organizational, operational and ownership structures that are very different from those of
other financial intermediaries.
• They have also inherited a sense of social responsibility that is characteristic of
cooperative organizations (Purden1980).
• SACCOS had become a flourishing business in Uganda, especially in the urban areas
during the 1960 and 70s. They were first introduced in Uganda during the 1950s.
• To many, it seemed a dubious time to establish a new kind of savings and loan facility.
And, in fact, SACCOS got off to a slow start.
• A saving is a sacrifice which is set a side or forgone for future use.
• A savings scheme is a means by which members are encouraged to pool their meager
resources together to promote better savings habits among themselves so that they can
build up funds for re-lending to needy and creditworthy members.
 2.1 TYPES OF SAVINGS BY MEMBERS

• A member and or society can make savings in various

forms depending on the period for which one wants to
save, amount of savings and the planned operations.
• These accounts have different regulations regarding
withdraws and interest structure.
• A member is free to make choice of what type of savings
one makes with the society.
• In the same way, the society is also free to deposit the
member’s savings with the Bank in any form or all of the
forms of savings depending on the planned operations.
• i) Sight Savings:
This is the type of savings where members may withdraw without notice.
ii) Fixed Deposits:
Members should be encouraged to make savings for a specified period, say
a year, 2 or 3 years etc. The longer the savings period the higher the interest
and savings will help the society to plan efficiently.
iii) Recurrent Deposits:
Members under this method are encouraged to save a certain amount of
money either weekly or monthly for a given period of time e.g. 3 years. A
withdrawal of the whole amount saved with interest is withdrawn at the
end of the agreed period.
In case of hardship the committee may authorize the withdrawal of the
whole amount saved before the agreed period although accrued interest is
forfeited.
2.2 MOBILIZATION OF COOPERATIVE SAVINGS

Mobilization of savings in a society should mainly be the responsibility

of the society committee, Secretary Manager, and the General
membership. Such responsibilities include;
– Education of members about the need for savings and benefits that come
from savings. This can be done at general meetings or in the zones they
represent through visits.
– Provision of an atmosphere within the society conducive to saving by
making sure that members savings are safely kept and invested in ways
that will benefit the savers e.g. safes, efficient supervision.
– Improvement of the marketing of societies’ produce while encouraging
members to save in kind.
– Creation of incentives to savings, by for example, giving prizes to big savers
or encouraging competition among the committee members to establish
the best mobilizer.
 2.3 PRE-REQUISITES FOR SAVINGS

A. THE SOCIETY.
• The society must be registered (Groups in formation may be allowed
to receive members’ savings)
- The society must have a full set of books of accounts and records as
required by the Cooperative Statute, Regulations, and Bye – Laws.
- The committee must be conversant with the society’s bye-laws and
adhere to the provisions of the Cooperative Statute and Regulations.
- The Society must have an efficient and competent committee.
- The society must have a competent, trained or trainable secretary
manager and if necessary other effective supporting staff.
- The society must have an office and a safe which is well secured.
- The society must be accessible at any time
by any means of transport.
- The society should be able to provide
security for funds at the society and in transit.
- The society must have or be prepared to
open an account with the nearest bank.
- The society must fix the rate of interest on
deposit.
 B. COMMITTEE.
The committee is charged with the following:
• Carry out mobilization of savings in the society.
• Ensure safe custody of savers’ funds by regular banking and
providing security for cash on hand.
• Ensure proper and profitable investment of savings.
• Supervise the activities of the Programme
• Carry out education of the members and employees on the
methods of saving and utilization of saved funds.
• Consider members’ applications to participate in the savings and
those who apply for credit.
• Employ trained or trainable employees.
• Assist in scrutinizing feasibility studies for the societies’ members.
 C. THE SECRETARY MANAGER

In addition to his general duties, as prescribed by the Cooperative Statute,

Regulations and the society’s by-laws, the Primary Society Manager will
carry out the following duties:
• Assist members and committee in the preparation and the completion of
the savings and credit scheme documentation.
• Process loan applications for bulk production requirements of members.
• Prepare and submit a monthly savings credit scheme report and cash
summary to the Committee.
• Conduct the society’s affairs in a manner that is conducive to good public
relations.
• Prepare the society’s estimates at the beginning of the financial year,
showing the estimated income and expenditure, working capital crop
finance, loans etc. and how these amounts are to be raised.
• Prepare and submit any other returns as may be required.
 D. GENERAL MEMBERSHIP

a) Role of general membership:

The General membership of the Society will play an
important role in the positive conception of the
scheme, support its operations and continuously add
and increase the volume of their savings in their
society.
They will also care to know and contribute constructively
to all matters pertaining to the programme in the
society.
 b) Duties and Responsibilities of the Society General Membership

• In addition to their normal duties in the society, the General

membership will:
• Make reasonable and regular savings with the society.
• Participate in the determination of interest payable on savings
during the annual general meeting.
• Follow closely the trend of their savings with the society.
• Be involved in the determination of the proper use of the society
savings.
• Give powers to the society committee and officials to operate the
programme in the society for their benefit and that of the
society.
• Participate in all society meetings related to the programme.
 2.4 SUPERVISION OF SAVINGS:

• Effective supervision of members’ savings is an

important aspect as it results in high savings,
eliminates or minimizes diversion of Savings and
increases members’ confidence in their society. At
the committee meeting each member should report
on:
• The extent at which savings have been mobilized.
• Total savings mobilized and number of members.
• Set targets.
• Problems and recommended solutions to them.
• The committee should consider reports,
analyse them, devise solutions and set targets.
• The Secretary Manager is equally important
in mobilizing and receiving members’ savings.
• He should visit members to solicit for “in kind
deposits” and should also find time to visit the
savers’ farms as a gesture of encouragement.
 2.5 OTHER GENERAL INFORMATION

• Deposits will not be accepted from non-members

• The amount of interest paid will be determined by the General Meeting of
the society.
• The minimum period for any fixed deposit will be for 6 months and the
maximum period three years. (Re-investment at the end of the term for an
additional term should be encouraged)
• In case of hardship, fixed and sight deposits may be pledged by the
member to the society for a loan. Loans may be made for up to, but not
exceeding 100% of what the member has on deposit (This practice should
be encouraged)
• Interest rates are based on a society’s actual earnings and will vary from
society to society. A society that has more income will be in a position to
pay a higher interest rate than a society whose income is small.
•
3.0 COOPERATIVE CREDIT (LOANS)
• Credit is the permission granted by the lender to
the borrower for use of goods and services or
funds with payment differed until an agreed
future date.
3.1 PRE-REQUISITES FOR A CREDIT OPERATION
• Once a society is registered and has accumulated
savings, immediate steps should be undertaken to
offer credit to its members, and hence the need to
• Acquire a full set of credit scheme stationery.
• Call a membership general meeting to pass resolutions on the
following matters:
- Fix the maximum liability for the society.
- Fix the maximum sum which any one member may borrow.
- Allocate a sum from own funds which may be lent to
members.
- Authorize a committee to appoint a paid secretary
manager.
- Fix the rate of interest on loans (lending rate)
- Authorize a committee to appoint a credit subcommittee
• Call a committee meeting and following the resolutions
of the general meeting to undertake the following steps:
- Appoint a secretary manager/manager assess his
salary; set the terms and conditions of service.
- Instruct the Treasurer to hand over to the Secretary
Manager/Manager all the society’s cash, books of
accounts, etc.
- Arrange courses for selected Secretary
Managers/manager, committees and members to be
instructed in the Credit Scheme operations.
• 3.2 CREDIT SUB-COMMITTEES
The credit sub-committee shall be appointed by the committee and shall
consist of not less than three or more than five members.
Members of the credit sub-committee shall be appointed for two years
term.
The regular terms shall be so fixed at the beginning, or upon any increase or
decrease in the credit committee authorized by the committee at a
meeting of the committee so the approximately an equal number of
regular terms shall expire each year at the Annual General Meeting.
The credit sub-committee shall hold such meetings as the business of the
society may require, but not less frequently than once a month.
The credit sub-committee shall inquire carefully into the character and
financial conditions of each applicant for a loan, and of a guarantee if any.
• 3.3 PROCEDURE TO ACQUIRE A LOAN FROM A
SOCIETY
After the society has invited applications from
members for credit scheme loans, the
Secretary Manager consolidates all the
member loans requirements for the
committee’s approval.
A. LOAN APPLICATION.
• Each member applying for a production loan must
complete an application/bond form and submit it to
the Secretary Manager/Manager of his society.
• On receipt of the application, the Secretary
Manager/Manager fills in the necessary information
on the reverse of the application form.
• He puts the application on file and waits to submit
it in the next committee meeting.
B. LOAN APPRAISAL
• Meanwhile the Secretary Manager should inquire
into the character and financial standing of the
applicants and his sureties.
• When making loans the committee must consider
each application on its own merits.
C. LOAN APPROVAL
• Along with the foresaid counts the rules governing
who may be able to obtain a loan must be strictly
adhered to in all cases.
D. LOAN DISBURSEMENT
• When the loan has been approved the parties concerned
must now complete the bond part of the
Application/Bond form.

E. LOANS IN KIND
• As far as possible loans should be made in kind. On issue
of materials or cash to the borrower the Secretary
Manager must write a loan disbursement voucher and
enter the value of the materials or cash in the cash book.
 3.4 SUPERVISION AND RECOVERY OF LOANS FROM MEMBERS

• A. SUPERVISION
• Effective supervision of loans is an important aspect of credit operation as it
results in a high rate of loan recoveries and it eliminates or minimizes the risk of
loan defaults.
• B. RECOVERY OF THE LOAN FROM THE BORROWER
• The following loan servicing guidelines should be observed for effective loan
recovery;
• It is an essential factor in the Cooperative Credit Scheme that loans granted
under this scheme is repaid early and in full.
– The earlier they repay their loans the less interest they have to pay.
– The earlier they can apply and receive fresh loans.
– The earlier the member can get a fresh loan.
• To be able to achieve the advantages mentioned in the above paragraph, the
committee must draw the procedure and the program for loan recovery within
the society
3.5 MANAGEMENT AND SAVINGS AND CREDIT IN SOCIETIES
• Generally, management is referred to as the art of handling,
planning, organizing, directing, controlling, supervising of resources
in an organization in order to produce positive results.
A. RISK MANAGEMENT
• Risk Management is a set of systems and procedures put in place to
safe guard resources of an organization against disaster and losses.
B. INSURANCE
• Insure members’ deposits and loans.
C. SECURITY
• A steel safe, or a concrete safe with a steel door or a cash-box
cemented in the floor, must be owned by each society.
D. INTERNAL CONTROL
• Committees to be vigilant and trustworthy.
• Constant examination should be made to insure that where business
is handled there is good security.
• The areas of inspection to be covered at various times or at any one
time will be:
– Cash book
– Receipts and payment vouchers
– The posting and members’ savings ledgers
– Cash count book
– Committee Minutes Books
– Savings Mobilization Programmes and Procedures employed by the society.
– Any other area of importance.
3.6 FEATURES OF SACCOS
• 1. Need in common, social commercial need
• 2. BONDS:
• Occupational
• Residential
• Associational
• 3. Area of operation must be specific and clear
• 4. Management:
i) Operation:
• Government’s role and responsibilities
• Society’s roles
• Member’s duties
• Committee Duties and Responsibilities
• Sub-committees – Duties
• Employed staff – Duties and Responsibilities
ii) Financial management
• Record keeping
• Financial Accounting
• Financial requirements
• Tools of Financial management
– Budgets
– Cash flow
– Reconciliations
– Management Accounting
– Reports
– Evaluation/Audit.
iii) Training: To all
5. Business skills
i) Business planning
ii) Type of Business Planning
• Short
• Medium
• Long term
 4.3 AREAS OF CONCERN IN MICROFINANCE ENTERPRISES

Risks of Deposit Taking in Microfinance.

• Credit Risks – refers to the danger the borrowers are not able or not willing to
repay their loans in time.
• Correlated risks – loans are granted to a relatively homogenous clientele being
concentrated on specific target groups – default risks are highly correlated.
• Interest rate and Liquidity risks
– Interest rate risk – refers to the risk of externally induced changes in the financial
spread.
Note:
• As long as the microfinance institution is funded with grants, soft loans and engaged in short
term lending – the interest rate risk is low.
• However, commercially funded microfinance institution may face interest rate risks when the
interest rate on the liability side rises and cannot be offset in the lending business of prevailing
interest rate ceilings.
Liquidity risk – refers to cash flow problems when assets cannot easily be
liquidated and when there is no access to liquidity pools.
• Management risks – relates to the strong dependence observed between he
performance of financial institution and the quality of its management. Microfinance
operations heavily depend on the familiarity of the management and the staff within
Micro enterprise sector.
• Ownership and governance risk
– Requirements of internal controls which may be difficult to implement.
– Board members capacity and ability.
– Donors and government conditions.
– Internal controls Vs external supervision.
• Inflation risk – when government cannot control its financial risks – rates of exchange;
interest; charges; penalties etc.
• Adequate capital mobilization. If is not easy to mobilize capital to cater for the demand.
• Regulatory Framework: The regulations and supervision of microfinance business is
complex and consists of a mutual learning process and ongoing innovation.
Note:
• Inadequate regulatory framework would only delay the creation of suitable conditions
for microfinance development.
• Self regulation and supervision of microfinance suffers from conflicts of interest.
4.4 THE EXPERIENCE OF RISKS AS HIGHLIGHTED BY PROSPECTIVE OF STANBIC BANK
UGANDA LIMITED (2006).

• Financial Risk Management – Inexperience in financial

management lack of Total Quality Management.
• Credit Risk – Experience of financial losses resulting from
defaults on repayments. Significance changes in the economy
or in the health of a particular industry.
• Currency Risk – Foreign currency exchange rates on its
financial position and cash flows.
• Interest Rate Risk – The liberalized interest rates fluctuates
according to market forces.
• Liquidity Risk – In availability of enough cash or quick assets.
• Fair values of Financial Assets and Liabilities.
• Critical Accounting Estimates and Judgments in applying
accounting policies.
• Risk Factors
- Competition in the sector
- Maintenance a customer – centric orientation
• Market Risk – profitability is largely dependent on the prevailing
economic conditions in Uganda e.g. currency and interest rate
fluctuations.
• Operational risks – The risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events as 3rd
party frauds.
• Regulatory Risk – Operating in a highly regulated environment and
non-compliance with such prescribed regulation can result in
sanctions by Bank of Uganda
• Concentration of risk – Economic sector risk concentrations within the
customer loan and deposit portfolios.