SACCOs urged to guard against loan defaulters as they seek expanding

SHEEMA, January 18, 2025 – – Savings and Credit Cooperative Societies [SACCOs] in Uganda are facing the growing challenge of loan defaults, according to Herbert Ahimbisibwe, the General Manager of Shuuku Credit and Cooperative Society Limited [Shuuku SACCO] in Sheema district.

Ahimbisibwe, while speaking at the official launch of Shuuku SACCO’s new logo days ago, explained that the expansion of branches has contributed to an increase in loan defaults at some SACCOs.

“As SACCOs expand, it is crucial to understand the borrowing history of new clients before extending loans,” he cautioned. “Unfortunately, competition in the SACCO sector has made it difficult to share client information, unlike in the past when cooperation was more common, and this has contributed to the rise in loan defaults.”

The General Manager also highlighted the issue of multiple borrowing, which has exacerbated the problem of loan defaults across SACCOs.

Meanwhile, Stephen Bongonzya, Chairman of Shuuku SACCO, stated that opening additional branches is aimed at meeting the demand for decentralised financial services from members, despite the challenge posed by loan defaults.

“Opening branches is a response to member requests for more accessible financial services,” Bongonzya explained, adding that the expansion of branches comes with increased operational costs and a rise in loan defaults. “Shuuku SACCO currently operates seven branches, which have resulted in higher operational costs as well as more bad debts. As we continue to expand, we must be diligent in understanding our customers. It is essential to enforce strict internal controls and robust loan appraisal systems.”

Bongonzya mentioned that the recently opened branch in Mbarara City has struggled due to a high level of bad debts.

He further pointed out that the current Cooperative policies and regulations in the country hinder SACCOs from effectively recovering loans, urging the government to amend the Cooperative Societies Amendment Act, 2020.

“For example, the Cooperative Societies Amendment Act, 2020 includes mediation provisions that borrowers exploit to avoid repaying loans. Additionally, the court processes involve costs, causing SACCOs to incur further losses. Some SACCOs even choose to ignore bad debtors to avoid depleting members’ savings,” Bongonzya explained.

He also noted that the problem of loan defaulters has forced SACCOs to resort to external borrowing at high interest rates to maintain liquidity.

“In most cases, internal liquidity is low due to bad debts, and the only option is to borrow externally, which comes at a cost because of high interest rates,” Bongonzya added.

Way Forward

Prof. Ephraim Kamuntu, the Patron of Shuuku SACCO, encouraged members to save, borrow responsibly, and ensure timely loan repayments if SACCOs are to remain viable.

“The saving culture among our SACCO members is still low. Although SACCOs are institutions for savings and credit, many members only open accounts to access loans,” Kamuntu observed. “SACCOs are built on the principles of saving, borrowing, and repayment. When members default, SACCOs are forced to increase interest rates to continue operating. If they do not, they risk stagnation or collapse.”

Ahimbisibwe called for cooperative leaders to train their staff in effective loan recovery practices and for members to be educated on the consequences of loan defaults.

He revealed that Shuuku SACCO has joined the Credit Reference Bureau system to track the financial performance of its members. “We have introduced the Credit Reference Bureau mechanism to track multiple borrowing among our members,” Ahimbisibwe said.

Although SACCOs have been exempted from paying tax on their income since July 1, 2017, and the tax holiday is expected to end on June 30, 2027, Ahimbisibwe appealed to the government to remove corporation tax and establish a single regulatory body to better support cooperatives in Uganda.

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