Seasoned cooperators and cooperatives officials are predicting a grim future for cooperative societies in the post COVID-19 era unless certain measures are put in place by the societies themselves.
In an exclusive interview with theCooperator, Rwampara District Commercial Officer (DCO) Amon Mutabarura says that several issues are likely to arise afterthe COVID-19 lock down is lifted that could affect the survival of many SACCOs.
One problem he foresees is that of members, long out of work, demanding to withdraw their savings either to recapitalize their businesses or ease constrained domestic financial situations resulting from the current situation.
“If all members demand for their money, will these SACCOs have enough money to pay them back?” he wonders.
Mutabarura believes that so far most financial cooperatives have only been preserved from mass withdrawals because the ongoing restrictions on means of transport make it difficult for most members to access the SACCOs’ offices.
“So far we have no disputes arising from SACCOs due to the fact that movements are limited, and yet many members would have to move long distances in order to demand for their savings, but once the transport system opens up, we shall suffer with cooperative cases here,” he predicts.
Mutabarura is not alone in his forecast of a grim year ahead for cooperatives.
Edmond Sajabi, Manager Kakoba Mbarara SACCO, says most cooperatives will not register any growth in terms of membership, share capital, savings and loan portfolio the COVID-19 lockdown.
“As SACCOs, I can comfortably say that this year we shall not register any growth because the members who are supposed to boost share capital, increase savings or take loans are locked up in their homes and no business is going on per se,” Sajabi explains.
Moreover, he says, implementation of SACCO budgets and work plans will be compromised, and their projected incomes negatively impacted.
“The income estimates for this year will not be achieved because members are not paying loans and most SACCOs’ other income streams are equally on hold,” Sajabi says.
”Most planned activities such as purchase of budgeted capital assets, marketing activities for the cooperatives and so on will not be implemented because of lack of money to run those activities.”
Sajabi further predicts that most cooperatives will register a deficit at the end of the financial year because of having lots of expenditures to facilitate and yet there is limited income to support them.
“People will be badly off and in need of loans, but will find capital unavailable because it was earlier borrowed by members who have been unable to pay back because of COVID-19,” he says.
Sajabi sees many cooperatives being forced to shut down permanently in the wake of the current crisis, especially those that have been “operating on a weak foundation”.
“Many cooperatives have good looking offices but offer quack services to the members. Already we see many which have failed to sustain business within this period. Most SACCOs that closed due to COVID-19 are unlikely to resurrect but will cease operations for ever.”
For those that remain in operation, he says, the true test will be in their ability to meet the financial needs of members.
“After the lockdown, most members will come in to withdraw their savings or take out loans. If SACCOs’ managements do not have enough money to give to the members, for many the alternative will be to close down.”
However, Benon Kajubi, Managing Director Kakiika United Co-operative Savings and Credit Society Ltd, is more optimistic. According to him, some SACCOs will emerge unscathed after the lockdown, depending on their operational model and the makeup of their membership.
“SACCOs, like Kakiika, whose membership is comprised primarily by salary earners like police officers, teachers and the like, will not be so hard hit. This is because deductions for their savings and loan repayments are made direct from their bank accounts at the end of each month,” Kajubi explains.
How should cooperatives adjust?
Sajabi says cooperatives will have to be versatile in providing solutions for their financially constrained members if they are not only to survive under prevailing conditions, but also to thrive in the post-COVID era.
For instance, he advocates for restructuring of loan repayments to allow members to only service the interest on their loans until the situation normalizes, after which a plan for paying off the principal can be negotiated.
“This will ensure SACCOs get some much needed income to cover fixed costs like salaries, rent and security guards during this time when business is slow, without overly constraining members who have loans,” he advises.
He also advises cooperatives to suspend some budgeted expenses that may not be essential, such as publicity and marketing, in order to cut on costs and avoid deficits.
Rwampara DCO, Amon Mutabarura, also proposes rescheduling of members’ loans during these hard times.
“I am urging SACCOs in Rwampara to be ready to meet their clients and, where it is possible, reschedule their loans. Those who are able to, however, can continue servicing their loans,” he says.
One lesson that cooperatives can learn from the current situation, Sajabi says, is the necessity of maintaining a reserve fund to be used during moments of crisis.
“SACCOs should not lend out all member savings as received. Rather, they should retain at least twenty percent of total savings as reserve fund for such harsh periods. That way, they would be able to continue meeting fixed expenses, and also give members their savings if they so wish,” Sajabi counsels.
Sajabi also proposes that cooperatives carry out pre-AGMs as one way to ease the AGM’s work and provide interim guidance in the event that the AGM is delayed.
“For example most SACCOs which were unable to hold AGMs due to COVID-19 would be operating based on the pre-AGM resolutions. Like now, which budget will such cooperatives follow to implement activities when they have not held the end of year annual meeting?”
As cooperatives face an uncertain post-COVID future, Mutabarura stresses the necessity of effective communication between cooperative management and the membership.
“With such issues, both management and members have to increase communication. They should sit together, consider the prevailing economic parameters and dynamics, and find ways to manage the situation in a proactive way rather than being reactive,” he says.
However, the District Commercial Officer is optimistic that the situation will normalize soon, and businesses will pick up as before.
“Once the economy is opened up again and people are able to buy, sell and spend money in communities, we shall quickly get back on our feet and SACCOs will be able to go back to their normal operations,” Mutabarura says.