MBALE: Mbale Mayor Hajji Zandya Mutwalib Mafabi has called upon the Government to ensure stronger regulations to guide the formation and operations of hundreds of Savings and Credit cooperative societies(SACCOs) springing up in the country.
Speaking in an interview with our reporter, Mafabi noted that although these SACCOs have been helpful in the economic empowerment of local communities, they need to be regulated to protect unsuspecting people from being taken advantage of, by unscrupulous individuals.
“They(SACCOs) have been of great help. But time and again, you hear stories of conmen who fleece ordinary people of their hard-earned monies through these schemes. We need to ensure close monitoring such that such cases don’t keep happening,” he said.
In an effort to compensate for the limited penetration of commercial banks and promote financial inclusion for rural communities, the government has in the recent past continued to encourage the formation of SACCOs in both rural and semi-urban areas.
In fact, during his 3-months wealth creation tour concluded this August, President Museveni went around the country encouraging citizens to form vocation-focused SACCOs which he promised to fund.
SACCOs are membership-based organizations whose core business is to encourage savings and enable easy access to credit for their members. The Members pull resources together in form of savings, and use the mobilized savings to extend small credit facilities to themselves through a formally registered micro-credit facility.
Legally, SACCOs are legal entities registered under the Uganda Cooperative Statute of 1991 and Cooperative Societies Regulations of 1992.
According to a study by the Uhuru Institute for Social Development, as of 2017/18, there were over 9000 financial cooperatives in the country, most of whom are SACCOs, and the number is estimated to have significantly increased since then.
In 2018, a Fin-Scope survey indicated that 42% Ugandans today are significantly more likely to borrow money from SACCOs to cover unforeseen expenses compared to commercial banks, underscoring the central place these financial societies have come to occupy in the economy.
But while these SACCOs have been of such positive impact in local communities, they have also been riddled with several cases of duplicity, with sometimes unscrupulous individuals fleecing unsuspecting members of the public under the guise of subscribing them to such financial cooperatives. Other times, managers and officials of the said SACCOs have run away with members’ savings, with the victims lucky to get any redress at all.
Mafabi says this needs to be checked. “Most times, my office receives cases of SACCOs who under the guise of providing the rural poor with financial services came, mobilized some money from the poor, and all of a sudden, disappeared,” he said.
The Mbale Mayor noted that with the Government’s latest push for SACCOs, these cases (of duplicity) are bound to increase, and the government needs to intervene.
“Presently, any member in the community can start a Sacco and go around mobilizing members to join him or her without necessarily seeking any form of authorization,” he says, adding, “This has to change. We must introduce policies that compel anyone or group starting a SACCO to ensure that they are registered, members well profiled especially those holding key leadership positions, before they are allowed to operationalize their activities.”
Mafabi is also concerned with other informal financial service providers who are equally barely regulated such as Village Savings and Loan Associations (VSLAs), rotating savings and credit associations (ROSCAs), community-based money lenders among others, which he says also portend great risk to savers.
Until 2017, the financial sector regulatory framework provided for tier one to tier three institutions leaving out SACCOs, which as seen above, interact most with especially low-income earners at the grassroots.
Now, under the amended law, SACCO Managers are required to have an amount of money in a commercial bank that’s worth the money they are going to handle in their SACCO to serve as security for members’ savings.
Even then, Henry Mbaguta, an Assistant Commissioner in the Financial Services Department of the Ministry of Finance, Planning and Economic Development says stronger regulations are needed.
“Effective regulation and supervision will ensure adequate compliance to the law and provide an important tool for financial inclusion,” he says.
However, the state Minister for Trade and Industry, Michael Werikhe is skeptical against over-regulating SACCOs, warning that doing so risks reversing already made gains: “It’s Government policy to encourage savings and SACCOs are so far doing a great job in this aspect. Over regulating them might discourage this very spirit we are trying to encourage among our people,” he said.
Silas Aogon, the Member of Parliament for Kumi Municipality, however, argues that regulations can be put in place that do not stifle the emergence and growth of SACCOs but make them more accountable. “It’s true we need some good gatekeeping in this area. The people who are suffering most are the ones in the villages. We can strengthen oversight of these SACCOs while being careful to not limit their growth,” he said.