EXTERNAL LOANS AND THE GROWTH OF SAVINGS AND CREDIT CO-OPERATIVES. A CASE STUDY OF NAKAWA TRADERS SACCO.

TABLE OF CONTENTS

DECLARATION .............................................................................................................................. i

APPROVAL ..................................................................................................................................... ii

DEDICATION ...................................................................................................................................... iii

ACKNOWLEDGEMENT .................................................................................................................... iv

ACRONYMS ......................................................................................................................................... v

TABLE OF CONTENTS ...................................................................................................................... vi

LIST OF TABLES ................................................................................................................................. x

LIST OF FIGURES .............................................................................................................................. xi

ABSTRACT ......................................................................................................................................... xii

CHAPTER ONE: INTRODUCTION ................................................................................................... 1

1.0 Introduction ....................................................................................................................................... 1

1.1 Background of the Study .................................................................................................................... 1

1.1.1 Historical Perspective ..................................................................................................................... 1

1.1.2. Theoretical Perspective .................................................................................................................. 3

1.1.3 Conceptual Perspective ................................................................................................................... 3

1.1.4 Contextual perspective .................................................................................................................... 4

1.2 The Statement of the Problem ............................................................................................................ 5

1.3 Objectives of the Study ...................................................................................................................... 6

1.3.1 General Objective of the Study ........................................................................................................ 6

1.3.2 Specific Objectives of the Study ...................................................................................................... 6

1.4 Research Questions ............................................................................................................................ 6

1.5 The Scope of the Study ...................................................................................................................... 6

1.5.1 Content Scope ................................................................................................................................. 6

1.5.2 Geographical Scope ........................................................................................................................ 7

1.5.3 Time Scope ..................................................................................................................................... 7

1.6 Significance of the Study ................................................................................................................... 7

1.7 Justification of the Study .................................................................................................................... 7

1.8 Definition of Key Concepts ................................................................................................................ 8

1.9 Conceptual Framework ...................................................................................................................... 9

CHAPTER TWO: LITERATURE REVIEW .................................................................................... 10

2.0 Introduction ..................................................................................................................................... 10

2.1 Conceptual Review .......................................................................................................................... 10

2.1.1 The Concept of SACCOs .............................................................................................................. 10

2.1.2 Overview of External Sources of Finance ...................................................................................... 10

2.2 Theoretical Review ......................... ................................................................................................. 11

2.3 Empirical Review ............................................................................................................................ 12

2.3.1 The Relationship between External Loans and the Profitability of SACCOs .................................. 12

2.3.2. The negative effects of external loans on the SACCOs profitability are: ....................................... 14

2.3.3 The Relationship between External Loans from the Government and the Level of Outreach of SACCOs ................................... 15

2.3.4 The Relationship between External Loans and the Sustainability of SACCOs ................................ 17

CHAPTER THREE: METHODOLOGY ........................................................................................... 21

3.0 Introduction ..................................................................................................................................... 21

3.1 Research Design .............................................................................................................................. 21

3.2 Population of the Study ...................... .............................................................................................. 21

3.3 Sample Size and sampling strategy .................................................................................................. 21

3.4 Area of the Study ............................................................................................................................. 22

3.5 Data Collection Instrument and Methods .......................................................................................... 22

3.5.1 Data Collection Methods ............................................................................................................... 22

3.5.1.1 Observation ................................................................................................................................ 22

3.5.1.2 Interviews .................................................................................................................................. 22

3.5.2 Data Collection Instrument. ........................................................................................................... 23

3.5.2.1 Questionnaires ........................................................................................................................... 23

3.5.2.2 Secondary data ........................................................................................................................... 23

3.6 Data Type and Sources ..................................................... : .............................................................. 23

3.7 Data Analysis .................................................................................................................................. 23

3.8 Data presentation ............................................................................................................................. 23

3.9.1 Limitations of the Study ................................................................................................................ 24

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS .. 25

4.0 lntroduction ..................................................................................................................................... 25

4.1 Response Rate ................................................................................................................................. 25

4.2 Findings about the Respondents Bio Data ........................................................................................ 25

4.2.1 Gender of the Respondents ............................................................................................................ 26

4.2.2 Marital status of the Respondents .................................................................................................. 27

4.2.3 Age of the Respondents ................................................................................................................. 28

4.2.4 Years members joined the SACCO ............................................................................................... 29

4.4 Objective one: To examine effects of external loans on the growth of SACCOs ............................... 31

4.4.1 Increases loan portfolio ................................................................................................................. 31

4.4.2 Increases Share capital .................................................................................................................. 31

4.4.3 Leads to Expansion in Members businesses ................................................................................... 32

4.4.4 Leads to increased Voluntary savings ............................................................................................ 32

4.4.5 Loan sizes and interest earned increase .......................................................................................... 32

4.5 Objective Two: To establish the relationship between external loans and the profitability ................ 32

4.5.1 Increases loan p01ifolio ................................................................................................................. 36

4.5.2 Enables disbursement of larger loans ............................................................................................. 36

4.5. Increases Membership ..................................................................................................................... 36

4.5.4 Increases Share capital .................................................................................................................. 36

4.5.5 Expansion in Members businesses ................................................................................................. 37

4.5.6 Voluntary savings increase ............................................................................................................ 37

4.5.7 Loan sizes and interest earned increase .......................................................................................... 37

4.5.8 Training from wholesale lender resulting into staff efficiency and perfection ................................. 37

4.5.9 Motivates staff members to work hard ........................................................................................... 37

4.5.10 High level of delinquency and default ......................................................................................... 38

4.5.11 Increases the SACCO's costs and expenses ................................................................................. 38

4.5.12 Results into poor loan appraisal ................................................................................................... 38

4.5.13 Distracts management from necessary day-to-day activities ......................................................... 38

4.5.14 Members misuse funds ................................................................................................................ 39

4.5.15 Voluntary savings decrease ......................................................................................................... 39

4.5.16 Results into poor record keeping ................................................................................................. 39

4.5.17 Reduces members sense of ownership of the SACCO .................................................................. 39

4.5.18 Results into SACCO fraud .......................................................................................................... 39

4.6 Objective three: To find out the relationship between external loans from the government and the

level of outreach of SACCOs ................................................................................................................. 40

4.6. l Enables the SACCO to extend more loans to more entrepreneurs .................................................. 41

4.6.2 Enables the SACCO to serve the active poor ................................................................................. 41

4.6.3 Enables the SACCO to serve more women ................................................................................... .42

4.6.4 Enables the SACCO to meet its social mission of serving the poor ............................................... .42

4.6.5 Attracts more members to join the SACCO ................................................................................... 42

4.7 Objective four: To establish the relationship between external loans and the sustainability of SACCOs ............................................ 43

4.7.1 Acts as a cheap source of capital ................................................................................................... 45

4.7.2 Improves on the SACCO liquidity ................................................................................................. 45

4.7.3 Reduces on the SACCO's debt load .............................................................................................. 46

4.7.4 Builds the SACCO's image ........................................................................................................... 46

4.7.5 Enables the SACCOs to mobilize more savings ............................................................................ .46

4.7.6 Makes the members to forget the history of mismanagement and inefficiencies ............................ .46

4.7.7 Results into lower repayment rate .................................................................................................. 47

4.7.8 Staff members ignore loan appraisal and issue bad loans ............................................................... 47

4.7.9 Leads to fraud and collapse of the SACCO ................................................................................... .47

4.7.10 Discourages members from saving in the long run ...................................................................... .47

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS48

5.0 Introduction ..................................................................................................................................... 48

5.1 Summary of Findings ....................................................................................................................... 48

5.1.1 Objective one: To find out the effects of external loans on the growth of SACCOs ....................... .48

5.1.2 Objective two: To establish the relationship between external loans and the profitability of SACCOs ........................................... 48

5.1.3 Objective three: To find out the relationship between external loans from the government and the level of outreach of SACCOs ............................... 49

5.1.4 Objective four: To establish the relationship between external loans and the sustainability of SACCOs .............................................. 49

5.2 Conclusion from the study findings .................................................................................................. 50

5.3 Recommendations from the study findings ....................................................................................... 50

5.4 Suggestions for further research ....................................................................................................... 52

REFERENCES .................................................................................................................................... 53

APPENDICES ..................................................................................................................................... 56

APPENDIX 1: RESPONDENTS QUESTIONNAIRE ....................................................................... 56

APPENDIX II: INTERVIEW GUIDE FOR BOARD AND STAFF MEMBERS: ............................ 60

APPENDIX III: INTRODUCTORY LETTER .................................................................................. 62

ABSTRACT 

The overall purpose of the study was to find out the relationship between external loans and the growth of SACCOs using Nakawa Traders SACCO as a case study. The study was guided by four objectives including: to establish the effects of external loan on the growth of SACCOs; to establish the relationship between external loans and the profitability of SACCOs; to find the relationship between external loans from the government and the level of outreach of SACCOs and to establish the relationship between external loans and the sustainability of SACCOs. The study used a cross sectional survey design where 5 board members, 3 staff members and 42 SACCO members participated in the study through interviews and filling in questionnaires. Data was analyzed using descriptive statistics and tables. Several effects of external of external loans were reveled from the study findings and these included: Increases loan portfolio, Increases Share capital, Leads to Expansion in Members businesses, Leads to increased Voluntary savings and Loan sizes and interest earned increase. The positive effects of external loans on the profitability of SACCOs include increasing loan portfolio, enabling disbursement of larger loans, increasing membership and share capital among others. The negative effects of external loans on the profitability of SACCOs include; increasing delinquency and default, poor loan appraisal, fraud among others. External loans affect the SACCOs level of outreach through enabling the SACCO to; extend more loans, serve the active poor, serve more women, attract more members among others. External loans have both positive and negative effects on the sustainability of SACCOs. The positive effects include: external loans acting as a cheap source of capital, improving on the SACCO's liquidity, reduces on the SACCO's debt load among others. The negative effects include: lower repayment rate, staff members ignoring loan appraisal and issuing bad loans, leading to fraud and collapse of the SACCO among others. The study recommended that before extending external loans to SACCOs they should train board, staff and the members should ensure that SACCOs have a technical staff with at least a diploma in any business course who will manage the funds effectively among others. The study suggested further research to investigate the: factors affecting loan default in SACCOs that access government support in Uganda in Uganda; motivational factors leading to high repayment in SACCOs' that access government support in Uganda; and the effect of fraud and government support through MSC on the sustainability of SACCOs in Uganda.