Savings And Credit Co-operatives (SACCOs) can reach clients and areas that are unattractive to banks, such as clients in rural areas.
Unlike most micro-credit providers, SACCOs mobilise significant volumes of personal savings and channel them into small loans for productive and provident purposes at community level and their solid base of small savings accounts constitutes a stable, relatively low-cost funding source.
These sentiments were expressed by Prime Minister Saara Kuugongelwa-Amadhila during the PwC’s 40th anniversary last week. She said encouraging innovations to promote financial inclusion is a topic close to her heart. The PM made particular reference to the potential role that savings and credit unions can play in this regard.
“Given these benefits and welfare gains, I believe there are convincing reasons to stimulate the SACCO movement in Namibia. We need to further improve financial literacy to enhance the knowledge about SACCOs… I strongly urge our internal and external stakeholders to support this movement in Namibia. In this regard, government is looking into how the existing initiatives to promote SACCOs can be strengthened. This includes looking at how government, as the largest employer, can harness the potential of SACCOs to promote savings and access to credit for its members,” said Kuugongelwa-Amadhila.
“Financial inclusion has become a priority for financial sector policymakers across the developing world in recent years. The main reasons for prioritising financial inclusion as a policy objective are threefold: Firstly, expanding the opportunities for people to trade is almost always welfare enhancing. This applies to financial markets, as well as other types of markets. Secondly, access to financial services helps poor people to finance investment in micro-enterprises, for example the purchase of farm inputs or retail stock, which will enable them to raise their incomes.
Thirdly, financial inclusion can help deepen financial markets, for example by attracting more savings into banks, via savings and credit cooperatives and micro-finance deposit taking institutions,” Kuugongelwa-Amadhila explained.
She noted that although there is a legal framework to promote and regulate savings and credit unions in the form of the Cooperatives Act 23 of 1996, to date there are only six pure savings and credit cooperatives registered in the country. She further noted that the average penetration rate of credit unions in Africa for 2014 is low at around 7 percent.
She pointed out that southern Africa particularly has a rather low penetration rate for credit unions, with levels as low as 1 percent for some countries compared to other parts of Africa, where credit unions have deeper penetration of up to 20 percent. Penetration rates are calculated by dividing the total number of reported credit union members by the economically active population, aged 15 to 64 years.
The prime minister, who was previously minister of finance, said other welfare gains that SACCOs can bring about include educating their members on financial matters, paying dividends on shares to their members once the SACCO is established and profitable, and money lent to members is money mobilised by members.
Because members’ funds are loaned, the borrowing members are committed to paying back their loans. Furthermore, SACCO loans are insured, meaning that upon the death of a member the estate will not have to repay any loans outstanding to the relevant SACCO.
According to the Savings and Credit Cooperative League of South Africa there is no difference between a credit union and a SACCO. However, the term “credit union” is generally not used in Africa to avoid confusion with the various labour movements. The institution explains that a SACCO is a democratic, unique member-driven, self-help cooperative.
A SACCO is owned, governed and managed by its members, who have the same common bond: working for the same employer, belonging to the same church, labour union, social fraternity or living or working in the same community. A SACCO’s membership is open to all who belong to the group, regardless of race, religion, colour, creed, and gender or job status.
The members agree to save their money together in the SACCO and to make loans to each other at reasonable rates of interest. Interest is charged on loans to cover the interest cost on savings and the cost of administration. There is generally no payment or profit to outside interest or internal owners. The members are the owners and the members decide how their money will be used for the benefit of each other.