REVISIT SACCOS SYSTEM TO SUSTAINABLY UPGRADE IT

Last Friday (January 7, 2022), we published in these pages a somewhat unnerving report on micro-financing in Tanzania.

Titled the ‘Number of Saccos drops in latest BoT registration,’ the report noted that many micro-finance societies in the country operating in the manner and style of Savings and Credit Cooperative Societies (Saccos) had miserably failed to meet in full the requirements set by the Bank of Tanzania (BoT).

For starters, a Savings and Credit Co-Operative Society is basically “a member-based and member-driven financial institution which operates on co-operative values, identity and principles which include social responsibility, openness, honesty – and caring for each other”.

Simply put, a Saccos is a self-help organisation in which a group of people save their savings together, and provide loans at moderate rates of interest to each other as members.

The main objective for setting up a Saccos is to effectively fight poverty by enabling the members who are poor – relatively speaking – to learn how best to utilize their limited resources.

The Saccos system is a global phenomenon that was conceptualised as an alternative to commercial banking. This was largely in noble efforts to bolster and boost financial inclusion, especially in the developing countries of the world.

According to the World Bank, about 1.7 billion adults were unbanked worldwide in 2020 – mostly for the singular lack of banking awareness/education, ready access to banks, and/or a steady income that was worth bothering conventional banking with. In due course of time and events – and, what with one thing leading to another – brilliant minds came up with the Saccos concept as a simple alternative to the traditional banks.

In that regard, the Saccos system offers more-or-less similar financial services – albeit less lucrative financial products – to its customers who are strictly the group’s members. But, it must be stressed that Saccoses are not-for-profit organisations; nor are they charitable organisations, for that matter.

The legal basis

In Tanzania, Saccos are constituted, registered, regulated and supervised under the Co-operative Societies Act as amended from time to time.

But, they also must be registered and otherwise controlled by the Bank of Tanzania (BoT) as microfinance institutions. This is in accordance with the provisions of the Microfinance Act of 2018 as amended from time to time.

It is in this regard that troubles have started to brew in the Saccos sub-sector of the country’s financial sector of the wider economy.

According to the Central Bank’s Consolidated Zonal Economic Performance Report for the quarter that ended on September 30, 2021, the number of registered Saccos organisations in Tanzania had dropped from 3,129 in 2020 to 2,541 by September 2021.

Also, the number of individual Saccos members dropped from 596,974 in 2020 to 520,819 the following year – while the value of outstanding Saccos loans increased from Sh422.7 billion to Sh436.4 billion during the same period.

There, indeed, are other failings in Saccos operations across the land, with some of them failing to qualify as Saccos institutions under the 2019 Microfinance (Savings and Credit Cooperative Societies) Regulations and other criteria.

We, therefore, urge the government and its relevant institutions, including the central bank, to revisit the Saccos setup and come up with a more effective and sustainable one. Tanzanians also need to make effective use of the arrangement to improve their incomes.