Working With Savings & Credit Cooperatives

This paper serves as a pointer for the donors promoting savings and credit cooperatives (SACCOs). It lists the advantages that SACCOs offer for increasing microfinance outreach by:

• Reaching clients and areas under-served/ not served by banks;
• Providing savings services to their members, unlike most microfinance institutions (MFIs);
• Having a local origin;
• Not relying much on external support;
• Having a stable, low-cost funding source of small savings accounts;
• Exhibiting low administrative costs;
• Offering loans at lower interest rates than those charged by other microcredit providers.

Further, the challenges faced by SACCOs include:

• A weak governance mechanism;
• Inadequate regulation and supervision;
• Limited menu of products that are inflexible to meet the diverse credit needs of the members;
• Damage done by external credit.

Finally, it suggests that in order to strengthen SACCOs, donors should:

• Focus on deposit mobilization;
• Invest in capacity building, instead of injecting external funds for lending;
• Encourage sound governance policies, even when these are not mandatory under the law;
• Offer support for learning new techniques to reach poorer customers;
• Keep financial standards at the core of internal management and external supervision;
• Support competent, independent external supervision by banking authorities, where possible;
• Concentrate resources on cooperatives willing to implement sound policies and standards, rather than spreading them over all the cooperatives in a country.