An assessment of factors that affect effective partnership ...
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The University of Dodoma University of Dodoma Institutional Repository http://repository.udom.ac.tz Business Master Dissertations 2013 An assessment of factors that affect effective partnership between commercial banks and savings and credit cooperative societies: the case of CRDB bank Dodoma branch Peter, David The University of Dodoma Peter, D. (2013). An assessment of factors that affect effective partnership between commercial banks and savings and credit cooperative societies: the case of CRDB bank Dodoma branch. Dodoma: The University of Dodoma. http://hdl.handle.net/20.500.12661/988 Downloaded from UDOM Institutional Repository at The University of Dodoma, an open access institutional repository.
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The University of Dodoma
University of Dodoma Institutional Repository http://repository.udom.ac.tz
Business Master Dissertations
2013
An assessment of factors that affect
effective partnership between
commercial banks and savings and
credit cooperative societies: the case of
CRDB bank Dodoma branch
Peter, David
The University of Dodoma
Peter, D. (2013). An assessment of factors that affect effective partnership between commercial
banks and savings and credit cooperative societies: the case of CRDB bank Dodoma branch.
Dodoma: The University of Dodoma.
http://hdl.handle.net/20.500.12661/988
Downloaded from UDOM Institutional Repository at The University of Dodoma, an open access institutional repository.
AN ASSESMENT OF FACTORS THAT AFFECT EFFECTIVE
PARTNERSHIP BETWEEN COMMERCIAL BANKS AND SAVINGS
AND CREDIT COOPERATIVE SOCIETIES: THE CASE OF CRDB
BANK DODOMA BRANCH
David Peter
Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of
Master of Business Administration of the University of Dodoma.
The University of Dodoma
October, 2013
i
CERTIFICATION
The undersigned certifies that he has read and hereby recommends for acceptance by
the University of Dodoma dissertation entitled “An assessment of Factors that Affect
Effective Partnership between Commercial Banks and Savings and Credit
Cooperative Societies: the case of CRDB bank Dodoma Branch” in partial fulfillment
of the requirements for the degree of Master of Business Administration of the
University of Dodoma.
.…………………………………………………..
Dr. Damas K. Mbogoro
(SUPERVISOR)
Date ………………………………………………….
ii
DECLARATION AND COPYRIGHT
I David Peter declare that this dissertation is my own original work and that it has not
been presented and will not be presented to any other University for a similar or any
other degree award.
Signature………………………………………………………..
No part of this dissertation may be reproduced, stored in any retrieval system, or
transmitted in any form or by any means without prior written permission of the author
or the University of Dodoma.
iii
ACKNOWLEDGEMENTS
Many people contributed much to this study, and their contribution is gratefully
acknowledged. With no particular order, I acknowledge the role played by my
supervisor Dr. Damas K Mbogoro for his assistance from the beginning to the end of
this study. Secondly, I am grateful to my lovely and beautiful wife Lillian Simon for
her patience, tolerance and support. Thirdly is to my children Daniel David and Dorcas
David for being patient in weekends which I was missing because of working for this
study and during the analysis of data which consumed a lot of time. Moreover, I would
like to thank my family, especially my sister Catherine Peter, My young Brothers
Laurent Peter and Gabriel Peter, for tireless company, assistance, patience and support
which enabled me to finish this important work.
Also I would like to give thanks to all my friends especially for encouragement and
support. Moreover, I would like to extend my gratitude appreciation to Ms.Rehema
Hamisi the Branch Director CRDB BANK PLC Dodoma, Mr Sebastian Masaki the
General Manager CRDB Microfinance Services Company Limited for support and
allowing me to get necessary information about the organization and entire staff of
CRDB Dodoma and Microfinance Headquarters for their support during my course
work studies and this dissertation; their patience and extra work they did on my behalf
is really appreciated.
Lastly but not least, I would like to give special thanks to my lovely parents Mr and
Mrs Peter Zephyrene whose moral support and encouragement were of great benefit in
the accomplishment of this study.
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DEDICATION
This dissertation is dedicated to my lovely kids, Daniel and Dorcas David. I wish them
good health and May God lead them to grow in well and achieve all the best in their
life.
v
ABSTRACT
Financial linkage between Savings and Credit Cooperative Societies and commercial
Banks is one of the best ways of delivering financial services to majority who are out of
formal financial sector.
The general objective of the study was to Assess Factors that Affect Effective
Partnership between Commercial Banks and SACCOS. Specifically the study assessed
the Partnership between CRDB and SACCOS, Challenges of Partnership and
recommended way forward to improve relationship between the Bank and
SACCOS.Data were collected through interviews, observations and documentary
reviews using a sample size of 50 SACCOS, and were analyzed using SPSS and Excel
spreadsheet database software‟s.
Results of the study found that the partnership had challenges which need to be
addressed for mutual benefits between parties. They include High interest rates from
Bank leading to high interest charged to member borrowers, increased loan losses due
to failure by members to repay loans, Increased dependency on external loans and thus
increasing the fear of SACCOS being used as argents for credits, very slow growth of
Savings and members deposits for building internal capital, unstable and inefficient
products and services, poor customer service to partners when they visit Bank
branches, Untimely trainings to SACCOS,Failure to support internal systems,
management and formation of appropriate products and service.
All these increased the feeling that, CRDB Bank is using SACCOS as a bridge for
lending.
The researcher recommends that, challenges observed should carefully be resolved for
a more fruitful linkage.
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TABLE OF CONTENT
CERTIFICATION............................................................................................................. i
DECLARATION AND COPYRIGHT ............................................................................ ii
ACKNOWLEDGEMENTS ........................................................................................... iii
DEDICATION ................................................................................................................ iv
ABSTRACT ..................................................................................................................... v
TABLE OF CONTENT .................................................................................................. vi
LIST OF TABLES ........................................................................................................... x
LIST OF FIGURES......................................................................................................... xi
LIST OF FIGURES......................................................................................................... xi
LIST OF ABBREVIATIONS ........................................................................................ xii
CHAPTER ONE : PROBLEM SETTING .................................................................. 1
1.0 Introduction ................................................................................................................ 1
1.1 Background to the Research Problem ........................................................................ 1
1.4 Statement of the problem ........................................................................................... 3
1.5 Research Objective ..................................................................................................... 5
1.5.1 Specific objectives ............................................................................................... 6
1.6 Research questions ..................................................................................................... 6
1.7 Significance of the study ............................................................................................ 6
1.8 Limitations of the Study ............................................................................................. 7
CHAPTER TWO : LITERATURE REVIEW ............................................................ 8
2.0 Introduction ................................................................................................................ 8
2.1 Background Information ............................................................................................ 8
2.1.2 Background history of Cooperative societies in Tanzania ...................................... 9
2.1.3 Rights of SACCOS members ................................................................................ 11
2.1.4 Obligations of SACCOS members........................................................................ 12
2.2 Background history of CRDB Bank PLC ................................................................ 12
2.2.1 CRDB Bank Financial Products and Services ...................................................... 13
2.2.3 CRDB Microfinance services Company Limited ................................................. 14
2.2.3.1 Company vision ................................................................................................. 14
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2.2.3.2 Mission ........................................................................................................... 14
2.2.3.3 Microfinance Financial Products and Services .................................................. 15
2.3 Theoretical Review .................................................................................................. 16
2.3.1 The Supply-Leading Finance ................................................................................ 16
2.3.2 The Imperfect Information Paradigm .................................................................... 16
2.3.3 Informal Credit Markets ........................................................................................ 17
2.3.4 The saving of the poor and the new Microfinance. ............................................ 17
2.3.5 Finance for the poor-Grameen Bank approach .................................................. 18
2.3.6 Recent development and continuing shortcoming in rural finance ....................... 20
2.3.7 Experience and Lessons in Rural Finance in Developing Countries. ................... 22
2.3.8 The Financial System Approach to Micro Enterprise ........................................... 23
2.4 Empirical Literature Review .................................................................................... 24
2.4.1 The role of financial credit in transforming economic resources for the Poor ..... 24
2.4.2 Experience on rural financing and poverty reduction from abroad. ..................... 27
2.4.3 Poverty Status in Tanzania .................................................................................... 31
2.4.4 Income Inequality ............................................................................................... 32
2.4.5 Cooperatives and Agricultural financing .............................................................. 33
2.4.6 Bank‟s Outsourcing retail operations through MFIs ............................................. 36
2.6 Conclusion................................................................................................................ 38
CHAPTER THREE : RESEARCH METHODOLOGY.......................................... 39
3.1 Introduction .............................................................................................................. 39
3.2 Research design ........................................................................................................ 39
3.2.1 Introduction ........................................................................................................... 39
3.3 Strengths of a case study design ............................................................................... 40
3.4 Weaknesses of case study design ............................................................................. 40
3.5 Research variables of the study ................................................................................ 41
3.6 Area of the Study ..................................................................................................... 41
3.7 Research Approach .................................................................................................. 42
3.8 Population of the Study ............................................................................................ 42
3.8.1 Sample size ......................................................................................................... 42
3.8.2 Sampling Techniques/Methods ............................................................................. 43
3.8.2.1 Simple Random Sampling.............................................................................. 43
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3.8.2.2 Purposive or Judgmental Sampling ................................................................ 43
3.9 Data collection Methods/Techniques ....................................................................... 44
3.9.1 Interview ............................................................................................................... 44
3.9.2 Documentaries Review ......................................................................................... 44
3.10 The Research Instrument used in the Study ....................................................... 44
3.11 Data Analysis and interpretation ........................................................................ 45
3.12 Data accuracy and reliability .............................................................................. 45
CHAPTER FOUR : RESERCH FINDINGS AND DISCUSSIONS ....................... 46
4.0 Introduction .............................................................................................................. 46
4.1 Profile of Respondents ............................................................................................. 46
4.1.1 Gender of SACCOs Respondents ...................................................................... 46
4.1.1.1 Gender Distribution of CRDB Partner Respondents ......................................... 46
4.1.1.2 Gender Distribution of non CRDB Partner Respondents .................................. 47
4.1.1.3 Cumulative Gender Distribution for both Partner and non CRDB Partners
SACCOS ........................................................................................................................ 47
4.1.2 Age Characteristics ........................................................................................... 48
4.1.2.1 Age of CRDB Partner Respondents ................................................................... 49
4.1.2.2 Age of Non CRDB Partner Respondents ........................................................... 49
4.1.2.3 Cumulative age Distribution for Both Partners and Non CRDB Partners ......... 50
4.1.3 Education Level of Respondents ........................................................................ 50
4.2 The partnership between Savings and Credit Cooperative Societies (SACCOS) and
CRDB Bank. .................................................................................................................. 52
4.2.1 Deposit Savings and Profit Distribution ............................................................... 54
4.2.2 Monthly Reporting Requirement .......................................................................... 55
4.2.3 To Ensure 95% Loan Repayment from Members ................................................. 55
4.2.4 To Ensure Good Debt to Equity Ratio .................................................................. 56
4.2.5 To Ensure (100%) Repayment of CRDB Loans ................................................... 58
4.2.6 Views of Respondents on Partnership with CRDB............................................... 59
4.2.7 Non CRDB Partner Perspective on CRDB Partnership with SACCOS ............... 59
4.2 Challenges of Existing Partnership Between SACCOS and CRDB Bank. ............. 61
4.2.1 Increased Interest Rate .......................................................................................... 61
4.2.2 Untimely Loan Availability .................................................................................. 61
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4.2.3 Unstable and Unreliable Products From Bank ...................................................... 62
4.2.4 Deposit for Loan at 25% of Approved Amount .................................................... 62
4.2.5 High Loan application fees ................................................................................... 63
4.2.6 Increase in Loan Defaulters (Increase in Loan Provisioning) ............................... 63
4.2.7 Poor Customer Service at Bank Branches ............................................................ 64
4.2.8 Untimely Trainings ............................................................................................... 64
4.3 Way Forward for a More Fruitful Partnership ......................................................... 65
4.3.1 Improvement of Internal SACCOS System .......................................................... 66
4.3.2 Capacity building to Management and Board ....................................................... 66
4.3.3 Improvement of products and services ................................................................. 67
4.3.4 CRDB Bank to review Interest rate ...................................................................... 67
4.5 Conclusion................................................................................................................ 68
CHAPTER FIVE : CONCLUSION AND RECOMMENDATIONS ...................... 69
5.1 Introduction .............................................................................................................. 69
5.2 Summary of Findings ............................................................................................... 69
5.4 Recommendations .................................................................................................... 70
5.5 Recommendations for further studies ...................................................................... 71
REFERENCES ............................................................................................................. 73
APPENDICES .............................................................................................................. 75
x
LIST OF TABLES
Table 1: Outreach Shortfalls ........................................................................................... 21
Table 2 Incidence of Poverty in Tanzania .................................................................... 32
Table 3 Gini Coefficients ............................................................................................. 33
Table 5: Gender of respondents from Non Partner SACCOS......................................... 47
Table 6: Age of respondents (CRDB Partners) ............................................................... 49
Table 7: Age of respondents (Non CRDB Partners) ....................................................... 49
Table 8: Education level of Respondents ........................................................................ 51
Table 9: Assesment of Key performance indicators ....................................................... 58
xi
LIST OF FIGURES
Figure 1: Reasons for not saving and having investment products in rural areas in
Tanzania ......................................................................................................................... 30
Figure 2: Conceptual Framework on Factors Affecting Effective Partnership Between
Commercial Banks and SACCOS .................................................................................. 38
Figure 3: Cumulative Gender Distribution (Both Partners and Non Partners) .............. 48
Figure 4: Cumulative Age Distribution (Both Partners and Non Partners) ................... 50
Figure 5: Graphical Presentation of CRDB Linkage to SACCOS. ............................... 53
Figure 6: Arrears Rate for Reviewed Partner SACCOS ................................................ 56
Figure 7: Comparison of Savings and Outstanding Loan Portfolio ............................... 57
Figure 8: Views of Respondents .................................................................................... 59
Figure 9 Non Partners Views on Partnership with CRDB ............................................. 60
Figure 10: Challenges of partnership ............................................................................. 65
Figure 11: Areas to improve partnership ....................................................................... 68
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LIST OF ABBREVIATIONS
AMCOS Agricultural Marketing Cooperatives
CBO Community Bank Organizations
CBs Community Banks
CRDB Cooperative Rural Development Bank
CRMP Cooperative Reform and Modernization Programme
GDP Gross Domestic Product
IFAD International Fund for Agricultural Development
K-REP Kenya Rural Enterprise Project
MFI’S Microfinance Institutions.
MDG Millennium Development Goal
MKUKUTA Mkakati wa Kukuza Uchumi na Kupunguza Umaskini
NEEC National Economic Empowerment Council
NEEP National Economic Empowerment Programme
NBS National bureau of Statistics
NGO’s Non Governmental Organizations
NMB National Microfinance Bank
OSS Operational Self Sufficiency
PPF Parastal Pension Fund
PRSP Poverty Reduction Strategy Programme
PHD Poverty and Human Development
SACCOS Savings and credit cooperative Societies.
SACCAs Savings and Credit Cooperative Associations
SCCULT Savings and Credit Cooperatives Union League of Tanzania
SME Small and Medium Enterprises
TRDB Tanganyika Rural Development Bank
URT United Republic of Tanzania
ROSCA Rolling Savings and Credit Associations
VICOBA Village Community Bank
1
CHAPTER ONE
PROBLEM SETTING
1.0 Introduction
The study is intended to assess Factors Affecting Effective Partnership between
Commercial Banks and Savings and Credit Cooperative Societies.
After independence in Tanzania, cooperatives have been taken as one of the
development strategies aimed at supporting majority of rural communities to pave the
way for poverty reduction.
The study was limited to assessing specifically Savings and Credit Cooperative
Societies in Partnership with the CRDB Bank through its Subsidiary Company (CRDB
Microfinance Services Company Limited), as a tool that can be instrumental in
attacking poverty, with regard to Wholesale Model of financing through partnership
with CRDB Bank PLC and Non Partner SACCOS as a benchmark in weighing
performance.
This chapter describes the context of the study, the statement of the problem, the
research objectives, the research questions, and the significance of the study, the
limitations of the study, the study delimitations and the scope of the study.
1.1 Background to the Research Problem
The banking system has a very limited level of penetration in the rural areas of
Mainland Tanzania, primarily driven by the tendency for most Bank branches to be
located in areas with high population densities and high market activity. The Financial
2
sector reform in Tanzania in the early 1990s led to privatization of state owned Banks
leaving the non-commercial activities underserved. Of all commercial Banks and
community Banks currently operating within the banking sector, only a few have
established a considerable presence in rural financial markets. CRDB Bank and NMB
are the main indirect service providers in rural areas via their links with Microfinance
Institutions (MFIs) and Savings and Credit Cooperative Societies-SACCOS
(Hendricks, 2008).
Unlike commercial banks and development banks, cooperatives are more spread in
rural areas. Cooperatives had a feeling of the local area, reflecting the rural ethics and
culture. The rural cooperatives were linked to their apex bank to support finance
(Padmanabhan, 1996).
According to the United Republic of Tanzania Rural Development Strategy, there are
different efforts which have been made by the government to support the development
of the agricultural sector aimed at poverty eradication. The Cooperative Development
policy similarly stated that to date cooperatives are heavily dependent on loans to run
their various activities. Internal savings, creation of trust funds, rising of capital,
creating of banks have been nonexistent since 1970‟s.Hence Cooperatives have to be
encouraged to put into practice the self help principles (URT, 1997).
In its commitment to create more income and employment opportunities to majority
of the working class, the Government of Tanzania established investment funds which
target at both rural and urban populations which are economically active but have no
access to business/project capital. In implementing the strategy financial organs such as
Commercial Banks, community Banks and Savings and credit cooperative societies
are to facilitate empowerment of the poor, namely the economically active Tanzanians
3
(NEEP, 2006).
Other efforts to empower Tanzanians are also demonstrated by the government through
a number of policy reviews indicating the role of cooperatives in National
development. This is evidenced by the overall long term goal of socio-economic
development in Tanzania over the next generation as provided in the Tanzania
Development vision 2025. The vision intends to attain a sustainable human
development, and Cooperatives are among the major tools for the realization of this
vision URT, (2002).Several initiatives were taken by the Tanzanian government in
regulating financial system in the country. The financial sector reform among other
things also led to formulation of Banking and Financial Institutions Act 1991 (BAFIA)
After BAFIA (1991), the government initiated restructuring and reorganization of the
four major public banks which were the National Bank of Commerce, the Cooperative
Rural Development Bank, the Tanzania Investment Bank (TIB) and the Tanzania
Housing Bank (THB). Following the reforms and privatizations of the financial sector
the number of commercial banks increased with some of them such as CRDB Bank
PLC and the NMB having a branch networks at district levels and a focus on SME, and
Microfinance Customer segment and financial intervention through SACCOS.
1.4 Statement of the problem
The participation of the majority of the citizens of Tanzania in the modern economy
continues to be limited. To a large extent the economy still remains in the hands of
foreigners and a few Tanzanians. This is contrary to the objective of promoting a broad
based economic growth that ensures prosperity to all Tanzanians. The majority of
Tanzanians consisting about 75% and living in rural areas lack the opportunity to
4
participate effectively in the formal economy; so this has been a source of concern to
the way the economy is managed. Among the reasons that have restricted their
effective participation in the economy includes lack of capital (access to finance) to
finance productive projects. Furthermore, banks are often reluctant to lend the rural
borrowers due to a lack of collateral, market uncertainty and costs related to serving
distant customers URT, (2004).
According to the IFAD report on developing countries, a majority of the poor and the
poorest are in the rural areas. The demand for financial services is very diverse even
among the poor and it is believed that any sustainable response will have to be
pluralistic. Some require access to more capital than what the local savings system
allows (IFAD, 2000).
The banking system in Tanzania has a very limited level of penetration in the rural
areas of Mainland Tanzania. Most bank branches are located in areas with high
population densities and high market activity. For-instance, among the commercial
banks and financial institutions which are currently operating within the banking sector,
only four commercial banks that have nation-wide branch networks have established a
presence in rural financial markets, but mainly indirectly via links with financial NGOs
and SACCO‟s (BOT Annual Report, 2008).
Increasing the access of the poor to sustainable financial services is an important part of
the World Bank in Africa. Regions strategy for supporting the Millennium
Development Goals for poverty reduction convenient and affordable instrument for
savings, credit, insurance and payment transfer are essential for coping with the
economic fluctuations and risks that make the poor especially vulnerable and taking
advantage of opportunities to acquire production assets(Bikki Randhara,2003).
5
The National Poverty Reduction Strategy Paper (PRSP) emphasizes that the
Government will attempt to ensure that poor people‟s organizations such as the
cooperatives take the lead in developing mechanisms and schemes that are effective,
and as far as possible market oriented. Farmers will be encouraged to organize
themselves in groups or cooperatives with a view of improving their prospects for
economic and social development (URT, 2002).
The microfinance industry in Tanzania is relatively young and limited in scale. The
World Bank estimates that less than 20% of Tanzanians working population,
approximately 13 million people, has access to mainstream banking services. In an
attempt to address this, many banks have recently begun targeting the poor by
extending collateral- free and low interest microcredit and loans. Due to lack of skills
and experience within the market, these efforts are not widespread and mostly favor
borrowers in urban areas, leaving the rural areas largely underserved. Of the estimated
800 institutions providing financial services to low income borrowers in Tanzania,
most are reluctant to move into rural areas due to the poor national infrastructure,
perceptions of high risk and due to the higher expense of operating costs.
(MFTransparency, December 2011)
In the context of limited financial services in the rural areas in the greater part of
Tanzania and in the context of low savings mobilization through SACCOS due to
endemic poverty, the study attempted to assess factors that affect effective partnership
between commercial Banks and Savings and Credit Cooperative Societies (SACCOS).
1.5 Research Objective
The general objective was to Assess Factors that Affect Effective Partnership between
6
Commercial Banks and SACCOS
1.5.1 Specific objectives
a) To Analyze Partnership between SACCOS and CRDB Bank.
b) To analyze challenges of the existing partnership between SACCOS and CRDB
Bank.
c) To recommend way forward for a More Fruitful Partnership between SACCOS
and CRDB Bank
1.6 Research questions
a) How is the Partnership between SACCOS and CRDB Bank?
b) What are the Challenges in the existing Partnership between CRDB and
SACCOS?
c) What should be done to Improve the partnership?
1.7 Significance of the study
The research findings will add value to the body of knowledge on the Banks role to
develop appropriate linkages and relationships to reach the majority and the way the
Banks can enable Savings and Credit Societies to build a sound internal capital by
using their own sources and good use of external loans to build sustainable institutions
which can play a great role in facilitating financing majority who are financially
excluded in Tanzania in line with the economic and population structure of the country
in relation to the current emphasis on SACCOS for rural financing.
7
The research will broaden an understanding on different challenges facing the linkage
between SACCOS and Commercial Banks. The findings will facilitate the
improvement of partnership between SACCOS and CRDB Bank as way of creating
mutual benefits between parties.
1.8 Limitations of the Study
Time constraints limited the study to a small sample of respondents and visits to
SACCOS not in business and in business relationship with CRDB Bank in Dodoma
Region due to office responsibilities.
Insufficient finance was also a barrier because the study was self-sponsored and needed
to cover a wider sample for SACCOS scattered in different districts in Dodoma.
8
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter reviews areas and various literature related to Cooperative Societies,
Micro financing, and their values. There has been a concern on the financing through
SACCOS due to limited access to financial services to majority who are marginalized
by formal financial Sector even after the adaptation of financial sector liberalization in
Tanzania in 1990s.
The literature review gives the study a direction and good understanding on how
Savings and Credit Cooperative Societies can play a significant role in financing the
majority who fall out of formal financial sector in Tanzania. The chapter covers among
other things, the definition of key concepts, background of Cooperatives in Tanzania,
CRDB Bank and CRDB Microfinance Company profile, Poverty indicators in
Tanzania, as well as theoretical and empirical studies related to rural financing.
2.1 Background Information
2.1.1 Savings and Credit Cooperative Societies Defined
Savings and Credit Cooperative Society (SACCOS). According to the United Republic
of Tanzania-Cooperatives Societies Act, 2003, a SACCOS is a member driven, self-
help cooperative which is democratic in nature in which members are supposed to be
both the owners and the users of the services available. Members agree to save money
together and to grant loans to each other at an agreeable rate of interest. Most of the
benefits to members are associated with the level of savings (URT, 2003).
9
Cooperative society is defined as an association of persons who have voluntarily joined
together for the purpose of achieving a common need through the formation of
democratic, controlled organization and who make equitable contributions to the
capital required for the formation of such an organization and who accept the risk and
the benefits of the undertaking which they actively participate (URT, 2003).
Rural areas. According to the Tanzania Rural Development Strategy 2001, rural areas
are referred to as geographical areas which include villages and small towns nearby
urban centers in which primary production takes place and where populations are found
in varying densities (URT, 2001).
Microfinance refers to Small-scale financial services-primarily credit and savings
provided to people who farm or fish or herd; who operate small enterprises or micro
enterprises where goods are produced, recycled, repaired; who promote services; who
gain income from renting small amounts of land, draft animals, or machinery and tools
to other individuals and groups at the local level of developing countries, both rural and
urban (Marguerite, 2001).
In developing countries Tanzania being among them, a majority of the population lives
in rural areas and mainly involved in agricultural production. In this case, an
improvement of rural livelihoods will depend on access to financing to support
agricultural production.
2.1.2 Background history of Cooperative societies in Tanzania
According to the Tanzania Cooperative Development Policy (2002), the history of
cooperatives in Tanzania dates back to 1925 when the Kilimanjaro Native Planters
Association was formed. After independence, the government policy was to make the
10
cooperative movement an engine for economic development. Furthermore, the Arusha
Declaration of 1967 advocated and recognized cooperatives as instruments for
implementing the policy of socialism and self reliance. Through a number of
legislations, cooperatives were systematically promoted as an important tool for
transforming rural community production. Changes in the macro-economic policies
which started in the 1980s aimed at introducing free market and trade liberalization
policies, in turn led to the on-going efforts to make cooperatives member-based
organizations (URT, 2002).
Savings and Credit Cooperative Societies (SACCOS) are among the dominant
Cooperative Societies which facilitate financial services delivery in many parts of the
country especially in rural areas.
In the history of Cooperative movements and liberalization of the banking sector in
Tanzania particularly from 1990‟s, Savings and Credit Cooperative Societies took up
the role of cooperative financial institutions with the main objective to substitute the
commercial banking system. They encourage a saving habit to members and provide
loans to them at more favorable conditions compared to commercial banks. According
to the United Republic of Tanzania Cooperative Societies Act, 2003, the common
features of Savings and Credit Cooperative Societies are: a voluntary association
formed by members with a common bond charged with the primary responsibility of
mobilizing savings and furnishing secured or unsecured loans or credits to members;
minimum membership is twenty people; membership is through payment of a
membership application fee and an agreed minimum amount of shares; the main
source of capital is members‟ shares, deposits and savings (URT,2003).
11
According to the Ministry of agriculture and cooperatives-Directorate of Cooperative
Development (2008) there were 5,332 SACCOS registered in Tanzania Mainland, with
820,670 members of whom 65% were men, 31% women and 4% groups or institutions.
About 59% of the SACCOS were in rural areas while 41% were urban (URT-Ministry
of Agriculture and Cooperative Department, 2009).
2.1.3 Rights of SACCOS members
No member of a registered society shall exercise the right of a member unless he
participates fully in the business of the society and he has made such payments in
respect of shares, entry fee and any other dues.
Without prejudice to the provisions in the cooperative act, members shall have the
following rights:-
d) Right to vote and to be voted for;
e) Right to attend and participate in society meetings;
f) Right to participate in the leadership of the society;
g) Right to call a meeting in accordance with these Rules and By-laws;
h) Right to nominate a successor in accordance with the By-laws;
i) Right to borrow, for savings and credit societies, provided that the member has
made the required deposits or savings in accordance with the By-laws;
j) Right to be issued a share certificate upon completion of payment of shares;
k) Right to be heard;
l) Right to be informed on all affairs of the society;
m) Right to inspect the documents of the society;
n) Right to realize income and/or other benefits from the society‟s business
12
operations;
o) Right to participate in the making and amendment of By-laws of the society;
p) Right to withdraw membership;
q) Right to institute an inquiry into affairs of the society; and
r) Right of appeal.
2.1.4 Obligations of SACCOS members
a) To comply with by-laws, code of conduct, internal regulations, policies and
procedures;
b) To pay entry fees, buy shares and pay any other society dues;
c) to participate in the economic activities of the society as required in the By-
laws;
d) To attend meetings of the society;
e) To nominate their successors;
f) To pay their debts to the society;
g) To conform to decisions of the general meetings;
h) To protect and defend society‟s assets and equity;
i) To reserve and protect society‟s image and reputation;
2.2 Background history of CRDB Bank PLC
CRDB Bank Public Limited Company is one of the leading bank in the Bank‟s
financial sector in Tanzania with total assets of TZS 3.07 trillion as at 31st December
2012(CRDB Annual report,2012).The bank capital structure was comprised of 4Billion
authorized Ordinary shares each TZS 25 and 2.176 Billion Ordinary shares each TZS
25 Issued and fully paid.
13
The history of CRDB Bank PLC dates back to 1947 when it was incorporated and fully
government owned with a Name of Tanganyika Rural Development Bank (TRDB).
The government with the objective of supporting agricultural production gave the
Bank a mandate to support rural and cooperative movements in Tanzania hence
transforming the Bank into Cooperatives and Rural Development Bank (CRDB) since
1984(CRDB,2008).
Liberalization of the banking sector in 1990s transformed the bank from a state-
owned bank to a private-owned bank in 1996 hence changing the business objectives
to commercial bank as well as its identity as CRDB Bank(1996) Limited and then
CRDB Bank Limited in the year 2000 so as to market it “Better both Locally and
Internationally”. In the year 2008, the Bank was registered in the Dar es Salaam Stock
Exchange Market and thus its Initial Public Offer and ultimately changing its business
name to CRDB Bank PLC (CRDB, 2008).
In 2004, the CRDB Bank Limited established the CRDB Microfinance Service
Company to facilitate the offering of dedicated financial services to the microfinance
customer segment. It offers wholesale services to intermediary Microfinance
Institutions which are usually but not limited to Savings and Cooperative Societies
(SACCOS), Financial NGO‟s and Microfinance Companies (CRDB, 2008).
2.2.1 CRDB Bank Financial Products and Services
CRDB Bank PLC offers a range of financial products and services which include
custodian of customer‟s deposits which include normal savings, junior Jumbo accounts,
and deposit accounts, current and fixed deposit accounts. It also issues loans to
corporate and personal customers, Small and Medium Enterprise Loans(SME‟s),
14
Insurance services, SMS Banking ,Automatic Teller Machines, Card Business, treasury
services, bills, salary payments ,mobile banking branches as well as Microfinance
services through financial intermediaries(CRDB,2008).
2.2.3 CRDB Microfinance services Company Limited
CRDB Microfinance Services Company is a subsidiary of CRDB Bank PLC offering
wholesale microfinance services throughout Tanzania with offices in all regions. It
provides tailor-made financial products and services that address financial needs of
different communities in Tanzania. The intervention in microfinance business started in
the year 2000 with the use of wholesale service to intermediary financial institutions
which are usually but not limited to Savings and Credit Cooperative Societies formed
by individuals in both rural and urban areas. Other intermediaries which play whole
sale delivery system use are the Savings and Credit Associations (SACAs), Financial
NGO‟s and Community Bank‟s-CB‟s (CRDB, 2008).
2.2.3.1 Company vision
The company aspires to provide financial and non financial services throughout
Tanzania targeting people at the bottom of the banking pyramid so as to cultivate them
into CRDB Bank customers and include them into the country‟s financial system
(CRDB, 2008).
2.2.3.2 Mission
As a market leader in wholesale microfinance, the company provides a wide range of
needs driven financial service to retail financial intermediaries using a motivated,
knowledgeable and skilled workforce (CRDB, 2008).
15
2.2.3.3 Microfinance Financial Products and Services
CRDB Microfinance Service Company with the use of wholesale modal offers the
following range of financial products and services to the intermediary institution
(a) MFI‟s Juhudi account.
(b) Microfinance fixed deposits.
(c) Money transfer
(d) Tembocard SACCOS
(e) Business loans
(f) Agricultural loans
(g) Salary based loans
(h) Warehouse receipt loans
(i) Office premises and front office construction loans
(j) Farm equipment loans such as tractors and power tillers
(k) Funeral insurance plan services
(l) Credit life insurance services
The CRDB Bank‟s intervention to the microfinance segment with provision of
financial services through SACCOS demonstrates that commercial banking can also be
possible to the rural poor; however, there is a need to study to what extent SACCOS
can be effective in facilitating rural financing in Tanzania.
16
2.3 Theoretical Review
Under this section, various theories related to the research topic were sited. They
include The Supply-leading Finance Theory, Imperfect Information Paradigm, Informal
Credit Market, Saving of the Poor and the New Microfinance, Finance for the Poor-
Grameen Bank approach and others as discussed hereunder.
2.3.1 The Supply-Leading Finance
The theory refers to the provision of credit for the purpose of inducing economic
growth. The theory emerged in the 1940‟s and 1950‟s in the context of post-World war
11 developments of the emerging nations where agricultural growth was given high
priority. It assumed that farmers would need credit but they could not pay the full cost
of commercial credits and finance, so they would have to be provided in advance of the
demand for it. Many institutions providing credit subsidies suffer from political
interference, poor management, and unwanted products, low repayments, high costs
and high losses. The subsidized credit programmes have limited the volume of
financial services to the poor-helping for decades to suppress the development of larger
scale microfinance (Marguerite, 2001).
2.3.2 The Imperfect Information Paradigm
The theory typically assumes that banks cannot cost effectively differentiate between
low risk and high risk loan applicants. Banks may raise interest rates to compensate for
risks related to their inability to distinguish between high risk and low risk applicants.
The higher interest rates may drive low-risk borrowers out of the market, increasing the
average riskiness of the loan applicant‟s pool. The model also concludes that the banks
are unlikely to operate profitably in developing country credit markets or attaining
17
extensive outreach. On the basis of the model, it would be difficult to muster much
enthusiasm for advocating the entrance of commercial banks into microfinance markets
(Marguerite, 2001).
2.3.3 Informal Credit Markets
The theory explains that in developing countries both rural and urban microfinance
markets are typically composed of informal lenders and deposit takers, of semi formal
bodies and of formal financial institutions. Money lenders in many parts of the world
typically charge much higher interest rates to poor borrowers than are required for
microfinance institutions to operate profitably. Banks can cost effectively gain reliable
information about borrowers than is far broader than the information to which informal
lenders have access. In that case money, lenders know the microfinance market well
and commercial microfinance institutions have borrowed many of their methods
(Marguerite, 2001).
2.3.4 The saving of the poor and the new Microfinance.
Robert Voget (1984) argued that “Savings are the forgotten half of the rural finance.”
Adams (1988) argued that “there is larger demand for financial savings in rural areas of
developing countries and that savings are more crucial for microfinance clients than
credit. Yet savings remain forgotten in much of institutional microfinance, rural and
urban.
The theory recognizes that mobilizing voluntary savings both as a service and as a
source of finance for loans is a basic tenet of the microfinance revolution (Marguerite,
2001).
18
The theories above on rural financing and their related critiques on access of financial
services to the poor in developing countries gives a foundation for the study and
indicates the needs for selection of appropriate model in facilitating rural financing
in a developing country like Tanzania in order to promote economic development as
well as poverty reduction.
2.3.5 Finance for the poor-Grameen Bank approach
Grameen Bank approach is the early micro credit medal for poverty lending in
Bangladesh that was founded by Muhammad Yunus. Muhammad Yunus, the founder
of the micro-credit Grameen Bank made two observations fundamental to the mindset
required for non-tokenistic approaches to community development and community
engagement. He noted (1997, p. 3) as follows;
“First, our knowledge base about people and their interactions is still very inadequate;
Second, each individual person is very important. Each person has tremendous
potential. S/he alone can influence the lives of others within communities, nations,
within and beyond his/her own time.”
The Grameen Bank is a concept that has readily engaged many communities in the
developing world for almost thirty years. The Grameen Bank website (2010) notes that
the origin of the idea can be traced back to 1976 when Professor Muhammad Yunus,
Head of the Rural Economics Programme at the University of Chittagong, Bangladesh
decided to help a woman who was so poor that she was forced to borrow US$0.25. He
was shocked to discover that the lender then had the exclusive right to buy all she
produced at the price the lender decided. Considering this no better than slave labour he
compiled a list of other victims of this village money-lender. When the list was
19
completed, it contained 42 names and recorded the total amount borrowed as US$27.
He then repaid the outstanding debts with his own money. This acted as a catalyst
generating an action research project which explored the practicality of a credit
delivery system focused on providing banking services for the rural poor. In October
1983 enabling legislation transformed the Grameen Bank Project into an independent
bank. Although the government holds 10per cent of the shares, the remaining 90 per
cent is held by its borrowers. those normally considered underprivileged and removed
from social power and influence.
In a reversal of standard banking practices the Grameen Bank operates on a system of
trust, responsibility, involvement and resourcefulness and does not demand collateral
from its clients. Even the very poorest people in rural Bangladesh are provided credit
without collateral. Credit is used as a catalyst to improve the socio-economic
conditions of those previously without access to standard banking actions and as a cost
effective way to address poverty. Professor Yunus, now Managing Director, believes
that if credit can be accessed by the poor on reasonable terms and conditions, millions
of small people following their millions of small quests can generate the “biggest
development wonder” (Grameen Bank Website 2010).
The approach demonstrates that poor people can be good credit risks and it has enabled
a wide outreach to poor borrowers. With the model poverty lending approach requires
large amounts of continuing sub-sidies and has not proven a globally affordable model.
Poverty lending does not meet people‟s demand for saving services. Henceforth; a
different solution is required to meet the massive global demand for small loans and
savings (Marguerite, 2007).
20
With Grameen Bank, compulsory savings as a condition for obtaining loans and the
collection of voluntary savings reflect two complementing different philosophies:” The
former assumes that the poor must be taught to save and they need to learn financial
discipline. The latter assumes that the economically active poor already saves in variety
of forms; what is required for effective saving mobilization is that the institutions
should learn how to provide instruments and services that are appropriate for local
demand(Marguerite,2007).
The models above indicate that there are different approaches which can facilitate rural
financing. The choice of the best financial delivery mechanism based on the
circumstance can facilitate the economically active rural poor to access financial
services which can promote their involvement in the production and improvement of
their live hood.
2.3.6 Recent development and continuing shortcoming in rural finance
Rural financing to a large extent can facilitate financial services broadening coupled
with the promotion of productive economic activities. However, a number of shortfalls
in most developing countries have been observed.
IFAD (2001) report on rural finance for the poor argued that the larger majority of the
poor and poorest are rural-based. Much progress has been achieved in rural areas
particularly in the nineteenth century, but many shortcomings continue to hamper
outreach and sustainability as per the table 1 below:
21
Table 1: Outreach Shortfalls
Topic Development Shortcoming
Policy
environment
Macro-economic stability ,
interest rate deregulation, easy
of setting up banks or
branches, low minimum
capital, regulation for MFI‟s
Inadequate policy and legal
environment ,slow
implementation of deregulation,
inadequate property right and
judicial procedure
Microfinance
institutions
New legal framework for
commercially MFI‟s, privately
financial start up, increasing
number of self sustaining
MFI‟s
Lack of an appropriate legal
frame work, excessive capital
requirement.
Non financial
institutions
New legal framework provides
opportunity for upgrading
formal level and for financial
market integration.
The potential for upgrading
millions of informal financial
institutions remains largely
untapped.
Non
Governmental
Organizations
Innovative approaches to
poverty lending in repressive
environment ,some successful
conversions to formal
intermediaries
NGO‟s are slow in mobilizing
domestic resources and in
striving for self reliance, donor
support unviable NGO‟s
Agricultural
development
banks
Incipient reforms towards
autonomy, viability and self
reliance with or without
privatization
Political interference, lack of
viability, failure to meet demand
for credit and deposit services.
MFI
regulation and
Supervision
Controversial discussion on the
need for effective regulation
and supervision of MFIs
Financial authorities unable to
supervise MFI‟s, agricultural
development banks escape
supervision, lack of MFI‟s self
regulation.
Agricultural
Finance
Self financing from profit and
saving plus non targeted
Self financing and commercial
credits insufficient to meet the
22
commercial credit replaces
preferential sources
demand for short and long term
finance, inadequate saving
mobilization
Access of the
poor to
financial
services
Outreach of viable MFI‟s
including rural and other banks
to the poor as users and
owners drastically increased
Vast numbers of poor people
particularly in marginal areas,
lack access to Savings and credit
services
Source: (IFAD, 2001)
2.3.7 Experience and Lessons in Rural Finance in Developing Countries.
Rural finance is provided by a category of institutions which include commercial
banks, on governmental organizations(NGOs),Community development
bank(CBO‟s)Savings and Credit cooperatives Societies, Rotating Savings and Credit
Associations(ROSCAS) as well as Savings and Credit Associations (Padmanabhan
1996).
By the late 1960‟s, however many evolutions of rural credit programmes worldwide
threw up some disturbing conclusions that they had found that a major portion of
additional credits had not reached the small producers, to whom all these endeavours
were directed. It also became clear that many financing institutions were not able to
meet their operational costs from the interest income; furthermore, private co –
operatives have an important role in any credit programmes for small farmers, local
participation, group sanctions against delinquency and better use of scarce resources
can be achieved through co operatives (Padmanabhan 1996). He further argued that
unlike commercial Banks and development banks, cooperatives sprang up in rural
areas. In many areas they were the most accessible formal system for farmers, in
particular, small farmers. They have a feeling of the local areas reflecting the rural
23
ethics and culture. Farmers felt at ease with the loan agents of Co operatives
(Padmanabhan 1996).
A report on financial services for small holders highlighted that the ability of
agricultural enterprises and rural households to invest for the long term and make
calculated decisions for risky and time-patterned income flows is shaped by an
economy‟s financial services. Despite the rapid development of financial services, a
majority of small holders worldwide remain without access to the services they need to
complete and improve their livelihood. Broader access to financial services-savings and
credit products, financial transactions and transfer services for remittances would
expand their opportunities for more efficient technology adopted and resource
allocation (World Bank development report, 2008).
2.3.8 The Financial System Approach to Micro Enterprise
The financial systems approach to micro enterprises recognize that savings are as
important a service for the poor as credit and that savings are crucial in building self-
sufficient financial institutions. Well crafted saving services can encourage a move
from non financial savings into savings with the advantage of safety and liquidity for
entrepreneurs and the provision of funds for investment for society (Rhyne, 1994). The
authors further argued that one of the most important benefits of institutional savings
for micro enterprises is an indirect one which is credit worthy. Small and micro
enterprises can benefit from the expanded volume of institutional lending made
possible by deposits mobilization. Substantial growth in institutional deposits can both
significantly increase the amount of credits available to small entrepreneurs and
provide loans which are of much lower interest rates than are otherwise available in the
informal market Rhyne, (1994).
24
The role and strength of informal finance agents in small scale rural economies and
their importance to low income households should not be underestimated. The informal
sector allows low income people access to services at relatively low costs. It can do so
because the informal sector is the natural environment for the rural people Bouman,
(1989).
Nongovernmental organizations have equated people centered development with
participatory village development interventions; such interventions are important but in
themselves are generally inconsequential. People centered development attributes
poverty to the concentration and misuse of power and resources especially ecological
resources in a finite world. It calls for an equality led transformation of institutions and
values to restore community development, redistribution of powers and relocate
resources to sustainable improvement in human welfare Kortem, (1995).
In view of the above observations, it can be judged that in microfinance there is a need
of building sustainable institutions which are self-sufficient given the greater demand
of financial services and for convenience and appropriateness of financial services to
the economically active poor.
2.4 Empirical Literature Review
These are studies that have already been researched within and outside the country
which relate to the research topic
2.4.1 The role of financial credit in transforming economic resources for the Poor
Financial credit when used in ways that expand household economic activities and
increase incomes can contribute in a multiple and far reaching ways to the quality of
25
life of the poor household members.
According to Besley (1994), India and Mexico nationalized their banks in 1969 and
1982 respectively in order to force the Banks to open up rural branches that would
serve the rural people. Tanzania also underwent a similar practice, when it nationalized
private banks in 1967 and established public financial institutions instead, partly to
address the credit needs of farmers Faustin, (2007).
Access to financial services enhances the quality of life of the clients of the
microfinance institutions. A case study of Grameen Bank of Bangladesh indicates that
“the Poor are bankable‟‟. A poor woman joined a group and applied for a loan of $60
from Grameen bank under group lending. She gave half of the money to her husband
who started a small business and used the other half to start a chicken and duck raising
business of her own, However, her husband started beating her. When the poor woman
repaid the loan and began preparing a proposal for $110, her friend gave her some
advice” Tell your husband Grameen does not allow borrowers who are beaten by their
spouses to remain members and take loans‟‟. The woman took the advice and received
her second loan. She said that from that time her husband did not beat her. Her poultry
business continued to grow, and she is now able to provide for the basic needs of the
household Grameen Connections, (1998).
In Uganda: FINCA Uganda Programs facilitated members to grow rich and overcome
malnutrition. The family which the husband had insufficient income frequently
suffered from sickness and there was no money for medicine. The whole family was
becoming thin and wasted. To add to the family income, the wife started a small
grocery on the edge of a lane passing their compound; the enterprise was poorly
stocked, however, there were few clients and little profit. The wife decided to join the
26
local bank, part of FINCA‟s Uganda programme. She received a first loan of $75,
which she used to purchase 50 broiler chickens. She purchased feed on credit and used
the profit from the grocery to make the weekly payments to the village bank. After two
months she sold the chickens and brought a slightly larger flock. She used the
subsequent loans to expand the inventory of her grocery store and to add laying hens to
the poultry business. By her seventh month loan she had reached FINCA, Uganda
maximum loan amount of $600, and was managing a flock of more than 500 birds.
With her earnings she was able to put her six children to a boarding school, to finance
the construction of a four-room brick house and purchase a cow that yields her family
one to two liters of milk a day(Marguerite,2001).
Likewise, it was found that in 1982 in Mauritius the average size of nearly 470,000
savings accounts was $30.48 while in Peru the average size of 5 million accounts was $
87.27 giving the evidence that the rural people save more proportionally than urban
ones (Rhyne, 2001). In that case, savings can only be possible in rural areas in
Tanzania if appropriate institutions are sensitized. The report on the United Nations
International symposium on the mobilization of personal savings in developing
countries (1984) concluded that domestic savings existed in most developing countries
on a larger scale than was generally thought due to the existence of cooperative
societies (United Nations report, 1984).
The services provided to small savers by informal financial intermediaries such as
rotating and savings credit associations, indicate that the project that attempts to forge
linkage between formal and informal financial institutions(F‟Is) yields significant
benefits(Schultz, 1973).The experience of Taiwan in the mobilization of voluntary
savings was interesting in that household savings strongly stimulated by price policies,
27
new techniques, marketing facilities and public investment programs gave incentives
to farm investment(Robert C.Vogel and Paul Burkett,1996).
Low productivity of farm labour in developing countries was due to the absence of
credit to finance specific factor inputs. Therefore, financial credit is the most flexible
form of transforming economic resources to the poor (Schultz, 1973).
Prodem‟s concept of rural finance is strictly financial, but is nonetheless set in a
development policy framework where it was argued that Bolivia would never really
progress economically until it found a way to integrate the rural areas into the national
economy Bazobery, (1999).
The incidences indicated above provide evidence from some countries that access to
financial credits can help the economically active poor expand and divert their
enterprises and increase their income.
2.4.2 Experience on rural financing and poverty reduction from abroad.
A number of scholars and experts from different parts of the world have given
various opinions on the need for rural financing for the developing countries and its
importance as part of poverty reduction strategy.
A study on Kenya Bankers cooperatives emphasized that SACCOS are a pivotal tool in
the economic recovery and poverty reduction as they enable easy access to credit and
other financial services in marginalized areas Ntoitha, (2001).
In Latin America, the experience shows that the sector of micro, small and medium-
sized enterprises contribute significantly to the local economies through their potential
for promoting employment and reducing poverty. The availability of and access to
28
efficient and high quality financial services are essential in order for the mentioned
enterprises to acquire capital, new skills, know-how and technologies in an increasing
competitive and global environment(Jacob Levitsky and Jane Hojmark (2001).
The Indonesian Bank Rakyat Indonesia (BRI) or People‟s Bank of Indonesia is an
example of the rural financing approach. In 1984 it was converted from a centralized
commercial bank to a network of independently operating unit banks (unit desas)
providing full financial services at the local level. The conversion occurred as part of
measures to liberalize the financial sector. It was a means of reducing the impact of
financial restructuring of bank on access by the poor (especially the rural poor).The
BRI maintained its state-owned status and central monitoring role. It was successful in
fully covering its lending requirements from mobilized deposits, whilst being
financially sustainable and covering a larger number of borrowers within a short time
span (Jazayeri, 1996).
The indigenous population, including the entrepreneurial class, was largely neglected
by the colonial banks(Howard,1978;Brett,1995).Post–independence indigenous
commercial and development banks were modeled on these systems, and have largely
changed little despite the dramatic changes that banking system have undergone
elsewhere).As a result the operations of formal financial services continue to favor
commerce and larger scale industry, and to neglect the needs of the poor(Brown bridge
and Gockel,1996).
Financial systems approach would not be feasible without the development of a set of
new technologies and approaches that target to serve specific population segment
(Elisabeth Rhyne and Maria Otero, 2001). Adams (1978) on his report on savings
mobilization and micro enterprises finance in Indonesia argued that households save
29
and they will save in a financial form if appropriate institutions and instruments are
available (Adams, 1978).
The experience of Kenya rural enterprises programme (K-rep) in microfinance
highlighted that microfinance services of Micro and small enterprises have proved to be
not only productive and empowering but also reduce poverty and can be sustainable. K-
rep was committed to combining the advantage of micro enterprise credit with
strategies to reach the very poor that do not have access to financial services from
sources other than money lenders (Aleke, 1995). Financial services to low income
entrepreneurs and producers may well be the most single most effective means to
tackle poverty and create broad-based economic growth. Financial services give poor
people the means to increase their assets, their living standards and their role in shaping
society (Aleke, 1995).
The experience from the lessons abroad shows that rural finance interventions to reduce
poverty must be tailored to the needs of the poor. Rural financing can also be improved
by strengthening both formal and informal financial actors by linking them to capitalize
on their respective strengths. The vast majority of rural dwellers (92%) have never used
a bank (Fin scope survey, 2009).
30
Figure 1: Reasons for not saving and having investment products in rural areas in
Tanzania
Source: Fin scope survey, 2009
The data in the chart on savings as one of the financial products as per the Fin scope
survey,2009 for adult population indicates that the largest proportion of people (26%)
said they either had no money to save or felt they lacked a lump sum that was
sufficiently large to start saving (this may be a form of self-exclusion).
The second most common reason for not having savings and investment products (9%
of people) is that the cost (or perceived cost) is too high. Opportunity cost is the cost of
not being able to do other things with the money or the time you require to access the
service. For example, under this heading are grouped responses such as „not easy to
get money out when I need it‟, „I live for today‟, „I like spending‟ or „the time of the
service is inconvenient‟.
Encouragingly, a lack of trust was cited by only 1% of the people. (Fin scope survey,
2009)
The statistics on banking and low savings in most rural areas in Tanzania give the
26%
9%
3%
3%
2%
2%
1%
0% 5% 10% 15% 20% 25% 30%
No money to save or "start up" money
Cost, including opportunity costs
Knowledge and understanding
Physical access barriers
Disqualification barriers
Documentation barriers
Trust barrier
31
researcher a foundation for studying the role that SACCOS can play in conformity
with community-based SACCOS in order to bridge the existing gap for accessing
finance as experienced by the rural community in Tanzania.
2.4.3 Poverty Status in Tanzania
MKUKUTA aimed at reducing the incidence of basic needs poverty to 24% in rural
areas and to 12.9% in urban areas by 2010. The Millennium Development Goal (MDG)
target is a 50% reduction in the incidence of poverty between 1990 and 2015. In
1991/92, 39% of Tanzanian households were living below the basic needs poverty line,
so the MDG target is to reduce this proportion to 19.5% by 2015( NBS, 2009).
Data from the Household budget survey 2000/01 and 2007 show a limited decline in
income poverty levels over the period in all areas (Table 2.5(a) below). Over this
period, the proportion of the population below the basic needs poverty line declined
slightly from 35.7% to 33.6%, and the incidence of food poverty fell from 18.7% to
16.6%. Of note, the fall in poverty over the period from 1991/92 to 2000/01 was larger;
basic needs and food poverty levels both declined by approximately 3 percentage
points and in Dar es Salaam basic needs poverty declined by over 11 percentage points
(NBS, 2009).
Poverty rates remain highest in rural areas: 37.6% of rural households live below the
basic needs poverty line, compared with 24% of households in other urban areas and
16.4% in Dar es Salaam. Given the large proportion of Tanzanian households that rely
on farming for their livelihoods and the high rate of rural poverty, the overwhelming
majority (74%) of the poor Tanzanians are primarily dependent on agriculture (NBS,
2009).
32
Table 2 Incidence of Poverty in Tanzania
Poverty
Line Year
Dar es
Salaam
Other Urban
Areas
Rural
Areas
Mainland
Tanzania
Food 1991/92 13.6 15.0 23.1 21.6
2000/01 7.5 13.2 20.4 18.7
2007 7.4 12.9 18.4 16.6
Basic Needs 1991/92 28.1 28.7 40.8 38.6
2000/01 17.6 25.8 38.7 35.7
2007 16.4 24.1 37.6 33.6
Source: Household Budget Survey 2007 (NBS, 2009)
With such low reductions in poverty, Tanzania is undeniably off track in achieving
both MKUKUTA and MDG poverty reduction targets.
Poverty rates for rural households are more than twice the rates of Dar es Salaam, and
since almost three-quarters of the population reside in rural areas; poverty remains a
predominantly rural phenomenon. Of the estimated 12.9 million poor people in
Mainland Tanzania, 10.7 million or 83% of the total reside in rural areas (NBS, 2009).
2.4.4 Income Inequality
Inequality in income has changed a little since 2000/01, as indicated by the Gini
coefficient table 3 which is a standard measure of inequality. Inequality is slightly
higher in urban areas than in rural areas. A slight fall in the Gini coefficient was noted
in Dar es Salaam (0.36 to 0.34) and other urban areas (0.36 to 0.35) from 2000/01 to
2007, although inequality worsened in Dar es Salaam ranging from the years 1991/92
to 2007 as a whole.
33
Table 3 Gini Coefficients
Dar es Salaam Other urban
areas Rural areas
Mainland
Tanzania
1991/92 0.30 0.35 0.33 0.34
2000/01 0.36 0.36 0.33 0.35
2007 0.34 0.35 0.33 0.35
Source: HBS 1991/92, 2000/01 and 2007
The level of poverty in Tanzania justifies the need to put emphasis on rural financing
facilities such as Savings and Credit Cooperative Societies.
2.4.5 Cooperatives and Agricultural financing
Study findings in Tanzania a preliminary survey of some of the available literature in
Tanzania indicates the need that some of the studies have been done focusing on the
need for access to finance in rural areas in Tanzania for integrated economic
development as well as being a strategy for poverty reduction.
The paper on „‟Tanzania‟s cooperatives look to the future‟‟ argued that cooperatives if
they are to meet their potentials in the future, require a comprehensive transformation.
The task must focus on the key cooperative principles (Andrew, 2006). He further
emphasized that Tanzania‟s network of Savings and Credit cooperative
societies(SACCOS) are grass-roots financial institutions which have stood the test of
time as effective microfinance institutions, offering members a convenient home for
their savings and an access point for loans (Andrew, 2006).
The report on Cooperatives Reform and Modernization Programme in Tanzania
revealed that Cooperatives in Tanzania have largely been involved with marketing of
34
agricultural crops(hence a larger number of Agricultural Marketing Cooperatives-
AMCOS).This situation has resulted to cooperatives being less emphasized in other
sectors of the economy such as finance, trade and industry, minerals, fisheries, forestry
e.t.c The trend has persisted despite the fact that cooperatives in these sectors also have
a greater potential of contributing to the social and economic emancipation of the small
producers or workers and to the national economic growth(CRMP,2005).
According to Andrew Bibby (2006) there is a great scope for Tanzania‟s SACCOS to
develop, so that a much larger percentage of the population has access to a
straightforward place to go for saving and borrowing. There may be opportunities too
to encourage the creation of cooperatives in other sectors. Agriculture cooperatives are
important, as they are the only ones in the area of the economy where collective power
can be of benefit (Andrew, 2006).
There are also evidences that income poverty statistics show a stubbornly high
proportion (around 40%) of the rural population living on less than the amount needed
to cover basic needs, and about half of these are experiencing food insecurity. Those
belonging to the lower income groups tend to depend more on money from family and
friends, sales of agricultural output and informal and/or seasonal employment, which
indicate a high degree of vulnerability among these households (Rutabanzibwa, 2008).
He further emphasized that rural households often have very little or no capital assets
(such as property, vehicles, machinery and equipment); in that case the banking system
has a very limited level of penetration in the rural areas of Mainland Tanzania, as most
bank branches are located in areas with high population densities and high market
activity (Rutabanzibwa, 2008).
The volume of credit for rural community is limited by the ability to mobilize savings-
35
a big limitation in poor remote villages. The injection of capital into the community
through effective provision of credit has a catalytic effect which benefits the broader
community as a whole. It also helps smooth out the effect of seasonality, which often
impacts an entire community because of their overriding dependence on one or a few
selected commodities (Gerda Piprek, 2007).
The review of Small and Medium Enterprises Development Policy in Tanzania(2003)
has also demonstrated that access to finance for Small and Medium enterprises in
Tanzania is limited due to higher risk to the related sector, inability to fulfill collateral
requirement ,most banks do not have SME‟s financing window ,inexperienced banks
staff in issues related to microfinance, high cost of screening and administering small
loans spread over big areas and inability of most small borrowers to prepare business
proposals that meet banks requirements. These constraints become more problematic
when it comes to rural financing (URT, 2003).
According to Tanzania Rural Development Policy-2001, the agriculture sector has not
been impressive in recent years in Tanzania. Some of the obstacles hindering the
development of the sector include inadequate access or delayed delivery of inputs and
inadequate credit for agricultural production and marketing. Inadequate opportunities
and limited access to finance, education, health and social services have negatively
affected rural people‟s ability to effectively engage in economic activities; as a result,
rural- urban migration has increased, particularly since 1990 in Tanzania. For those
who continue to stay in rural areas, improved social well-being will depend on
increased opportunities in both productive activities and improved access to services
such as finance, education, health, water and infrastructure such as road and
telecommunication(URT, 2001).
36
Tanzania Rural Development Strategy has also highlighted that there has been several
women‟s employment promotion initiatives in recent years having received substantial
government, donor and NGOs‟ support. However, most of these initiatives have been
concentrated in urban and peri –urban areas and have focused on traditional activities
such as garment making, mama-lishe and hair dressing .Very few of such projects and
initiatives have been implemented in rural areas where the majority poor live (URT,
2004). On the other hand, Kwayu (URT, 2009) Executive Director, National Economic
Empowerment Council of Tanzania indicated that”Financial institutions are playing a
key role to supplement government efforts in reducing poverty and enhancing
economic empowerment of the people.
Despite some progress in the banking sector, the sector does not seem to do enough in
financing rural productive sectors because of the risks and higher transaction costs
entailed. Similarly, most of the Small and Medium Enterprises (SME‟s) businesses in
the country are locked out to accessibility to banking services due to lack of collateral
demanded by banks and the inability to prepare business plans (URT, 2009). In view of
the above, it can be concluded that there are limited financial services in greater parts
of rural areas which in turn have impaired production particularly in the agricultural
sector in Tanzania. The weaker members in the society including those in the informal
sector have to be given the right to resources and capital as an empowering process to
join the economic mainstream of the nation and pursue affordable self development.
2.4.6 Bank’s Outsourcing retail operations through MFIs
Bank‟s outsourcing retail operations through MFIs involves a situation where the bank
under specialized special contracts with the MFIs has its microfinance activities (micro
loan appraisal, processing, disbursement and loan monitoring) done by the MFI for a
37
fee or a share of interest income Isem and Porteous, (2005). Under this model, the Bank
engages the MFIs that maintain a history of high quality portfolio financed from its
own fund. The model allows for microfinance products such as loans, insurance,
money transfer to be branded by the bank or the MFI or be in a joint branch. Isem and
Porteous, (2005) point out that there is risk sharing between the bank and the MFI by
contributing a portion of the loan portfolio or ensuring first class guarantee on the loan
portfolio. A good example are Spandana, an MFI-based in Guntur,Andhra Pradesh
acting as service agent for ICICI Bank and AMEEN an MFI in Lebanon carrying out
lending operations for credit Libanais,Jammal Trust Bank and Lebanese Canadian
BankIsem and Porteous,(2005).
2.5 Conceptual Framework
The aim of this section is to discuss the ideas from the past literature on the relationship
between Commercial Banks and Savings and Credit Cooperative Societies. Figure 2
below summarizes independent variables for that have influence in attaining effective
partnership. It can be seen that, effective partnership can be attained if SACCOS will
manage to do number of things including; issuing loans at affordable interest rates to its
members, having good internal systems, concentrating in improving quality of services
to its clients, having wide range of products and services which cut across various
clients requirements, Issuing loans on time to address timely needs of clients, ensuring
continuous growth of its internal capital through mobilization of Savings and Deposits,
improving loan portfolio quality and thus reducing loan loss provisioning, offering
good customer service ad continuous capacity building to board, management and to
members.
38
Figure 2: Conceptual Framework
Independent Variables Intermediate
variables
Dependent
Variable
Affordable Interest Rate
Good Internal Systems
Quality of Services Sex
Wide range of products Age Effective
Timely loan repayment Education Partnership
Growth of Savings and Deposits
Decrease loan loss provisioning
Good Customer Service
Continous capacity building
2.6 Conclusion
This chapter has reviewed both the theories related to this study as well as the empirical
studies on linkages between Commercial Banks and SACCOS. The section also has
designed the conceptual model that depicts various models to be used to understand
Factors that Affect Effective Partnership between Commercial Banks and Savings and
Credit Cooperative Societies.
39
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter describes how the study was conducted in data collection and analysis. It
describes the research design, the area of study, the research approaches, the research
sampling, the population of the study, the sample size, data collection methods, the data
collection instruments and the analytical tools for data analysis.
3.2 Research design
3.2.1 Introduction
A research design is a logical and systematic plan prepared for directing a research
study. It specifies the objectives of the study, the methodology and techniques adopted
for achieving the objectives (Krishna swami, 1993).
The research design was the case study design. A case study is an in-depth
comprehensive study of a person, a social group, an episode, a situation, a programme,
a community, an institution or any other social unit. (Krishna swami, 1993).It is also
defined as a research strategy that involves the empirical investigations of a particular
contemporary phenomenon within its real life context, using multiple sources of
evidence(Robson,2002).Therefore, the case study is appropriate for descriptive
purposes and determination of relationships between variables.
40
3.3 Strengths of a case study design
a) A case study is flexible with respect to data collection methods, since it employs
more than one data collection technique such as interviews, questionnaires,
observation and documentary review which allow to collect a rich and detailed
set of data(Krishna swami, 1993)
b) A researcher can provide a detailed description of specific and rare cases (Krishna
Swami, 1993).
c) A case study makes it easy for a researcher to relate a research topic to the existing
theories which allow the study to test the applicability of existing theories to the
setting(s) that is examined (Marshall,1999).
d) A case study allows theoretical propositions to be advanced that can then be tested
in another context (Bryman, 1988).
e) A case study uses a wide range of different people and activities that are invariably
examined so that the contrast with survey samples is not as acute as it appears at
first glance(Bryman,1988)
f) With a case study, the ability to explore and understand the context is limited by the
number of variables for which data can be collected (Yin, 2003).
3.4 Weaknesses of case study design
a) A case study may be suspicious because of an unscientific approach (Yin, 2003).
b) Insufficient information can lead to inappropriate results (Yin, 2003).
41
3.5 Research variables of the study
The Variable can be defined as an individual element or attribute upon which data have
been collected (Ghauri and Gronhaug, 2005).There are three relationships that exist
between variables which are:
a) A variable is dependant- that is; it changes in response to changes in other
variables.
b) A variable is independent- that is; it causes changes in dependant variables.
c) A variable is extraneous-that is, it might also cause changes in independent
variables, thereby providing an alternative explanation to your independent variable
or variables.
The study focused on Assessing Factors Affecting Effective Partnership between
CRDB Bank and Savings and Credit Cooperatives Societies (SACCOS) as an
independent variable and SACCO‟s Performance as dependent variable.
3.6 Area of the Study
The study was conducted in a CRDB Microfinance Subsidiary Company – Dodoma
Hub. The study involved assessing SACCOS in business partnership with CRDB Bank
as well as non partners SACCOS.As of December 2012, the Company had 422 partner
SACCOs country wide out of which 25 were in Dodoma Hub, which saves Dodoma
Region and neighboring SACCOS in Gairo and Kiteto Districts.
Assessed SACCOS were 50 whereby 25 were partners and 25 were non partners of
CRDB Bank and each was visited for interview to get an in-depth understanding.
42
3.7 Research Approach
This is about how research work was conducted to get the findings and conclusions.
The study used both quantitative and qualitative approach to analyze the data with
regard to SACCOS and Factors Affecting Effective Partnership in order to achieve the
research objective and to respond to the research questions for the impact of
partnership on performance of SACCOS in partnership with CRDB.
3.8 Population of the Study
Population refers to the full set of cases from which a sample is taken (Saunders, 2007).
The population of the study comprised all SACCOS in partnership with CRDB Bank
Dodoma Branch and their board members and specifically SACCOs‟ Board
chairpersons since they were the representatives of members as per the Cooperatives
Regulations.
3.8.1 Sample size
A sample is a subset of a particular population (Krishnaswami, 1993). The study
sample size comprised of 50 board members. This was due to the fact that, the
researcher needed to get one board member from each SACCOS.On the other hand, the
researcher used the whole population of SACCOS in partnership with CRDB Bank
Dodoma Branch. Advantages of sampling are that:
First, it reduces the time and cost of the research. It becomes possible to undertake even
national or global studies at a reasonable cost and time.
Second, sampling also saves labor where a smaller number of individuals are required
for field work, processing and analysis of the data.
43
3.8.2 Sampling Techniques/Methods
Sampling techniques/methods are approaches that assist in reducing the amount of
data one needs to collect by considering only data from a subgroup rather than all
possible cases or elements (Saunders, 2007).The study used a simple random sampling
and purposive/judgmental sampling to select some of the study respondents.
3.8.2.1 Simple Random Sampling
This is a sampling technique which gives each element an equal and independent
chance of being selected. An independent chance means that the draw of one element
will not affect the chance of another element being selected (Krishnaswami, 1993).
Simple random sampling was used to get representatives from different SACCOS
Simple random sampling was used due to the following advantages:-
a) It is the simplest type of probability sampling
b) All the elements in the population have an equal chance of being selected
c) It does not require a prior knowledge of the composition of the population.
3.8.2.2 Purposive or Judgmental Sampling
This method means a deliberate selection of sample units that conform to some pre-
determined criteria. It involves a selection of cases which we judged as the most
appropriate area for the study. It is based on the judgment of the researcher. It does not
aim at securing a cross section of a population (Krishnaswami, 1993). Purposive
selection was used for non CRDB partners SACCOS because the study could not
cover all SACCOS which are not in business relationship with CRDB Bank in
44
Dodoma Hub based on time and financial constraints.
3.9 Data collection Methods/Techniques
In this study, the main methods which were used in collecting data involved interview
and documentary sources.
3.9.1 Interview
Interviewing is defined as a two-way systematic conversation between an investigator
and informants initiated for obtaining information relevant to a specific study
(Krishnaswami, 1993). It involves not only conversation, but also learning from the
respondents‟ gestures, facial expression, pauses and his/her environment. This
technique was used to interview respondents who were Board members to get insight
into SACCO‟s operations, challenges and measures to address such challenges.
3.9.2 Documentaries Review
This entails the researcher‟s use of written documents to get secondary data
(Krishnaswami, 1993).Secondary data for the study was collected from different
sources which included annual reports, booklets, published reports and official
performance reports. Background information and literature review on the topic was
reviewed from different documents and websites whereas SACCO‟s performance
reports were sought from CRDB Bank microfinance performance reports.
3.10 The Research Instrument used in the Study
Structured and un-structured questions were used to gather some information from the
respondents. An interview guide is appended to this report.
45
3.11 Data Analysis and interpretation
The data which was collected was both qualitative and quantitative. These were
summarized in a data-base template containing identified variables. Qualitative data
were analyzed descriptively to give a clear interpretation whereas the quantitative ones
were analyzed using SPSS and Excel spreadsheet software.
3.12 Data accuracy and reliability
The degree of accuracy and reliability of data greatly depends on the approach and
methods employed during data collection. To ensure accuracy and reliability of data,
sufficient time was allocated in the section of reliable persons who were SACCOS
board members. The respondents were also given a brief back-ground and purpose of
the study for more transparency and provision of realistic data. Information collected
from various SACCO‟s board members was counterchecked at other possible sources
to ensure accuracy. The study also referred to documentary sources to enrich the study
findings. In that way, the degree of reliability and accuracy of data was enhanced.
46
CHAPTER FOUR
RESERCH FINDINGS AND DISCUSSIONS
4.0 Introduction
This chapter has focused on the analysis of data and the presentation of the research
findings. It assessed Factors Affecting Effective Partnership between Commercial
Banks and Savings and Credit Cooperative Societies (SACCOS) This analysis is based
on the research questions posed in chapter one
4.1 Profile of Respondents
The study comprised of 50 respondents from the selected sample of 50 SACCOS
whereby 25 SACCOS were in partnership with CRDB Bank Dodoma Hub and 25 were
not in partnership. All respondents were board Chairpersons of the respective SACCOS
under the study. The category selection capitalized on the cooperative law which
emphasizes that board members are elected from among members of the cooperative.
Therefore a board Chairperson is a leader and is also a member of the cooperative.
Respondents came from the list of 50 SACCOS attached as annex to this report.
4.1.1 Gender of SACCOs Respondents
The following table summarizes gender of respondents for both respondents from
partner SACCOS and non partner SACCOS.
4.1.1.1 Gender Distribution of CRDB Partner Respondents
Findings suggest that, majority of leaders in partner SACCOS are Men. Women are
still not in the forefront in taking leadership in SACCOS.However the distribution is a
47
bit fair towards achieving an equal distribution of 50%, because 36% of leaders are
women.
Table 4: Gender of Respondents from Partner SACCOS
Gender Frequency Percent
Female 9 36%
Male 16 64%
Total 25 100%
4.1.1.2 Gender Distribution of non CRDB Partner Respondents
Findings indicated that gender distribution indicates the same trend for non partners as
can be seen in the table 5 below. It can be seen that, female representation in leadership
for SACCOS not in partnership with the CRDB Bank is also small.
Table 5: Gender of respondents from Non Partner SACCOS
4.1.1.3 Cumulative Gender Distribution for both Partner and non CRDB Partners
SACCOS
Cumulative gender representation in SACCOS for both partner and non partner for
female category is logically low. With this picture, it is evident that women should be
empowered and sensitized to take part in leadership so that they may take part in major
Gender Frequency Percent
Female 5 20%
Male 20 80%
25 100%
48
decisions for development of their institutions and community at large.
Such a higher disparity between the males and the females may be attributed to the fact
that there were few women who were SACCO‟s members who were willing to be
elected as leaders in SACCO‟s management boards. It also may be attributed to the
African Culture whereby most women do not possess assets and most business owners
are men. In this regards men are more likely to be in SACCOS as women cannot be
members just because their husbands are members. The findings conform to banking
statistics which show that 92% of the majority of the rural people in Tanzania; do not
have access to banking. (FinScope Survey, 2009). The figure 3 below shows the
distribution of gender for both partners and non partners of CRDB Bank.
Figure 3: Cumulative Gender Distribution (Both Partners and Non Partners)
4.1.2 Age Characteristics
The age of respondents were categorized in three main groups in order to assess
involvement in SACCOS by age which can be an indicator for financial needs by
category.
49
4.1.2.1 Age of CRDB Partner Respondents
It was observed that the age groups with more involvement in leadership to the
SACCOS were of the age between 30-50 years with a percentage of 76%. The major
reasons seem to suggest that the age group in question is economically more active and
more responsible for family life. This reveals that the youth groups which fall under the
category of 19-30 years of age do not have much interest in SACCO‟s membership as
they appeared with 0%. Table 6 below summarizes age of respondents for CRDB
Partner SACCOS.
Table 6: Age of Respondents (CRDB Partners)
Age Category Frequency Percent
Between 30 and 50 years 19 76%
Between 50 and 60 years 6 24%
Total 25 100%
4.1.2.2 Age of Non CRDB Partner Respondents
It was noted that the age distribution for non CRDB partner institutions was a bit fair
because at least 16% of youth category were found to be leaders in their institution. The
table 7 below summarizes the age distribution for non partner SACCOS.
Table 7: Age of Respondents (Non CRDB Partners)
Age Category Frequency Percent
Between 20 and 30 years 4 16%
Between 30 and 50 years 12 48%
Between 50 and 60 years 9 36%
Total 25 100%
50
4.1.2.3 Cumulative age Distribution for Both Partners and Non CRDB Partners
The picture of age distribution as a measure of participation in SACCOS leadership can
be an indicator to show the active group in SACCOS activities. Cumulatively, youths
are not active enough and their participation in SACCOS issues is low thus giving them
few chances perhaps, of becoming leaders. The overall picture tells that, 62% of leaders
are of the age between 30 and 50 years. This show further that, youth who fall between
the age of 20 and 30 years, their involvement in SACCOS is low. Hence, more
sensitization should be made to attract more youth membership into the SACCOS.This
could be achieved by developing attractive products to suit their needs. Figure 4 below
shows the overall picture of age category for both CRDB and non CRDB Partners
which dominates in leadership and involvement in SACCOS activities.
Figure 4: Cumulative Age Distribution (Both Partners and Non Partners)
4.1.3 Education Level of Respondents
The researcher was interested to find out education level of respondents as among
factors which are key in decision making and managing financial institutions. It was
51
observed that, most of SACCO‟s leaders have education level below first degree. In
most cases, especially the rural, leaders and staff belong to education level group of
between standard seven and form six. This may be attributed by the fact that most
graduates‟ runs to the big towns for high paying jobs. However, there was a strong
negative correlation between education level of respondents and location of the
SACCOS (Rural or Urban) tested at 0.01sgnificance level using Pearson‟s Correlation
coefficient. This suggests that, it‟s not the location that determines education level.
Table 8 below summarizes education level of respondents for both Partner and non
Partner SACCOS of CRDB.
Table 8: Education Level of Respondents
CRDB PARTNERS NON CRDB
PARTNERS CUMULATIVE
Frequency Percent Frequency Percent Frequency Percent
Standard
seven 4 16% 6 24% 10 20%
Form
Four 4 16% 12 48% 16 32%
Form Six 2 8% 3 12% 5 10%
Diploma 9 36% 2 8% 11 22%
Degree
and
Above
6 24% 2 8% 8 16%
Total 25 100% 25 100% 50 100%
52
4.2 The partnership between Savings and Credit Cooperative Societies (SACCOS)
and CRDB Bank.
With this question the researcher wanted to explore Factors Affecting Effective
Partnership between Commercial Banks and SACCOS to see the impact it has to the
performance of SACCOS in partnership with CRDB Bank.
The partnership intends to increase Banks outreach in terms of products and services
especially to majority leaving in the rural arrears by wholesale model through
SACCOS.Main theme is held under enabling SACCOS to attain financial freedom by
equipping them with best practices in running financial institutions. Together with
products and services available from CRDB Bank, also the partnership provides grants
in the form of training to various levels in the SACCOS organization structure
including Board and its committees, Supervisory committee, ordinary members and
staff. Also the Bank provides Front office counter, safe and stationary support to its
entire partner MFI‟s.All these intends at improving both financial and operational
strength of partner affiliates. However, there is a mixed feeling as to whether; the
linkage has been able to fulfill its objectives outlined as key performance indicators of
a partner SACCOS.
From the theoretical and empirical review made in the literature review, the study
intends to show how financing can be easily done by Savings and Credit Cooperative
Societies, hence facilitating easy access to financial services for economic and social
development. With the case study of CRDB wholesale microfinance model which
makes intermediation through SACCOS, it makes sense that SACCOS can make
financial services such as savings, money transfer and loans, hence improving the
economic activities and social welfare of the rural active poor.
53
Figure 5: Graphical Presentation of CRDB Linkage to SACCOS.
Source: CRDB Bank, 2010
According to the figure above, the microfinance wholesale model provides financial
services (Savings, credit and money transfer and advisory services) to people limited to
banking services through SACCOS as intermediary institutions. To enhance service
and efficiency, there has been a formation of a CRDB Microfinance subsidiary
Company which undertakes Institutional building activities, development of financial
services and products for the SACCOS and provision of Capacity building to both
SACCOS and SACCO‟s members as part of risk mitigation measures.
According to partnership agreement (pg 5 sec iv), the following are key performance
indicators for a successful partner SACCOS,some of them being taken from
CRDB Bank Wholesale Model
Outcomes Productivity
Increased income
Improved welfare
Contribution to GDP
Financial transactions
CRDB Microfinance Services Co.
Ltd
Financial Products and
Services
Capacity Building
Institutional Development
SACCOS
BANK
SACCOS Members
Product& services
54
Cooperative Societies Act No 20 of 2003.
(a) To have (20%) of its deposits as cash in hand or deposit in a commercial Bank
(b) At all time to have (20%) of total members savings and deposits deposited in a
commercial Bank
(c) To set aside 20% of net annual profit as a deposit in a commercial Bank
(d) To produce and present Monthly reports to the Bank (CRDB) on or before 15th
of the preceeding month.
(e) To ensure that members loan repayment to the SACCO does not fall below
(95%)
(f) To ensure a good balance of debt to equity
(g) To ensure (100%) repayment of CRDB loans
In order to see the position of Partner SACCOS based on identified key performance
indicators, the researcher used available secondary data. The key performance indicator
results are discussed hereunder as per table 9 below:
4.2.1 Deposit Savings and Profit Distribution
Findings show that, 0% (Non of Partner SACCOS) had 20% of its total deposits as cash
in hand or deposit in a commercial Bank, 0% had its 20% of total deposits and savings
also deposited in a commercial Bank, 0% had 20% of its annual profit set aside and
deposited in a commercial Bank. Savings and Credit cooperative societies(SACCOS)
are grass-roots financial institutions which have stood the test of time as effective
microfinance institutions, offering members a convenient home for their savings and
an access point for loans (Andrew, 2006). The financial systems approach to micro
55
enterprises recognize that savings are as important service for the poor as credit and
that savings are crucial in building self-sufficient financial institutions. Well crafted
saving services can encourage a move from non financial savings into savings with the
advantage of safety and liquidity for entrepreneurs and the provision of funds for
investment for society (Rhyne, 1994)
4.2.2 Monthly Reporting Requirement
It was found that, only 28% of partner SACCOS complied and presented their Monthly
reports to CRDB Bank on or before cut of date. This may suggest that, most of partners
do not have committed management to honor their obligation in time and thus the
management and board has weaknesses which should be addressed for a health
institution.
4.2.3 To Ensure 95% Loan Repayment from Members
Over 70% of partner SACCOS had arrears rate (Loan installment due for payment but
has not been paid) of more than 10%.Best practices suggests that, arrears rate should
not exceed 5% of outstanding loan portfolio (Cooperative rules, amended 2004). Some
extreme cases were found with some of institutions having arrears rate of more than
50%.The figure 6 below shows that there are only 16% (4 SACCOS) which are
operating within acceptable standard of arrears rate below 5%.All others 84% (21
SACCOS) are out of the limit in the sense that their arrears rate is above 5% .This
suggests that, members repayment is poor and it is the signal of managements failure
on loan monitoring. With this trend, the worry that the partnership has not enabled the
MFI‟s performance is growing big. Lending is the main source of income of SACCOS
as any other lending institution. If loans repayment is weak, it is evident that the MFI
56
will fail to meet its operational costs and ultimately die. Figure 5 below shows the
picture of arrears within partner SACCOS.
Figure 6: Arrears Rate for Reviewed Partner SACCOS
4.2.4 To Ensure Good Debt to Equity Ratio
A good performing financial institution should always ensure a good balance of its
capital with regard to debts it has. For SACCO to perform well, it has to ensure that its
own internal capital from member‟s savings, deposits and shares contributes largely to
its total capital. Over financing by debts from external financiers is not a health
balance. Having a bigger portion of loans from external than savings gives a negative
impact to the loan portifolio.In most accessed cases, more than 60% of reviewed
CRDB partners had their outstanding loan portfolio being financed by loan from CRDB
for more than 70%.This level of debt to equity ratio is very high especially when
considering cost of funds (Particularly Interest on loan) which becomes burden to
borrowers and ultimately contributing to more loan default cases. Further analysis
indicated that, the existing partnership may in the future distort the primary objective of
57
SACCOS.Under cooperative Act no 20 of 2003, members are supposed to raise their
own internal source of fund for lending through Compulsory savings (Akiba) normal
deposits (Amana) and shares (Hisa).These forms an internal source of funds with cheap
cost and the SACCOS can utilize it for lending to its members at a cheaper interest rate.
The existing relationship has triggered increase in loan portfolio and to large extent left
Savings dormant or growing very slowly. The partnership has very much concentrated
into injecting money for lending to members with little or no concentration in
emphasizing building of SACCOS internal capital through savings mobilization. The
existing trend of more credits than savings may be considered as distortion of
SACCOS, and turning SACCOS into CRDB Bank argents for credits.
Obtained data indicated that, most of partner SACCOS had more loans from CRDB
than savings mobilized, thus making loans from CRDB central part of their activities.
Figure 6 below shows percentage of SACCOS with cumulative loans from CRDB
exceeding existing cumulative amount of total members savings and deposits.
Figure 7: Comparison of Savings and Outstanding Loan Portfolio
58
4.2.5 To Ensure (100%) Repayment of CRDB Loans
According to partnership agreement, partners were required to ensure that, at all times,
repayment of CRDB loans is at 100% (arrears free).In my view; this is one of most
difficult performance indicator to achieve. My views are backed by findings that none
of partner SACCOS managed to fully repay the loan without any of its installments
falling in arrears. Moreover, four Partner SACCOS loan balances (Kibaigwa SACCOS,
Mshikamano SACCOS, MECO SACCOS and Kambarage SACCOS) were written off
by CRDB Bank as loss after SACCOS had failed to repay. Total amount written off
between year 2009 and 2012 was more than TZS 500Million.The findings suggests
that, there are weaknesses which need to be worked at in a lending circle which cuts
across the two parties. Table 9 below summarizes cases 4.2.1 to 4.2.5
Table 9: Assessment of Key Performance Indicators
Performance Indicator Frequency Percent
To have (20%) of its deposits as cash in hand or deposit in
a commercial Bank 0 0%
At all time to have (20%) of total members savings and
deposits deposited in a commercial Bank 0 0%
To set aside 20% of net annual profit as a deposit in a
commercial Bank 0 0%
To produce and present Monthly reports to the Bank
(CRDB) on or before 15th of the preceeding month. 7 28%
To ensure that members loan repayment to the SACCO
does not fall below (95%) 4 16%
To ensure a good balance of debt to equity 10 40%
To ensure (100%) repayment of CRDB loans 0 0%
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4.2.6 Views of Respondents on Partnership with CRDB
Under this section, respondents were requested to provide their views as to whether the
current relationship has any value towards performance of their institutions and explain
challenges which they feel should be worked at in order to improve the partnership.
The findings suggested that the partnership was in doubt as most of respondents
suggested improvement of the linkage. As per figure 7 below, most of respondents
(68% and 8%) indicated dissatisfaction by saying the current partnership need to be
improved and somehow it is not important respectively.
Figure 8: Views of Respondents
4.2.7 Non CRDB Partner Perspective on CRDB Partnership with SACCOS
The analysis was also conducted to SACCOS which were not partners of CRDB to see
their position and find out their main challenges. Main objective of looking at non
partners was to establish why they have not entered into partnership with CRDB. For
the purpose of this research, the researcher analyzed responses from non partner
SACCOS.It was observed that, most of SACCOS (94%) of respondents indicated the
doubt of high interest rate from CRDB. (88%) doubted the 25% of loan borrowed fixed
60
deposit requirement, as one of loan qualification criteria. It was further observed that
there is weak or insufficient information about the partnership as most of respondents‟
(84%) argued that they don‟t know how to go about becoming partners of CRDB Bank.
Responses from non partners can also be regarded as barriers to entry into partnership
with CRDB Bank. Lack of knowledge on how to go about being a partner may be
associated with the fact that the linkage has not well been marketed and thus public
awareness is low. On the other hand, it may be translated as probably, CRDB‟s strategy
to control number of partners with regard to available resources to handle them.
However, linkage with the CRDB is among the ways of transforming this subsector
from semiformal financial institutions into formal one. If identified main gaps are
worked out, the rate of financial exclusion will further improve and results be realized
in peoples‟ lives.
The following figure summarizes multiple responses from respondents.
Figure 9 Non Partners Views on Partnership with CRDB
61
4.2 Challenges of Existing Partnership Between SACCOS and CRDB Bank.
With this question, the researcher wanted to get what respondents would identify as
main challenges of the existing partnership, and then propose way forward for a more
fruitful partnership. Open question was given to respondents whereby multiple
responses were carefully identified and weighted. Looking at figure 10, problems are
almost normally distributed. This means they are common to each partner SACCOS.
Identified problems are discussed hereunder,
4.2.1 Increased Interest Rate
The issue of interest rate was discussed in two main ways. One was that, interest from
CRDB was comparably higher and thus increasing costs of fund to borrowing
institution. Secondly, for borrowing partner to make profit they have to add a margin
which then becomes burden to the individual borrower of the SACCOS.It has to be
recalled that, SACCOS are member owned financial institution whose main source of
funds is savings, deposit and shares with objective of lending to its members at
minimum possible interest rate to help them develop their small businesses and provide
a safe place for saving for future uses. When costs of fund to develop business are high,
it‟s obvious that the businesses will not smoothly take off and attain the required state
of sustainability. The same was pointed out by non partners as among reasons as to
why they are not partners which the researcher described as a barrier to entry in this
type of partnership.
4.2.2 Untimely Loan Availability
Respondents argued that, upon loan application, a request takes too long to be
processed and loan to be availed for SACCOS to lend to its members. This has
62
contributed to members‟ withdrawal from affected SACCOS and also members to
withdraw their savings. This has negative impact to the growth of SACCOS‟internal
capital and may ultimately leave the SACCO as argent for CRDB loans. Untimely
lending may result into misuse of funds and at the end inability to repay the loan as a
result of improper planning. This can also be further proved because signals of non
repayment have been observed in most of reviewed partners as discussed in first
question.
4.2.3 Unstable and Unreliable Products From Bank
The response was obtained from five out of six SACCOS which used to offer money
transfer and Tembocard services. It was noted that, these products performed very well
in the past but currently they have failed for over 3 years. No replacement or
improvement has been made to bring the SACCO in its original state of offering the
service to members and clients. The situation has brought a negative impact to the
SACCOS because members have lost confidence by thinking that the Bank decided to
stop the service due to dishonest of leaders or staff of the SACCOS.The partnership
should ensure availability and reliability of all services and products that are offered by
the SACCOS on behalf of the Bank in order to secure both the image of the Bank and
the partner SACCOS.
4.2.4 Deposit for Loan at 25% of Approved Amount
The partnership agreement provides that, every borrowing partner must deposit 25% of
the amount borrowed as a fixed deposit as one of securities for the loan from CRDB
Bank. The amount should be raised from SACCOS internal capital. However, it was
argued by a respondent (80%) that, in most cases when SACCOS borrow from the
63
Bank, the required amount is deducted from the approved loan thus reducing the
amount to lend to members. This practice has negative impact to the SACCOS loan
portfolio as well as its interest income from loan because amount lent is always low by
25%.The amount is also considered high and unproductive because interest it earns
from Bank is low as compared to interest income the same amount could produce if it
was to be lent to members of the SACCO.
4.2.5 High Loan application fees
Loan application fee is among upfront fees that every borrower should pay. The
problem sited by respondents is similar to above because there were cases that, amount
which ranges between 1% to 1.5% being loan application fee was deducted from
approved loan instead of being paid before as an upfront fee. This further undermines
the total exposure to lend to members and also reduces the amount of interest which
would have been earned if the whole loan would be disbursed to members.
Administration of loan application fees should always be well monitored when the
SACCO borrows from the Bank and proper mechanism of recovering it should be in
place to ensure non disturbance to total amount for lending.
4.2.6 Increase in Loan Defaulters (Increase in Loan Provisioning)
It was argued by 76% respondents that, the partnership has not managed to resolve the
ever growing default rate among its partner borrowers. As argued in the first question,
most of partners had high default rate which is a signal of poor loan management. The
problem may be associated with capacity of loan management within SACCOS or
business motive by CRDB to lend for more return. Although the partnership provides
specialized trainings to various groups of the SACCOS, special attention need to be
64
given on lending practices and loan management. More critically, attention has to be
made in building capacity to board members and staff on proper means to manage
growth of their institutions because it was observed that SACCOS with bigger loan
portfolio also had high rate of arrears as absolute figure despite the percentage being
low.CRDB Bank staff should also adopt prudent lending measures to secure both the
interest of the Bank and its partners. During loan recovery at the SACCOS level, the
Bank should provide necessary support to smoothen the exercise. A study on Kenya
Bankers cooperatives emphasized that SACCOS are a pivotal tool in the economic
recovery and poverty reduction as they enable easy access to credit and other financial
services in marginalized areas Ntoitha, (2001).
4.2.7 Poor Customer Service at Bank Branches
Respondents argued that, whenever they visit Bank branches for various Banking
transactions, they received unsatisfactory customer service. They argued to be less
valued and unrecognized. This may be linked to their appearance as most of them come
from remote arrears and their dress code is a bit shabby “may be”. However, customers
should not be segregated due to their color, race, appearance or dress code. They all
deserve equal treatment. Special arrangement should be made to identify SACCOS
customers and Bank staff should always be reminded not to segregate customers for
services.
4.2.8 Untimely Trainings
Respondents argued that, training provided by Bank do not come on proper time
because in most cases they are extended after the SACOS has entered in problems.
They argued that, it‟s better to have a good start with proper knowledge instead of fire
65
fighting approach which is currently used. Each group should receive required training
before entering into business. Most of board members argued to have started their
responsibilities without getting any orientation about their duties. This is a setback to
the partnership because the objective to enable SACCOS to attain financial freedom
may not be attained if key persons to oversee the life of institution do not have the
required capacity to do so.
Figure 9 below shows identified challenges from multiple responses from non CRDB
Partner SACCOS in percentage.
Figure 10: Challenges of partnership
Compilled data 2013
4.3 Way Forward for a More Fruitful Partnership
Under this question, the researcher wanted the views of respondents towards improving
the current partnership. Numbers of areas to improve were raised and grouped in four
main categories which were considered as key for a fruitful partnership namely,
Improvement of internal SACCO‟s systems, Capacity building to management,
improvement in products and services and CRDB to review interest rates.
66
More specifically, identified areas of improvement are discussed hereunder;
4.3.1 Improvement of Internal SACCOS System
Under this response, respondents argued that, one of their major problems is poor
systems within their SACCOS (80% Respondents).They proposed that, partnership
should among other things, assist SACCOS in streghtherning their internal systems
mainly in arrears such as Internal controls, Recruitment process and staff orientation,
policies and procedures, physical security and insurance and the like. They insisted
that, possibilities be made for the partnership to support attachment of technical person
to support building internal systems of the SACCOS up to certain time when the
SACCO can be able to stand alone.
4.3.2 Capacity building to Management and Board
As per figure 11 below, it was responded by 86% respondents that, Management and
board should be well trained on good governance and proper management of these
institutions. It was expressed that, there is no segregation of duties among the two
(Board and Management) which leads to problems within an institution. Despite
existence of training from CRDB, an expert on lending from the Bank should be
attached at the SACCOS to support the management and the board and guide lending
practices. The attached person should ensure existence of proper lending guidelines and
record keeping. A proper loan monitoring mechanism should be put in place for more
fruitful partnership because lending is the core business of the SACCOS.This can be
done to SACCOS which have not attained financial self sufficiency up to agreed time
when they are capable of standing alone. Cost sharing agreement may also be
considered for some cases.
67
4.3.3 Improvement of products and services
Issues related to improvement of products and services were pointed out in figure 11
below by 74% respondents. They argued that, the partnership should assist SACCOS in
developing appropriate products and services tailored to their environment and fitting
different age groups among its members.Likewise,CRDB was advised to have different
products and services which are stable and cutting across different categories and sizes
of SACCOS.An interesting point came out from this argument that, it‟s good for
CRDB to rate and group its partners and non partners in order to develop appropriate
products for each category. The categories may have different indicators to rate
SACCOS as may be Small, Medium and Big etc.
4.3.4 CRDB Bank to review Interest rate
The issue of interest rate was commented in as per figure 11 below by 94% of
respondents. In the face of respondents, they find interest charged by CRDB as high
and leading to high interest charging to individual borrower. The main argument here
was to lower interest and charging different interest rate depending on the size of the
SACCOS nature of activities, number of beneficiaries and the like. It was argued that,
interest charges are discouraging development of small business because they take too
long to realize profit and be sustainable. Number of multiple responses on areas to
improve partnership from both Partner and non partner respondents are shown on
figure 10 below
68
Figure 11: Areas to improve partnership
4.5 Conclusion
The Partnership between CRDB Bank and SACCOS is among best models which if
well implemented will facilitate financial deepening among most of Tanzanians who
are excluded in the formal financial sector. By considering the fact that CRDB Bank
has been successful in Banking history in Tanzania, it is also expected the achievement
to be reflected to its partner SACCOS.The current Partnership is more likely benefiting
the Bank than partners because the only product mainly consumed is loan. The findings
revealed that, performance of most of partners is not good and the partnership is about
to translate SACCOS into argents of the Bank. It was also seen from non partners that,
there are barriers to enter into partnership with the Bank and most of non partners are
not aware on how to go about becoming partners. The concern of high costs of funds
particularly interest rate was also spotted as among barriers which need to be worked
at. With this regard, it is wise that the parties review the current partnership for more
fruitful results. Regulatory authorities should also consider setting limits and levels of
lending to SACCOS from external financers to avoid over financing which may distort
SACCO‟s loan portfolio and its core objective and turning SACCOS into argents of
lending.
69
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
The overall objective of this study was to assess Factors Affecting Effective
Partnership between Commercial Banks and Credit Cooperative Societies. This chapter
presents conclusion and recommendations on the basis of the study findings.
5.2 Summary of Findings
Findings of this study show that Savings and Credit Cooperative Societies can play a
significant role in facilitating access to financial services and products in most areas.
From the experience of CRDB Bank, which provides financial intermediation
through SACCOS, it can be learnt that similar products which are offered by
commercial banks can be tailored and made available through SACCOS hence
reducing the gap of limited access to financial services in most rural areas. This
means that, the partnership Between Banks and SACCOS should be able to solve the
challenge of access to finance to most of individuals who are isolated from formal
financial services by creating conducive environment through SACCOS which will
enable its members to access financial services. However, the existing partnership is
mostly based on providing loans and left behind the objective of grooming member
based institutions, built under member‟s contributions through savings, deposits and
shares. The existing relationship is more likely growing into turning SACCOS into
argents of the Bank for credits. Savings and deposits from members are not growing to
support financial needs within SACCOS. Internal systems of the SACCOS are weak
and cannot support sustainable growth. Business motive behind the partnership should
not conflict with the responsibility to build sustainable institutions and reduce
70
dependency on big commercial Banks, and hence reduce or ultimately remove the cost
of funds on external loans. The regulatory authority (Ministry of agriculture and
Cooperative) have to provide proper guidance on levels of financing from external
partners of SACCOS. According to Andrew Bibby (2006) there is a great scope for
Tanzania‟s SACCOS to develop, so that a much larger percentage of the population has
access to a straightforward place to go for saving and borrowing. There may be
opportunities too to encourage the creation of cooperatives in other sectors
5.3 Conclusion
According to findings, Effective Partnership between Commercial Banks and SACCOS
can be attained if implementation of partnership will yield mutual benefiting.
5.4 Recommendations
On the basis on the findings of the study, the following recommendations have been
made:
a) In order to improve partnership between the Bank and SACCOS, more sensitization
has to be made to create awareness to members and other stakeholders of the
Cooperatives on the meaning and importance of partnership agreement with
SACCOS.
b) The Partnership should always seek to create sustainable SACCOS by always
striving into sensitizing members to add more savings, deposits and shares so as to
build their own internal capital and minimize dependence on external loans which
might turn them into credit argents for CRDB.
c) To encourage more youth and women involvement, there should be education and
sensitization campaigns as well as development of financial products in order to
71
enhance the utilization of such facilities and benefits by marginalized segments.
The partnership agreement has to categorize different groups and approaches into
bringing them tailored financial services. Access to finance through SACCOS can
significantly raise and facilitate access and involvement of youth and women in
productive activities and thus contribute into poverty reduction.
d) Product range in most SACCOS is very limited and mostly ends into loan products
only. The partnership should help into developing tailor made products which can
suit the majority of the members in the society taking into consideration the nature
of their activities.
e) Apart from trainings offered to the SACCOS by CRDB Bank, The government
needs to allocate a sufficient budget in order to facilitate trainings and attachment of
technical personnel to support and build SACCOS systems.
f) Capacity building to board and management is important especially in the areas of
prudent lending and good governance. The issue of segregation of duties is very
important in order to create clear path on responsibilities and
accountability.Specialised and qualified personnel should be placed to support
management and board in takeoff stages and provide guidance on loan
administration and monitoring as a core business.
5.5 Recommendations for further studies
The purpose of the study was to Assess Factors Affecting Effective Performance of
Partnership between Commercial Banks and SACCOS. Therefore, the researcher
recommends that future studies should concentrate on the following areas:
a) Why is that the case that despite being in Partnership with CRDB Bank, some
of partner Savings and Credit Cooperative Societies (SACCOs) also borrows
72
from other Banks and financial institution?
b) What other business avenues are available for CRDB Bank from SACCOS
which have attained financial independence and they no longer need loans from
Bank?
c) Savings and deposits in most SACCOS grow very slowly and may increase
during loan applications. What factors hinder growth of savings and deposits in
Savings and Credit Cooperative Societies?
73
REFERENCES
Allen, H.(2007).Village Savings and loan associations. Warwickshirecv, UK:
Intermediate Technology Publications Ltd.
Andrew, G. (1999). Rural Finance .Policy series 1,Chatham, UK:Natural Resource
Institute.
Banking and Financial Institutions Act, (BAFIA,1991)
Bikki Randhara,(2003).Strategic alliance to scale up financial services in Rural Areas.
CRDB. (2004).Changing lives through microfinance in Tanzania. Dar es salaam:
CRDB Bank Booklet.
CRDB, (2009). Microfinance Products and Services.CRDB Bank Booklet.
Elisabeth, R. (2001).How lending to the poor began, grew and come of age in
Bilvia,mainstreaming Microfinance.Connection 06002 USA:Kumarian
Press,Inc.
Hendricks,(2008).Evaluation of the Rural Finance and cooperative Development
Program.pp
IFAD,(2000) Rural Financing in Tanzania,pp
Malcolm, H. (2003). Microfinance Evolution, Achievement and Challenges. New
Delhi, India: ITDG Publishing.
Malcolm, H. (1998). Profit for the poor. London WC1B 4HL,UK: ITDG Publishing.
Marian, O. (1994).The New World of Microfinance Finance, Building health Financial
Institutions for the poor. West Hartford, U SA:Kumarian Press incorporation.
Marguerite,R.(2001).The Microfinance Revolution, Sustainable finance for the poor.
Washington DC,20433 USA:Library of Congress cataloging.
Narayan ,P. (2007). Moving out of poverty. , New York USA:Houndmills
Padmanabhan, K.(1996).Rural Credit, Lessons for Rural Bankers and Policy Makers,
London WCIB, UK intermediate Technology Publications Ltd.
United Republic of Tanzania (URT).(2000).National Microfinance Policy (2000)
United Republic of Tanzania (URT).(2000).Tanzania National Economic
Empowerment Policy. Dar es salaam: Government Printer.
United Republic of Tanzania (URT).(2003).Small and Medium Enterprise Development
Policy
74
United Republic of Tanzania (URT).(1997).Cooperative Development Policy. Ministry
of Agriculture and Cooperatives, Dar es Salaam: Government Printer.
United Republic of Tanzania (URT).(2002). Cooperative Development Policy -2002,
Ministry of Agriculture and Cooperatives Dar es Salaam: Government Printer.
United Republic of Tanzania (URT).(1996). Community Development Policy. Ministry
of community Development Women affairs and Children, Dar es Salaam:
Government Printer.
United Republic of Tanzania (URT).(2005).Cooperative Reform and Modernization
Program 2005-2015. Dar es Salaam: Government Printer
United Republic of Tanzania (URT).(2005).Cooperative Act,2003.Dar es
salaam:Government Printer.
United Republic of Tanzania (URT).(2005). Cooperative rules, 2004.Dar es
Salaam:Government Printer.
75
APPENDICES
APPENDIX I:
………………….…………………...SACCOS LIMITED
INTERVIEW GUIDE
Interview Guide Number
INTRODUCTION
Dear Member,
My name is David Peter, a Researcher from the University of Dodoma (UDOM). I
am kindly requesting to collect your views and opinion regarding products and
services in your SACCOS – and ultimately use the information as invaluable inputs
for reshaping its operations to serve you better. Therefore, I humbly request you to
take a few minutes to provide your feedback on the services that you have received
so far from your institution; and furthermore, helping me understand your financial
needs for the possibility of your SACCOS to meet them.
I will appreciate for your time and please note that all the information you will
provide here, will be treated with the highest level of confidentiality.
[Please contact me directly for any clarification]
│Mobile:0767 484549 │ Email: [email protected]│
----
1. RESPONDENT AND SACCOS PROFILE
1.1 For how long have the SACCOS been in Business? (Please tick (√) the most
appropriate)
Less than 2
Years
Between 2 to 5
years
More than 5
years
76
1.2 Current number of Ordinary members of the
SACCOS
…………………
………….
Number of Members in past 3 years……………………………..
1.3 Indicate the Location of the
SACCOS
Urban Rural
1.4 Partnership status with CRDB (Please tick (√) the most appropriate)
Partner Non Partner Dropped
1.5 If Partner in 1.4 above,for how long have your SACCOS been working
with CRDB? (Please tick (√) the most appropriate)
Less than
1 year
1 to 3 years 3 to 5years More than
5 years
1.6 Indicate the availability of employed staff of the SACCOS (may tick more
than once)
Manager
Accountant (s)
Credit Officer(s)
Cashier (s)
Office Clark (s)
ArmedGuard(s)
1.7 Track the age of respondent (The Board Member ) (Tick the appropriate
Category)
Between 20 and 30 Years
Between 30 and 50 Years
Between 50 and 60 years
More than 60 years
1.8 Indicate Gender of Respondent (Tick (V) appropriate gender
77
Male
Female
1.9 Education level (Mention) ………………………………….
2.0 PRODUCTS AND SERVICES
2.1
Available products and services in your SACCOS ( MayTick (√) )More
than One)
Loans
Savings
Deposits
Insurance services
Money Transfer Services
2.2 Total current members savings …………………
…
Total Members Savings in past 3 years…………………
2.3 Total Current Members Deposits …………………
…
Total Members Deposits in past 3 years…………………
2.4 Total current amount of Member Shares …………………
…
Total amount of Shares in past 3 years………………….
2.5 Total current Outstanding loan portifolio …………………
…
2.6 Total amount borrowed from CRDB to date …………………
…
2.7 Number of loans borrowed from CRDB (Frequency of Borrowing)
(Number of times,1,2,3…etc)
2.8 Total loan amount borrowed from other external
Financers apart from CRDB
…………………
…………………
78
……
2.9 Percentage of outstanding loan portifolio in Arrears (indicate in
percentage 1%,2%....etc)
2.10 Total assets of the SACCOS …………………
…
2.11 Minimum Loan amount that a member can
borrow
…………………
………….
2.12 Maximum Loan amount that a member can
borrow
…………………
…………..
2.13 What average rate of interest is charged per Month on loans to
members (1%,2%...etc)
2.14 Other charges on loan applicable to your SACCOS(You may tick
more than one)
Loan application fee
Loan application form charges
Mortigage fees
Godown charges(warehouse loans)
Loan committee meeting charges
2.15 Which sytem is adopted for record keeping and report production in your
Institution?
Manual System
Computerised System
Both Manual and Computer system
2.16 Did your institution manage to pay Dividend last year?
Yes
79
No
2.16 (b)Financial Self Sufficiency Below
100%
Above
100%
2.17 If “NO” in 2.16 Above,why the SACCOS did not pay Dividend
Did not make
profit
Accounts have not been audited
Awaiting AGM
Default rate was high
2.18 Track the satus of audit for past year (Tick appropriate answer)
Not yet audited
Preparing accounts for audit
Accounts presented to auditors
Finalising data recording in the books
Already audited
3.0 SUPPORT FROM CRDB BANK AND FINANCE FROM EXTERNAL
3.1 Indicate the type of support your SACCOS has ever obtained from CRDB
in the list below
Training to Board members
Ordinary members training
Proffessional staff training
Training to supervisory committee
Exchange Visits
Counter Support
Safe support
Strong room door support
Books and stationary support
On Job coaching by CRDB staff
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3.2 How do you rank the Partnership with CRDB in improving SACCOS
performance?
Somehow not important
Need to be improved
Important
Very important
3.3 Please tick the Bank or Institution which your SACCOS has ever applied
for a loan whether you obtained or you did not obtain the applied loan
Akiba Commercial Bank
Tanzania Investment Bank
CRDB Bank
NMB (National Microfinance Bank)
SELF
PRIDE
Tanzania Postal Bank
PPF/NSSF/LAPF etc
Azania BANCORP
OICO Credit
SCULT
Barclays Bank
Diamond Trust Bank (DTB)
Other Institution apart from above
3.4 Please tick the Bank or Institution which your SACCOS has ever
succeeded to obtain a loan facility (May tick more than one)
Akiba Commercial Bank
Tanzania Investment Bank
CRDB Bank
NMB (National Microfinance Bank)
SELF
PRIDE
81
Tanzania Postal Bank
PPF/NSSF/LAPF etc
Azania BANCORP
OICO Credit
SCULT
Barclays Bank
Diamond Trust Bank (DTB)
Other Institution apart from above
3.5 What are main challenges of Partnership between SACCOS and
CRDB Bank
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
……
“THANK YOU FOR YOUR TIME”
