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DUKE MICROFINANCE LEADERSHIP INITIATIVE
2013
Expanding the Impact of Nkokonjeru SACCO
An analysis of existing members
Chuhang Yin
WWW.DMLI.ORG

2. Expanding the impact of Nkokonejru Savings and Credit Cooperative Society (SACCO):
An analysis based on interviews and questionnaires
July 2013
Chuhang Yin – Duke University, School of Economics, M.A. Economics (2014)
The Nkokonjeru Savings and Credit Cooperative Society (SACCO) is a member-owned cooperative recognized by the Ugandan Cooperative Savings and Credit Union and the Ugandan Cooperative Alliance. Since 2009, Duke University has sent students each year to engage in research and consulting at the SACCO. In the summer of 2013, Chuhang Yin, a master’s economics student at Duke University, worked as an intern at the SACCO and conducted extensive surveys, focus group discussions, and two mobilization trips. This report summarizes her findings and put forward suggestions for the SACCO’s future developement.
Acknowledgements
The author of this report would like to thank Professor Tracy Falba for her help with survey design, the Nkokonjeru Saving and Credit Cooperative Society (SACCO) for assistance with conducting surveys and focus group discussions, Esther Nalugya and Gorret Nantongo for help with translation, and Dr. Lori Leachman, Professor of the Practice of Economics at Duke University, for her continued support for Duke Microfinance Leadership Initiative.

3. Part I: Introduction
As of July 2013, the Nkokonjeru SACCO (“the SACCO” thereafter) has 1417 members. It has become one of the most influential financial institutions in the Nkokonjeru area. The SACCO provides a wide range of financial products catered to the needs of the community. Saving products include savings account and fixed account. Loan products include business loan, agriculture loan, boda boda loan, school fees loan, and development loan. The SACCO is also developing a health insurance policy which is expected to help members cope with emergent medical costs.
To help frame the health insurance policy and design ways to improve the SACCO’s service, the author conducted 75 household surveys in 16 villages from May to July 2013. The survey contains questions about household consumption, use of financial services, and how they deal with unexpected health expenditures.
Findings from the survey suggest the SACCO should stabilize and educate existing members and expand its impact in a larger community through a combination of product promotion and financial literacy classes.

4. Part II: Stabilizing and educating existing members
Although the SACCO has been expanding rapidly in recent years, the number of inactive (“dormant”) accounts has also increased. The SACCO should also enhance its ties with existing members. By educating existing members, the SACCO can enhance the members’ understanding of the organization, establish a better image of the organization in the community and attract more members.
1. Enhance ties with existing members
The contact information stored in SACCO’s computer system is largely obsolete. Members’ contact information comes from membership registration forms, many of which do not contain any phone number or accurate address. Moreover, many members have moved and/or changed phone numbers since they joined the SACCO. The lack of contact information makes it hard for the SACCO to keep track of its members and to organize educational or publicizing activities (e.g. financial literacy classes). While bank officers are familiar with some members and have their contacts, this is only a small fraction of all members. More importantly, the inactive members are usually left out, which makes it even more difficult for the SACCO to investigate the causes of their inactive status.
To maintain updated contacts, there are two approaches worth consideration. First, bank officers can verify the contact information (phone, address) whenever a member comes to the bank. This can be done by reading out the existing information as the member approaches the counter. If a member does not have detailed contact information in the system, bank officers should ask him or her to provide a phone number which can enable the SACCO to find the member. Second, bank officers should enter the contact information based on their own acquaintance with the members into the computer system. Moreover, bank officers should update the system whenever they get new information about moving locations or changes in phone numbers.
2. Provide a fuller picture of SACCO products
Many members do not know about all the products available at the SACCO. As one member puts it: “when people think about the bank, they only know that it is a big complex where they can store their money.” The SACCO should give its members more information on products that are underused.
Fixed saving account is one product that is underused. Among all the members of the SACCO, only a few have fixed accounts. The money they put in the fixed account varies from as little as 7,500 shillings to 1 million. To investigate the reasons for not having a fixed account, I asked people about their knowledge of the fixed account in my survey. Among 75 interviewees, only 19 have a fixed account.

5. The reasons for not having a fixed account are shown below. The most cited reason is lack of information. Many members have never heard about the product. A few mentioned that the bank officer who helped them with registration did not inform them of this product. The second common reason is “not enough money to put aside”. There might be misunderstanding over what amount is suitable for the fixed account. Through financial literacy classes and continued sensitization, the SACCO may be able to educate members to consciously save money for the fixed account and get interest. Other reasons include the demand for flexibility (common among businessmen) and preparation for emergency. These are more concerned with the individual situations of the members.
Providing information about fixed accounts is not enough to foster stable increase of funds in them. The people need to be educated about how they can put together small amounts of money for future use. In particular, the SACCO should educate people to save for predictable expenses such as school fees and agricultural input costs.
3. Clarify confusion about loan products
There is considerable confusion and misunderstanding about the loan products offered by the SACCO. Some members rely on comments from friends who have taken out loans with the SACCO, and such information is often incorrect. Therefore, there is a need to sensitize members about the options they have. Here are a few common misunderstandings about loan products and application process.
a) The SACCO charges a 2% fee for every loan we take. It is too much.
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Reasons for not having a fixed account (n=56)

6. Many members are only aware of the amount of insurance fee but not the reason why it is charged. In my interviews, I frequently encountered members complaining about this fee and also asking about what will happen if they die. The SACCO should make it clear that this insurance fee entitles them to have the loan written off in case of death. The SACCO should also tell them the “benefit” nature of this policy, i.e. if a member defaults, he or she will not be able to get insurance for the next loan at the SACCO. This might give members more incentive to keep a good repayment record.
b) The interest rates at the SACCO are too high.
Some members, when asked about their advice to the bank, complaint about the (perceived) high interest at the bank. But many of these members have never taken a loan from the SACCO and even have little information about the actual interest rates. Many are unaware that the interests charged by the SACCO are often lower than those charged by informal borrowing groups and commercial banks. But sometimes members get confused by the different borrowing schedules (many other organizations, e.g. BRAC, require weekly loan repayment) and fail to compare SACCO’s products with other options.
To solve this problem, the SACCO should inform members of the interest rates for different loan products, help them design feasible repayment schedules based on their incomes and offer a meaningful comparison with other alternative (upon the member’s request).
c) The SACCO asks people to save a lot of money before giving out loans. Therefore I cannot borrow the amount I need.
This often happens for members who are seeking loans with large amounts, e.g. boda boda loans. They often feel confused and disappointed at SACCO’s saving requirement. Some inactive members (usually old members who haven’t used the SACCO for a long time) think that the SACCO does not have enough money to lend.
The SACCO should educate members about the risks of giving out loans and let them understand the saving requirement. Moreover, the SACCO should also emphasize the importance of financing part of one’s own expenses and not relying too much on borrowing from financial institutions.
d) The SACCO offers grace periods only for agricultural loans but not other types of loans. This is unfair.
The SACCO should tell the members the rationale of grace periods. Since farming activities are seasonal and one needs to wait for harvest, the SACCO is offering a grace period where the borrower only needs to pay interest. Business activities,

7. by contrast, are not seasonal and therefore do not justify a grace period.
e) I can delay my loan payments for any period of time I want, as long as I pay it back.
The SACCO should educate people the consequences of failing to repay their loans on time. If there is little discipline for borrowers, they will delay loan repayments even if they do not have difficulties in paying back the full amount. The consequences of delaying payments include psychological pressure, being blacklisted at the bank (which will affect future loan applications), and monetary penalties or even deprival of securities.
In addition, the SACCO should also include specific terms in its loan agreements about the consequences of default. Putting down the terms in documents will give the members a clearer idea of the SACCO’s policy and may deter them from delaying payments.

8. Part III: Expanding membership of the SACCO
Increasing membership is an important and direct way for the SACCO to increase its impact. Currently, most members concentrate near Nkokonjeru town center (Nkokonjeru, Mulajje, Bukasa, etc). However, people from outside the Nkokonjeru Town Council have shown profound interest in the organization. Due to long distance and limited publicity, people in remote areas might not get enough information as they want to. There is great potential for the SACCO to expand in villages outside the Nkokonjeru Town Council, for the following reasons.
1. Residents within the Nkokonjeru central region have many other banking options such as Stanbic, Centenary Bank, and other SACCOs. They are also more educated and more informed. By contrast, villagers in remote areas often have few alternatives of saving and credit, and they are more likely to be loyal to the SACCO.
2. SACCO has already had a good reputation in the remote areas. Therefore promotion of the society image will be more effective in those places.
3. Existing members in remote areas (e.g. Nsonga) have performed well in savings and loan repayment. It is beneficial for the SACCO to expand membership in such regions with good records.
In July 2013, the SACCO organized two mobilization trips. The first one was held in Katose, a fishing village far away from Nkokonjeru town. The loan officer introduced the products at the SACCO. She also answered questions from the villagers. A total of 25 villagers participated in the meeting, and they have shown great interest in SACCO. The second one was held in Katente outside a school. Seven villagers showed up. For the second one, the manager presented financial literacy materials (edited by the author) along with an introduction of products at the SACCO. Participants actively interacted with the presenter on good practices of financial planning. Several lessons can be learnt from these two mobilization trips.
1. The meeting should be notified to villagers in advance. The SACCO should make it clear that this is a mobilization/publicity trip targeting both members and non members. When we were at Katente, we heard the radio talking about our visiting just before our presentation began. A last-minute publicizing method like this will greatly reduce the number of participants.
2. The SACCO should emphasize the financial literacy component of the lessons. Many villagers are interested to know more about financial planning and how to use products at the bank to their interest. The financial literacy curriculum can be easily incorporated into product introduction.
In terms of areas of expansion, the SACCO should start from remote areas. Because these areas have the least information and people are constrained by limited means

9. of transportation. Mobilization trips in such areas will be more attractive to the local villagers and therefore are likely to be more effective than the ones in nearer places. Once the SACCO has built a good reputation in remote areas, this will generate a spill-over effect which will encourage people from the nearer areas to know more about the SACCO.

10. Part IV: Suggestions for the Instant Credit Loan product
Farmers in the Nkokonejru area depend highly on weather for their incomes. The seasonal nature of their incomes makes them vulnerable to unforeseeable expenses like medical costs. Among the 75 respondents of my survey, over one third (28) stated they had sold productive assets for medical expenses last year. The most common assets sold are cows, goats, and plots. Sale of these assets greatly limits the earning potential of the households and makes them more susceptible to emergencies and illnesses.
To address this lack of access to health facilities, Duke interns Frank Guan and Albert Hu proposed an instant credit preapproved loan product called the Nkokonjeru Community Health Plan in 2012. Existing members of the SACCO can apply for membership in this plan to assist with their future medical expenses. The proposed annual membership fee is 5,000 shillings ($1.90 US). Members of the plan can have a three month grace period for paying all medical costs at a specific health care service provider with no interest. At the time of service, the member simply shows his/her membership card to the hospital cashier and does not need to pay. The member is expected to pay the SACCO back the full cost of the services received immediately after three months, or interest will be incurred at a rate of least 5% in addition to a monthly minimum payment towards the debt.
I included questions in my survey to collect the opinions of our members about this product. Most respondents welcome the product and think it will be particularly beneficial for low income people. However, some members doubt the sustainability of this product, because if someone falls sick he will need time to recover and may not generate enough income to pay back the loan on time.
Based on survey results and discussion with the manager, I have the following recommendations:
1. Loan size
The SACCO should set an upper limit of the loan amount that a member can take. This limit is proposed to be 100,000 shillings. The maximum limit should be determined to ensure that members are able to pay back their health loans in the grace period. The health loan is designed to help members cope with small-amount emergency medical costs, so it should not cover long term expenses for chronic diseases. This practice also lowers the risk of death and failure of repayment that is faced by the SACCO.
2. Repayment schedule
The SACCO should adopt a monthly repayment schedule for this loan. If the SACCO only requires the member to bring the full amount at the end of the grace

11. period, the member is less likely to plan for repayment. Indeed, many members have mentioned that a regular repayment schedule will enhance their discipline and increase repayment rate.
3. Length of grace period
The length of the grace period is proposed to be 3 months. The grace period should be long enough such that the member is given sufficient time to raise or earn the amount borrowed, without being under too much pressure.
4. Interest rate
The interest rate charged after the grace period should be lower than the rates of the other loans at the SACCO. This is determined by the nature of the medical loan – to help members finance medical expenses at a relatively low cost.
5. Selection of eligible members
a) Have good credit history, cannot be a defaulter. Being a defaulter significantly raises the default risk faced by the SACCO.
b) Have a minimum balance in the account. The SACCO should educate its members the importance of saving for emergencies and the members understand the purpose of minimum balance.
c) Have securities.
6. Approval process
If this is not possible, the SACCO should accelerate loan approval process for medical loans relative to other loans. The loan officer should react immediately upon receiving the loan application. If the loan application is as long as the others, by the time it is approved the member will have already financed his/her medical costs.
7. Concurrent loans
A member who applies for the medical loan while taking another loan of a different category should be assessed on his/her ability to repay. If the SACCO determines that the member does not have enough income and capacity to repay both, the SACCO can reject the member’s application.
8. Entry fee and renewal
A membership fee is charged for the health plan. The exact amount should be decided after a detailed cost-benefit analysis. Membership needs to be renewed annually.