The government of Uganda has set interest rates for Savings and Credit Cooperative Organizations (SACCOs) at 9 to 13 percent. SACCOs became regulated in June 2008 after a rash of investigations into illegal behavior and fraud. These microfinance institutions are now controlled by the The Uganda Cooperative Savings and Credit Cooperative Union, a newly established government regulatory agency.
The new rates are well below the 20 to 30 percent rates usually charged by for-profit institutions. For example, in a recent interview, Vikram Akula of SKS microfinance explained that despite the 25 percent interest charged by his organization, SKS only earns approximately 1 to 2 percent profit on each loan. The Grameen Bank model developed by Muhammad Yunus, which advocates self-sustaining but profitless organizations and has been copied throughout the world, also charges significantly higher interest rates of 20 percent, raising concerns about the sustainability of the 9 to 13 percent interest rates set in Uganda.
SACCOs, organizations that accept deposits and give loans to individuals and small businesses, are an integral piece of the Ugandan government’s economic develop project entitled “prosperity for all,” which launched in 2007. The government channels money through SACCOs in order to reach poor individuals and plans to have over 1,000 SACCOs operating before the initiative is completed.
Before the recent regulations, the government used the SACCOs to reach the poor without exercising such strict controls. Several instances of fraud, however, leading to government investigations of SACCO executives, prompted many, including the EU and The World Council of Credit Unions (WOCCU), a trade association, to call for increased regulation. While it is unclear whether either organization advocated the specific interest rates set, the WOCCU, in a model law (available here), states that “a deregulated rate system is preferable to a statutory one” and that credit unions should be able to set their own rates “subject only to ceilings that may be set either by the Commercial Code or a general usury statute.” To learn more about the controversy surrounding SACCOs and the recent increase in regulatory authority, please read this previous MicroCapital story.
By Greg Casey, Research Assistant
Additional Resources:
New Vision: SACCOs interest rates set at 13%
CNN: “Transcript: Vikram Akula, Founder & CEO of SKS Microfinance”
AllAfrica.com: “Uganda: EU Delegation Chief Calls For Saccos Law”
Allafrica.com: “Uganda: EU Wants Saccos Law Passed to Boost Sector”
MicroCapital article, February 26, 2008: Ugandan Government to Set up Laws for Regulating its Microfinance Sector
MicroCapital article, October 25, 2007: “The Probity of Microfinance Firms in Uganda Takes Another Downward Turn, with a Savings and Co-Operative Credit Organisation (SACCO) Suspended and Shut Down.”
MicroCapital article, September 21, 2007: “Police in Uganda Investigate Front Page Micro Finance and Three Other Microfinance Firms”
Daily Monitor: “Government to set up law for SACCOS”
India MicroCredit: Interview with Vikram Akula, SKS Microfinance
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