Inside fight to control Saccos

With the country beginning to register growth in the cooperatives sector after years of stagnation, there are fears that the creeping hand of the multi-national banking sector could affect the rapid growth and self-sustenance of Saccos. 

Mr Leonard Okello, who is the chief executive officer of Uhuru Institute for Social Development, says there is an aggressive-interventionist approach from the World Bank to control the affairs of Saccos in the country. 
With only a paltry 10 per cent of Ugandans holding bank accounts, there is a desire to see growth in numbers of those relying on the multinational commercial banking sector, whose profits are usually expatriated and funds moved to tax havens and secrecy jurisdictions. 

But locals are turning away from high lending commercial bank rates to borrow from Saccos, which offer cheaper rates. As Saccos grow their revenue portfolio, there is a threat that this could affect the expansion and growth of the commercial banking sector.  “We have big Saccos run by professionals and in the village [Saccos] run by peasants.

We have big Saccos in the URA, NSSF, Monitor, Makerere, UPDF, these are intellectuals, it is an infrastructure that can get the entire economy organised; it can connect the intelligentsia to the business people, to the grassroots, to the peasants and the workers. It can organise all classes and all facets of society into a big integrated economy development movement,” Mr Okello says.
However, a suspicion, which fed the cold-war conspiracies, could be reverberating across the world and could return to haunt cooperatives in Uganda.

There is an emerging theory that that the seeds of a grassroots renaissance to organise cooperatives, whose creed is grounded on socialism sprouted as a result of the predatory nature of capitalism.  
To allay these fears Mr Okello says that, “Kenya is perhaps the most capitalist economy in East Africa but Kenya has one of the strongest cooperatives, Mwalimu Sacco is the biggest Sacco in Africa and 6th biggest in the world. In Thailand, the Thai Military merchant bank started as as a Sacco and grew into a bank.”

Origin
Bretton Woods Institutions led by the World Bank, which lend to many African countries, are speaking to governments for the need to put in place laws and regulations that support the agenda for financial inclusion.
“Globally there is a move to bring more people in the developing world towards banking. Some of these village Saccos have billions, so much money is not in the financial system and there is a risk,” Mr Okello reveals.
Working with policy wonks in government, the World Bank, according to Mr Okello, wants to re-organise Saccos and wants more Ugandans to join the conventional banking system. 

It is what perhaps has fuelled suspicion that the Washington Consensus is behind the overlapping regulatory framework. Cooperatives are now supervised by the ministries of Finance and Trade, and the Central Bank. 
Until recently, cooperatives were regulated under the Cooperative Societies Act of 1991, which was amended and assented to by the President in February 2020, and the Cooperative Societies Regulations, 1992.
  
However, another law is the Tier 4 MicroFinance Institutions and Money Lenders Act, which was enacted in 2016 to regulate the financial limb of cooperatives, which are the Saccos. This law repealed the Money Lenders Act and established the Uganda Micro-Finance Regulatory Authority (UMRA) under the Finance ministry. The regulatory authority’s role is to licence and manage Tier 4 microfinance institutions, manage money lending institutions and supervise the non-banking financial sector. 

Among the Tier 4 institutions are Saccos, non-deposit taking micro-finance institutions, self-help groups and community-based micro-finance institutions.
However, there is another layer of regulation that places Saccos with a threshold of Shs1.5b and a share capital of Shs500m under the ambit of Bank of Uganda (BoU). 
The overlapping laws is what prompted the BoU Governor, Mr Emmanuel Tumusiime-Mutebile, to write a letter to the Finance minister, Mr Matia Kasaija on January 3 this year. The letter is copied to the minister of Trade, Industry and Cooperatives, the Secretary to the Treasury, Attorney General and Solicitor General. 

Central Bank’s concerns
In the letter titled ‘Consequences of the Proposed Amendments to the Cooperative Societies Act vis a vis implementation of Section 110 of the Tier 4 Micro-Finance Institutions and Money Lenders Act, 2016,’ the governor seems exasperated over the conflicting laws.
Mr Mutebile said: “The proposed amendments to the Cooperatives Societies Act, on the other hand, have certain provisions that are conflicting with Tier 4 Micro-Finance Institutions and Money Lenders Act, 2016. Section 55 (a) and 55 (d), for example, list mobilisation of deposits, provisions of loans and other financial services to members as functions of savings and credit cooperatives societies.”
He added that the enactment of the amendments into law “will create overlap and conflict in terms of supervision and regulation by three regulators namely: Bank of Uganda, Uganda Micro-Finance Regulatory Authority and the Registrar of Cooperatives.”

Ms Jane-Amuge Okello, who is the operations director at Uhuru Institute for Social Development, says there is a legal dilemma, which must be addressed. “In our interactions with cooperatives, they are lost, UMRA sends communication to the Saccos on what should be done, on the other hand the Wazalendos [UPDF Sacco] are anticipating regulation from Bank of Uganda, at the same time supervision and regulation is coming from the Trade ministry.” 

“The argument is why can’t we get registered and supervised by the ministry of Trade? If there is a need by the ministry to improve on its capacity to serve us, then let government do that,” she adds. 

For instance, Ms Amuge says Saccos are now required to file “compliance obligations such as audits, which are sent to UMRA and in the case of large deposits to Bank of Uganda, and the ministry of trade will expect you to send annual returns, there is a contribution to the stabilisation fund, there is a contribution to UMRA, so you find a cooperative ideally getting its footing in its nascent stage having to split money to different arms.”

“Nobody in the cooperatives movement is against proper regulation; that makes it easier to run.  The cooperatives want to be properly regulated, it is simply organisational confusion and business undermining. We would like government to go back to the drawing board, I know there is a working committee between BOU, Ministry of Trade and Finance to harmonise,” Mr Okello argues.
He adds that cooperatives are a unique entity, which should be placed under the ministry of Trade and supervised by the registrar of cooperatives.  

“[What ought to be done] is to expand the capacity of the registrar, with economists, financial experts and audit experts so that they can provide the necessary supervision and regulatory function, instead government with the help of the World Bank have tried to create a new regulatory framework to control Saccos,” Mr Okello says.
But the Secretary to the Treasury, Mr Keith Muhakanizi, says it is important to place Saccos with large sums of capital under the supervision of the Central bank. 

“It must be managed by BoU; otherwise it will become a disaster,” he argues. Mr Muhakanizi says during the liberalisation process in the late 1980s, cooperatives, which were poorly managed, couldn’t cope with the efficiency of a private sector and they collapsed. 
“Are they desirable? yes they are but they have to take a different form, first they must be well managed, nobody has ever said don’t have cooperatives, they were destroyed by inefficiencies,” he argues.

However, unlike commercial banks that have stringent management rules, cooperatives are guided by the principles of voluntary, open membership, democratic members control, member economic participation, autonomy and independence, and member education and training. 
The UMRA executive director, Ms Edith Tusubira, says the laws in place are meant to check bogus organisations such as Caring for Orphans, Widows and Elderly (Cowe) that conned Ugandans of billions of shillings in a span of two decades. 

“We admit that we have three different centres but I want to assure the public that we don’t have a fight and we shall try and manage the situation. For one institution to say they are managing everything is not easy, we will continue working on that. I still think we need some amendments so that we can harmonise, so that we don’t appear like we are pulling ropes,” Ms Tusubira says. 

Govt responds
The State minister for Cooperatives, Mr Frederick Ngobi Gume, says: “We are trying our level best to reduce on conflict. We have intervened and we now have an amended act of 2020, which strengthens the ministry; it is now stronger to supervise.’
Mr Ngobi says with access to low interest loans and the revival of Uganda Development Bank (UDB), cooperatives could become the engine of growth. 

“Cooperatives are the way to go, because our economy is agro-based, the people involved in the agricultural sector are the people we are organising. Production has increased we are looking at the other aspect of investment to use agro-products,” he says.
The minister adds that stakeholders such as World Bank, which has been offering consultancy, should prioritise the rural economy.

“Even professionals are joining Saccos; it shows you that the reliance on pure commercial and capitalist way of doing things [is changing], people want to be in charge of the economy. If we are going to achieve social economic transformation, a lot more people need to be in charge of what they do with their money and that means they belong to cooperatives and are doing it collectively,” argues Ms Amuge. 

History of saccos
The history of cooperatives is buried in the footnotes of Uganda’s colonial history. In 1913, four farmers in Mubende District rejected the unfavourable terms of trade by Asian traders on peasants through the help of indigenous middlemen. They started the Kinakulya growers, which spread through Singo and the rest of Buganda, a bastion for Cooperatives. 

By 1970, cooperatives employed about two and half times of employees in civil service. But by the time the NRM adopted neoliberal policies in the late 1980s and early 1990s, many cooperatives were in ruin. 

Emmanuel Tumusiime-Mutebile, Governor BoU
“The proposed amendments to the Cooperatives Societies Act, on the other hand, have certain provisions that are conflicting with Tier 4 Micro-Finance Institutions and Money Lenders Act, 2016. Section 55 (a) and 55 (d), for example, list mobilisation of deposits, provisions of loans and other financial services to members as functions of savings and credit cooperatives societies.”

Jane-Amuge Okello, Uhuru Institute for Social Development.
“In our interactions with cooperatives, they are lost, UMRA sends communication to the Saccos on what should be done, on the other hand the Wazalendos [UPDF Sacco] are anticipating regulation from Bank of Uganda, at the same time supervision and regulation is coming from the Trade ministry.” 

Jane-Amuge Okello, Uhuru Institute for Social Development.
“In our interactions with cooperatives, they are lost, UMRA sends communication to the Saccos on what should be done, on the other hand the Wazalendos [UPDF Sacco] are anticipating regulation from Bank of Uganda, at the same time supervision and regulation is coming from the Trade ministry.” 

Keith Muhakanizi, Secretary to the Treasury
“Are they desirable? yes they are but they have to take a different form, first they must be well managed, nobody has ever said don’t have cooperatives, they were destroyed by inefficiencies.”

Frederick Ngobi Gume, State minister for Cooperatives
“We are trying our level best to reduce on conflict. We have intervened and we now have an amended act of 2020, which strengthens the ministry.”

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