Challenges and prospects of saving and credit cooperatives in South Wolo Zone, Amhara Region, Ethiopia

The case of Kalu Woreda saving and credit cooperatives

Master's Thesis, 2014

86 Pages, Grade: B+







1.1. Background of the Study
1.2. Statement of the Problem
1.3. Objectives of the Study
1.3.1. General Objective
1.3.2. The Specific Objectives
1.4. Research Questions
1.5. Scope of the Study
1.6. Significance of the study
1.7. Definition of Terms and Concepts
1.8. Limitations and Problems of the Study
1.9. Organization of the Report

2.1. Introduction
2.2. Review of Theoretical Studies
2.2.1. Concept of Cooperatives in General and SACCOs in Particular
2.2.2. Cooperative Values and Principles
2.2.3. The Role of SACCOs in Poverty Alleviation
2.2.4. Theoretical Problems of Saving and Credit Cooperatives
2.2.5. Theoretical Challenges of SACCOs in Financial Transactions
2.2.6. Cooperative Movement in Ethiopia
2.2.7. The Role of SACCOs in Kalu Woreda
2.3. Review of Empirical Studies on the challenges and prospects of SACCOs
2.3.1. Empirically Observed challenges or problems of SACCOs
2.3.2. Empirical Studies Conducted on the Challenges & Prospects of SACCOs in Ethiopia Studies on Internal and External Challenges of SACCOs Studies on Challenges of Members Participation in SACCOs Challenges of SACCOs to Provide the Required Services Studies on Prospects of SACCOs
2.4. Summary of the Review of Related Literature

3.1. Description of the Study Area
3.2. Research Design and Approach
3.3. Population, Sample Size and Sampling Technique
3.3.1. Population
3.3.2. Sample size and Sampling Technique
3.4. Types and Sources of Data and Data Collection Methods
3.4.1. Types and Sources of Data
3.4.2. Data Collection Instruments
3.5. Data Collection Procedures
3.6. Method of Data Analysis
3.7. The Narrative Structure and Ethical Issues
3.8. Variables in the Study

4.1. Introduction
4.2. Demographic Characteristics of Respondents
4.2.1. Sex of the Respondents
4.2.2. Age of the Respondents
4.2.3. Family Size of the Respondents
4.2.4. Marital Status of Respondents
4.2.5. Religion of the Respondents
4.2.6. Educational Status of the Respondents
4.2.7. Occupational Status of the Respondents
4.2.8. Membership Duration in SACCOs?
4.3. Challenges and Prospects of SACCOs
4.3.1. Internal & External Challenges on the Performance of SACCOs’
4.3.2. Challenges of Members’ Participation
4.3.3. Challenges of SACCOs during Services Delivery Transparency & Accountability during service delivery Perception of Members’ Satisfaction on the Following Services Perception of Members on the loan processing and Repayment period Perception on Continuous Consultation & Training Services
4.4. Prospects of SACCOs
4.5. Support of SACCOs’ Promoters and NGOs
4.6. Interview Results about Challenges and Prospects of SACCOs
4.6.1. Interview Result about Challenges of SACCOs
4.6.2. Interview Result about the Prospects of SACCOs
4.7. Summary of the Individual Respondents and Discussion Groups

5.1. Introduction
5.2. Conclusions
5.3. Recommendations
5.4. Suggestions for Future Research




Above all, my primary thank be to the almighty God of that he is always in my side where ever I am all the time.

Especially, I would like to express my heartfelt gratitude and appreciation to my advisors Dr. Abebaw kassie and Ato Gedif Tessema without their great full support not my research effective.

My cordial gratitude has to be extended to the employees of Kalu Woreda cooperative promotion office and the selected saving and credit cooperative members for their marvelous collaboration in providing me the necessary data for the development of my research.

I am indebted to thank my family Shewanesh Abrham, Derbie Temeche, and Serkalem Temeche who gave me the necessary materials and taking responsibilities to facilitate my work. I would like to thank Solyman Shikur for his support in editing the paper. Last but not least, the acknowledgement has not been completed without mentioning the assistance of Kombolcha Agricultural College that helps me materially and Wollo University Business and Economics library attendants for their great full support in providing me most indispensable reading materials.

Thank you!!


Table 4.1: Sex of the Respondents

Table 4.2: Age of the Respondents

Table 4.3: Family Size of the Respondents

Table 4.4: Marital Status of the Respondents

Table 4.5: Religion of Respondents

Table 4.6: Educational Level of the Respondents

Table 4.7: Occupational Status of the Respondents

Table 4.8: Membership Duration

Table 4.9: The Internal & External Challenges on the Performance of SACCOs

Table 4.10: Level of Members’ participation in SACCOs

Table 4.11: Management Committees’ Transparency & Accountability during service delivery

Table 4.12: Perception of Members’ Satisfaction on the Following Services

Table 4.13: Loan processing in your SACCO is simple and easy.

Table 4.14: Your SACCO Gives Favorable Credit Period to the Members

Table 4.15: Your cooperative delivers continuous consultation & training services

Table 4.16: The Future Prospects of SACCOs

Table 4.17: Support of SACCO Promoters and NGOs


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Saving and Credit Cooperatives (SACCOs) are the main financial solution of the people who have low income level. But they have their own challenges that retard their financial solution to their members and the economical contribution to a country. In Kalu Woreda, the development of SACCOs is low due to the existence of different challenges. The research design is cross sectional descriptive research. Primary and secondary sources of data were used. Stratified systematic random probability sampling methods were employed to select the sample respondents. The collected data were analyzed by descriptive statistical methods & simple index model analysis methods. Lack of knowledge and capacity of management committees and poor members’ participation, lack of transparency and accountability, lack of appropriate support from cooperative promoters and NGOs, and non awareness of the existing opportunities by the members are the main findings. Providing member driven services, providing appropriate training, education, and information to all stakeholders, and recommending Micro Financial Institutions to give up their unfair competition with cooperatives are the possible recommendations.

Key words: challenges, prospects, saving, credit, and cooperatives.


1.1. Background of the Study

Savings and Credit Co-operatives (SACCOs) are community membership based financial institutions that are formed and owned by their members in promotion of their economic interests (Nuwagaba, 2012).

According to Owen (2007), SACCOs offer a much broader range of services to broader clientele. Deposit services offered typically include business accounts, savings accounts, and fixed deposits. SACCCOs also offer both non-financial and financial services to its members. Its non financial services are critical to the sector. These services include representation, advocacy, education and training, and business plan development and consultancy services. Its financial services include savings, credit and insurance products.

The small farmers who have limited access to commercial bank deposit and credit, other private banks and the high interest rates charged by non institutional lenders were important factors that lead governments and donors to promote alternative rural saving and credit institutions (cooperatives) in developing countries. In many countries, government support and significant donor involvement helped set up specialized agricultural financial institutions such as development banks, agricultural banks and land banks. However, the expectation that these institutions would provide easier access to smaller farmers has often not materialized. The distribution of credit by government owned or sponsored rural financial institutions have frequently been skewed in favor of the wealthier and more influential farmers. The agricultural development banks and other rural lenders, frequently failure to reach low-income producers with affordable credit have led to a search for other arrangements to achieve this objective. Saving and credit cooperatives have been ascribed the potential to reach low-income producers with affordable credit because the processing of one large loan rather than numerous small loans may allow for savings in administrative costs (Huppi and Feder, 1989).

In recent years, economists, international organizations, and governments in developing countries have placed increasing emphasis on the mobilization of deposits, not only to increase domestic savings to achieve sustained economic growth and development, but also to strengthen domestic financial intermediaries (Admass and Vogel, 1986; Besley, 1995).

Germany was the first country in the world to apply the principle of cooperation in the field of saving and credit. The cooperative saving and credit movement was started in Germany in the middle of the 19th century. At that time, the economic condition of German was extremely deplorable and the peasants and artisans felt crushed under the heavy weight of indebtedness. Jews rule over the market and the poor laborers and farmers had no way out to buy articles of their requirement from them and sell their product to them. Hence, German laborers and peasants were passing such bad time. Raiffeisen tries to reduce the suffering of the people who are living in rural areas while Schulze adopted the new measures for giving relief to the people in the urban areas (John, 1986).

SACCOs are promoted not only for money; they contribute to the promotion of total human development. SACCOs develop people's minds by providing motivation, creating initiative, promoting self-development and self-reliance and providing leadership. They also develop material well-being by raising the living standards of members, making possible regular savings and wise use of money, providing loans at low interest rate and by making possible economic emancipation of members (Dejene, 1993).

The first SACCO Society, in Africa, was introduced in Ghana in 1959. The SACCO was intended to assist villagers improve their economic conditions (Ng'ombe & Mikwamba, 2004). English speaking nations were the first to adopt SACCOs. The first entrants into SACCO community include Ghana, Uganda, Nigeria, Tanzania, and Kenya. Most of the Non-English speaking nations in Africa started appreciating SACCOs in 1960s, with major influx into SACCO community in 1970s (Mwakajumilo, 2011).

According to Sweden International Development Association (1996), Cooperative as a legal institution first came into being in Ethiopia in 1960s/1953 E.C by cooperative proclamation number 44/1961/1953E.C. The first saving and credit co-operative in Ethiopia was established in 1964 by employees of Ethiopian Airlines. During the same period, one SACCO was established by employees of the Ethiopian Road Authority and the Telecommunication Agency.

Different proclamation numbers have been provided to the National Bank of Ethiopia by the Derg regime and the current government to promote and organize saving and credit cooperatives. But the rooted problems of cooperatives are continued. Collecting and distributing available savings, credit and other services are performed traditionally. The aim of promoting these SACCOs in developing countries like Ethiopia, there are low levels of saving culture owing to poor, underdeveloped stock markets, dominance of urban based commercial banks, deposit taking institutions, and non regulated micro finance institutions in the financial markets as vehicles for savings. Hence Savings and Credit Cooperatives (SACCOs) are intended to offer an alternative to improve the above undesirable situation in low income countries especially helping members who in most cases are farmers (Dagnew, 2004).

The rural economy and the urban economy in Ethiopia are largely disconnected .While urban banks have excess liquidity, which costs them money to manage, and some rural people have opportunities requiring credit to be profitable that have low risk, there is no mechanism to bring this liquidity from urban banks to rural businesses. Saving and Credit Cooperatives (SACCOs) can be the link that will give urban banks low risk loan opportunities in rural areas and give rural businesses access to credit at costs for lower than interest rates currently charged by moneylenders. Although the Government formulated the SACCOs as a basis of poverty reduction in the rural/urban areas having low income households, they have encountered various challenges such as: shortage of funds for necessary investments in education and technological resources, building offices, knowledge in operation the SACCOs, and financing savings differs among SACCOs (Vaclav, 1977).

According to Kalu Woreda Cooperative Promotion office Report (2013), poor internal control which is a result of the system failure to prevent and detect fraud, corruption, and nepotism caused by granting loans to unworthy borrowers (members), risky investment done without making the fully required analysis, lack of members’ and management committees’ training, and lack of the decentralized financial system which can provide financial services to the SACCOs. Hence, this study tried to explore the challenges and prospects of SACCOs to introduce feasible SACCOs to Kalu Woreda SACCOs.

Kalu Woreda is found in Amhara Regional state of South Wollo Zone. There are 20 saving and credit cooperative societies and this study was conducted on such cooperatives.

1.2. Statement of the Problem

One of the most important functions of financial institutions is the provision of services such as checking and saving accounts. These accounts are the most basic financial assets that most households own and when held in insured depository institutions, provide a safe place to keep money, create opportunities to build wealth, and often serve as prerequisites for obtaining other forms of credit. Households without such transaction accounts face a number of financial disadvantages (Hudson &Williams, 1999).

Lack of awareness and poor saving culture, weak governance, policy and regulatory environment, weak institutional capacity, low capital base, and inappropriate loan security requirements were among the challenges affecting the outreach and sustainability of SACCOs (Tesfamariam, 2011).

Internally, SACCOs face poor members’ participation and the severe shortage of capital misuse by selected committees, misappropriation by leaders, poor administrative skills, and irresponsible lending to members, and limited access to banking services too long periods between audits (UN, 2011).

The challenges that SACCOs face in their development are immense such as tension exists between the growing roles & responsibilities of cooperatives in Ethiopia’s economy, weak exploitation of the existing human resource, general changes in Ethiopia’s wider socio-economic conditions, the efforts to promote cooperatives as an inclusive solution to realizing financial opportunities, and the limits on inclusiveness posed by the actual design and function of cooperatives (Spielman, 2008).

Members’ participation is the determinant factor for the sustainable growth of cooperatives. If no active member participation, there are no successful SACCOs. 78.7% of the members became a member in cooperatives forcefully by cooperative promoters. As a result, the members’ were not aware of the benefits, duties, and rights they have in the cooperative societies, largely the participation of members was weak (Mahmud, 2008).

According to Ethiopian Federal Cooperative Agency (2014), non existence of a clear cooperative law and policy package, lack of adequate capacity to lead and manage cooperatives, poor member participation, and lack of finance are the main challenges of Ethiopian cooperatives.

Based on the above research findings, the extent and the specification internal and external challenges of SACCOs are not identified. Cooperatives are built by the active participation of the members. Most of the above researchers found the members’ participation were poor. But why the members’ participate poorly was not explained. As the above studies implied that, SACCOs have faced in different challenge. But these challenges were occurred after and before the service delivery. Additionally, the existing prospects of SACCOs in Ethiopia were not identified and the members seem like they do not have used the possible prospects of the SACCOs. Having seen such factors or challenges in Kalu Woreda initiates the researcher to do this research.

With regard to Kalu Woreda SACCOs though the importance of research is undeniable, no empirical studies have been undertaken that assesses so far about the challenges they faced and about the future prospects.

On the bases of the above concept, it is possible to raise questions about the internal and external challenges constraining the performance of KWSACCOs, the challenges affecting the members’ participation in SACCOs, the problems of SACCOs to deliver the required services of SACCOs, and the members’ awareness about the possible prospects of SACCOs. For this matter, ten saving and credit cooperatives are taken as a case study area.

1.3. Objectives of the Study

1.3.1. General Objective

The general objective of the study was to find out the challenges and prospects of saving and credit cooperatives the case of Kaku Woreda, South Wollo Zone, Amhara Regional State.

1.3.2. The Specific Objectives

The specific objectives of this study were:

1. To identify the internal and external challenges of the performance of KWSACCOs,
2. To indentify the challenges affecting members’ participation in KWSACCOs,
3. To identify the challenges of SACCOs during service delivery
4. To examine the possible prospects of KWSACCOs,
5. To identify the level of challenges of SACCOs.

1.4. Research Questions

This study addresses the following questions:

1. What are the internal and external challenges constraining the performance of KWSACCOs?
2. What are the challenges affecting the participation of members in KWSACCOs?
3. What are the challenges of KWSACCOs during service?
4. What are the possible prospects of KWSACCOs?
5. Up to what extent the challenges affect the performance of SACCOs?

1.5. Scope of the Study

This study took place in saving and credit Cooperatives of Kalu Woreda, South Wollo Zone of Amhara Regional State. It investigated the challenges and prospects of SACCOs by using ten SACCOs. The study focused on identifying the internal and external challenges of the performance of KWSACCOs, assessing the challenges affecting members’ participation in KWSACCOs, identifying the challenges of SACCOs during service delivery, and examining the possible prospects of KWSACCOs.

1.6. Significance of the study

The study pointed out some of the challenges of SACCOs faced in Ethiopia and the untapped potential and opportunities waiting. Besides, the study will be expected to serve: as a source of further study in the similar sectors; Government policies and strategies, perception of the community towards cooperatives, NGOs and government intervention and interference, all had significant contribution in enhancing and/or retarding the movement of cooperatives for the last three decades. Hence, it was too difficult to conclude that the stakeholders had proper understanding on the values and principles of cooperation to coordinate their efforts. Thus, the study is hoped to help policy makers and implementers understand issues related to cooperatives development, values, principles and their challenges as well. It may also be helpful for Kalu Woreda SACCOs to take corrective measures like awareness creation about their cooperatives and improve the performance of the management committees through education, training, and information so as to overcome the challenges constraining their performance and to make members aware about the possible prospects.

1.7. Definition of Terms and Concepts

For the purpose of conducting this research, the researcher defines the terms and concepts in the following way:

Saving: means the accumulation of money regularly or irregularly by the members of saving and credit cooperative societies to secure or to gain interest rate or both. Saving can be defined simply as holding something back from today’s consumption.

Credit: means the taking of money from SACCOS for consumption or investment based on the saving amount of the saver to repay after a long period of time or after a short period of time.

Cooperatives: are the cooperative Societies who are eligible and be organized in saving and credit form of cooperative societies to achieve their common objectives under the federal cooperative society’s proclamation. No 147/98.

Saving and credit cooperative societies are different from other micro finance enterprises. In SACCOS, the members should save first to get a credit but in micro finance the customers should take the credit and then they can save.

Management committees: are the committees who are elected by the members from the members Financial institution: is an institution that provides financial services for SACCOs members.

Challenges: are the hindrance factors that limits the expected services of SACCOs Prospects: the opportunities, chances, expectations etc… that are helping success of SACCOs.

1.8. Limitations and Problems of the Study

Every study may have a drawback in one way or the other. Similarly, there were some challenges and problems facing to do this study. Sufficient documents concerning to the subject under this study like researches conducted on the challenges and prospects of SACCOs were lacking. Most of the documents that are concerned with SACCOs are written in Amharic. To translate in to the required instruction language (English) takes longer period. Another problem encountered in the study was to get the permission of the office to gather the required data and the reluctance of the respondents to return the questionnaire. It is very important to note that these limitations did not have any significant interference with the outcome of the study. In order to avoid such inconveniences, the researcher got one month permission from the office and used all leisure time to collect the data. For enhancing the return rate of the questionnaires, the researcher also used data collectors or informants who have the knowhow of the research questionnaire.

1.9. Organization of the Report

The thesis has five chapters. The first chapter deals with the introduction which includes: back ground of the study, statement of the problem, objectives of the study, research questions, Scope of the study, significance of the study, definition of terms and concepts, limitation of the study, and organization of the study. In the second chapter theoretical and empirical researches are presented through reviewing related literature. The third chapter is the methodology part which assesses the study design, population of the study, data collection methods and procedures, data analysis methods, variables of the study. The fourth chapter is about data analysis part which shows the result and interpretation of the questionnaires collected. The fifth and the last chapter presented the conclusions and recommendations of the paper.


2.1. Introduction

Saving and credit cooperatives are user owned financial intermediaries. They have many names around the world, including credit unions, SACCOs, COOPECs etc. Members typically share a “common bond” based on a geographic area, employer, community, or other affiliation. Members have equal voting rights, regardless of how many shares they own. Saving and credit cooperatives are their principal services although many offer money transfers, payment services, and insurance as well. Sometimes savings and credit cooperatives join together to form second tier associations for the purposes of building capacity, liquidity management, and refinancing. Second-tier associations also play a useful monitoring role (CGAP, 2005).

This chapter presents what other researchers and writers have written about how small saving and Credit cooperatives have contributed to rural, financial accessibility, development, and the relationship between saving and credit cooperatives and financial accessibility.

2.2. Review of Theoretical Studies

In this part of the research it is discussed the issues of saving and credit cooperatives from the theoretical literatures.

2.2.1. Concept of Cooperatives in General and SACCOs in Particular

According to Bharadwaj (2012), Cooperative was founded from Latin word “co-operari” where ‘co’ means together and ‘operari’ means working together. Working together for member is the initial concept of cooperatives. The Cooperative is a member centered business.

According to Getachew Mergia Tache (2006), SACCOs or Credit Unions have been developed to meet the fundamental human need to find a way of saving and borrowing methods without taking risks and without handing over too much power to a moneylender. They were invented in south Germany in 1846 at the time of agricultural crisis and continues heavy drought in Europe, by two community business leaders: Freidrich W. Reifeisen and Herman schultze- Delitsche, who are considered as the founding fathers of the saving and credit cooperatives (SACCO) movement: Herman schultze Delitsche, who established a saving and credit cooperatives for minor artisans and the urban middle classes, and Freidrich Reifeisen, the founder of the rural saving and credit cooperatives. In Italy, Luigi Luzzatti established saving and credit cooperatives, which combined the principles established by his two German predecessors. Both forms spread rapidly all over Europe, northern America, Latin America, and Asia from 1900 to 1930 and to Ghana by one Catholic Bishop. Today SACCO societies have significant role in empowering their members Socio-Economic Status all over the world. The International Cooperative Alliance (ICA) (1995) defines a cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise”. The two fundamental function of a SACCO Society are financial intermediation and investment.

As ICA (1995), the most basic function of SACCO Society is financial intermediation. That is bringing savers and borrowers together in a system that enables them to pool their money as savings and shares, and after capturing funds transforming into loans by calculating all of the costs of doing this business to make profitable/useful to both parties (the SACCO Societies and its members). SACCO Societies as financial institutions can raise their funds internally (self-financing) and externally (outside financing). However, SACCO Societies are basically advised to finance themselves internally from members Savings, share mobilization and retained earnings, to avoid interference of decision on SACCO issue by fund owners, to be self secured and sustainable in the future.

Cooperative principles are guidelines by which cooperatives put their values into practice. According to Baarda (2006), cooperative principles are fundamental and immutable doctrine or tenet that defines and identifies distinctive characteristics of the cooperative organization. They are the settled rules of action and are identified as the coordinates that go to make a cooperative society and as such are indispensable. They were evolved out of experiments and practices, and represent the cooperative’s philosophy, evolved by Rocha dale Pioneers, improved and embellished by movement and are recognized by the ICA congress.

According to ICA (1995) the seven internationally recognized cooperative principles are: voluntary and open membership; democratic member control; member economic participation; autonomy and independence; provision of education, training and information; cooperation among cooperatives; and concern for the community.

That means cooperatives are organizations for mutual benefit, where members own, control and benefit from the co-operational output. The objective is to first and foremost serve members’ interests, rather than that of capital invested and to adopt democratic control for socio-economic output, to make distinctions between cooperatives and other forms of business. Cooperatives are based around the concepts of self-help, self-responsibility and self-organization (Cooperative Futures, 2006).

Cooperative is community based business. The basic characteristics of cooperative that differentiate it from other type of business are its principle, values and norms. This basically orients general business toward community focused, member centered, democratically controlled and voting right assigned in membership rather than staking of shares (Birchall, 2003).

Laidlaw (1974) examines the difference between cooperatives and other businesses in relation to three main groups of people responsible for bringing them into existence and keeping them in operation. The three groups are: the persons who own them (the shareholders, the investors), the persons who control them (the effective decision makers) and the persons who use them (the customers). According to him, in typical capitalist business, especially large enterprise and multinational corporations, these three are separate and distinct groups. In small private business the situation is generally much better because of the close connection between shareholders (investors) and control. In a small retail business, for example, the first two components are often identical. But still the users, the customers, are a separate group. In a cooperative, all three are coming together to form a unity; those who own, those who control, and those who use are one.

Cooperative touches no man’s fortune, it seeks no plunder, it causes no disturbance in the society, it contemplates no violence, it subverts no order, it envies no dignity, and it asks no favor, it keeps no terms with the industrious. It means, self-help, self dependence, and such share of the competence as labor, skill or thought can win and this it intends to have (ILO, 1997).

Primitive concept of cooperative is related with religious, cultural, and political conditions. It is not formal. But the modern concept of cooperative is related to special way of doing business. It is formal (ICA, 1992)

Development International Desjardins (2005), asserts that the fundamentals objectives of cooperative is to maximize “user” benefits to all members of the certain cooperatives according to their laid down principles and not to maximize profits as the case for profit making organizations.

Savings and Credit Cooperative Society (SACCOS) is one type of cooperative societies with the principal objective of accumulating savings and create a source of credit to its members at a fair and reasonable rate of interest (URT, 2004).

The saving and credit cooperative are considered as semi-formal financial institutions, which are not regulated and supervised by NBE. The informal financial system includes Equib, Eddir, and others, which are not regulated (NBE annual report, 2009).

Credit: The terms loan and credit are used interchangeably. The study adopts the credit definition of credit as an arrangement in which a lender gives money to a borrower, and the borrower agrees to repay the money, usually along with interest, at some future in time (Aryeetey, 1995).

Saving: A Savings is a program designed to encourage savings through small but regular deposits or automatic deduction from salaries or wages. Savings and credit scheme aims at poverty alleviation to the poor and law income families (Peace, 2011).

Savings and credit cooperatives are becoming a beacon of hope to the developing countries. These institutions grant loans to members at reasonable rates of interest in times of need. The lent money helps entrepreneurs in impoverished societies to start essential businesses in their communities (Guilford, 2007).

2.2.2. Cooperative Values and Principles

According to the ICA statement on the cooperative identity (1995, cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others. Cooperative principles are guidelines by which cooperatives put their values into practice.

According to Baarda (2006), cooperative principles are fundamental and immutable doctrine or tenet that defines and identifies distinctive characteristics of the cooperative organization.

They are the settled rules of action and are identified as the coordinates that go to make a cooperative society and as such are indispensable. They were evolved out of experiments and practices, and represent the cooperative’s philosophy, evolved by Rochadale Pioneers, improved and embellished by movement and are recognized by the ICA congress.

Cooperatives operate under seven principles which are formulated by the ICA in 1995:

1st Principle: Voluntary and Open Membership

Cooperatives are voluntary organization open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2nd Principle: Democratic Member Control

Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperative members have equal voting rights (one member one vote) and cooperatives of other levels are also organized in a democratic manner.

3rd Principle: Member Economic Participation

Members contribute equitably, and democratically control, the capital of their cooperative. At least part of that capital is usually receiving limited compensation, if any and capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative possibly by setting up reserve, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.

4th Principle: Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that endure democratic control by their members and maintain their cooperative autonomy.

5th Principle: Education, Training and Information

Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute to the development of their cooperatives. They inform the general public particularly young people and opinion leaders about the nature and benefits of cooperation.

6th Principle: Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

7th Principle: Concern for the Community

Cooperatives work for the sustainable development of their communities through policies approved by their members.

2.2.3. The Role of SACCOs in Poverty Alleviation

7 July 2001, has just marked at the 7th UN International Day of Cooperative and 79th ICA international day. It is estimated that there are now over 760 million individuals who have chosen the cooperative advantages. Values, principles, ethics, and business competence constitute the cooperative advantages both for member and forth e community in which they operate. Since cooperatives are member owned and member controlled under democratic principles, they certainly put people first. In many countries, cooperatives are in for front in the production and marketing of food staffs, electricity, and consumer goods as well as financial insurance and social services. Both directly and indirectly cooperatives help both member and employees to escape from poverty or to protect those of them who may be facing the risk of poverty (Imoisili, 2001).

According to Burt (1997), the benefit that cooperatives provide can be direct or indirect. Direct benefits may include better assurance of supply and access to markets, both of which can directly increase a business net income. The indirect benefit may include a great influence on input and output markets, improved qualities, better services, increased business knowledge and participation in research and development. The cooperatives can increase members’ return in many ways such ways are, reducing cost and pricing.

Moreover, as ICA (1997), state the role of cooperative is to provide greater benefit to the members such as: increasing individual income or enhancing a member’s way of living by providing important needed services. The cooperative may be a vehicle to obtain improved market or providing source of supply or other services, otherwise unavailable if members act alone.

2.2.4. Theoretical Problems of Saving and Credit Cooperatives

The cooperative movement in the country faced a number of problems in the different economic systems of the country. Most of the cooperatives don’t have professional managers due to two reasons. The viability of the cooperative is not always ensured due to low organization, technical supports and follows up by the concerned bodies. The ever changing structure of the cooperative bodies at federal, regional and Woreda level highly affected the smooth development of cooperative societies in the country. Lack of long term credit hinders the investment of cooperatives in different projects that would have economic benefit to members. The members’ economic and /or financial power to strengthen their cooperative society is very weak. So cooperatives are suffering in shortage of capital .The infrastructure problem (road, transportation, bank, etc) in the rural Ethiopia hinders the provision of inputs, consumer goods and marketing of members produce by cooperative societies to member patrons. Lack of timely, accurate and reliable market information adds to the problem. To conclude, the government of Ethiopia had already paved the way for better cooperative development in the country through creating legal basis and expansion of human resource development at higher institution level .Therefore, it is high time to the cooperative bureaus, cooperative experts, higher institutions, and cooperative staff to maximize the existing policy environment to the advantage of cooperative development so that members will benefit from it and cooperatives can contribute to the social and economic development of the nation (Veerakumaran,2007).

2.2.5. Theoretical Challenges of SACCOs in Financial Transactions

Even though ample studies have been conducted regarding to the challenges and prospects of other financial institutions, many studies have not been conducted regarding to the challenges of SACCOs. Some researchers have tried to show the challenges SACCOs as follow:

Both financial institutions and poor clients face high transaction costs due to asymmetric information problems which naturally appear in the financial transactions. These costs related to searching, monitoring and enforcement costs which are directly related to the information problems inherent in the rural financial markets. The uncertainty regarding the ability of borrowers to meet future loan obligations, inability to monitor the use of funds and demand for small sum of loans by the rural households further reinforces the higher units of transaction costs, which is characterized by fixed costs (Dusuki, 2008).


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Challenges and prospects of saving and credit cooperatives in South Wolo Zone, Amhara Region, Ethiopia
The case of Kalu Woreda saving and credit cooperatives
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challenges, south, wolo, zone, amhara, region, ethiopia, kalu, woreda
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Ergetew Temeche (Author), 2014, Challenges and prospects of saving and credit cooperatives in South Wolo Zone, Amhara Region, Ethiopia, Munich, GRIN Verlag,


  • guest on 1/17/2017

    Really helpful . Great work, Sir .

  • guest on 11/24/2015

    Ergetew, I really appreciate your work and keep it up. Soon you will get my new version of comprehensive guide book on saving and credit cooperatives promotion and management published on online.

  • guest on 7/19/2015

    very helpful ...

  • Ergetew Temeche on 11/21/2014

    It is nice and a marketable publishing procedure. Be proceed.

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