Determinants of Saving and Credit Cooperatives (SACCOs) Operational Performance in Gondar town, Ethiopia

Abstract

In recent years, the growth and expansion of saving and credit cooperatives is playing its significant contribution to poverty reduction strategy of developing countries including Ethiopia in solving the financial problem of urban and rural dwellers. The main objective of the study was to identify the determinant factors for development of SACCOs in Gondar town. The study area was selected purposively, due the presence of long established SACCOs. Using simple random sampling method, from seven case SACCOs selected for this study, 120 members were selected at probability proportionate to size. As key informants 30 SACCO officials were also considered. Structured questionnaire was used to generate primary data from sample respondents. Secondary data were collected from financial and performance report of the case SACCOs. To analyze qualitative and quantitative data descriptive statistics, correlation and World Council of Credit Union (WOCCU) financial standard tools were employed. Result of the study indicates that narrow alternate options in collateral requirement inhibits members to get loan as they require and it becomes the causes for excess accumulation of liquid asset in banks. Less attention of SACCOs for training and promotion, poor external control in auditing, limited variety of financial products and unavailability of standard financial indicators to regulate and supervise SACCOs were contributing for poor operational performance. Better formal education level of members and officials contributes to have successful operation of SACCOs for long years and minimize loan default risk. Favorable cooperative act, members trust, presence of committed management and SACCO governance contribute for good operational performance of SACCOs. The study recommended the importance of transformation mechanism of SACCOs into modern service delivery practice, financial product diversification and improving collateral system, adopting appropriate financial standards and the need for formulation of SACCOs act. These recommendations should get the attention of SACCOs, development workers and policy makers to improve the current situation. These measures will ultimately provide SACCOs not only to the advantage of members but also for the development of financial market at community level.