The Impact of Rural Savings and Credit Cooperatives in Ofla Woreda, Tigray Region, Ethiopia

Abstract

Savings and Credit Cooperatives (SACCO) provide the capital to improve the income of the farm and non farm sector. Still most of the poorest do not have access to the formal financial institutions in Ethiopia and they depend on informal sources for their credit needs. SACCO are evolving as promising intermediaries to enable the poor link with the formal financial institutions. Promotion of SACCO brings in vibrancy to the local economy as it unfolds business opportunities to the poor and marginalized farmers and enables them to come out of poverty. The present study primarily addresses the impact of RUSACCO on the business, income, family living conditions and empowerment in the study area. The objectives of the study are: 1) To study the functions and activities of RUSACCO in Ofla woreda, 2) To assess the factors influencing socio–economic changes by RUSACCO, 3) To explore the impact of SACCOs on socio–economic changes and 4) To suggest measures for improving the functions of RUSACCO in Ofla woreda, Tigray. The study is based on primary and secondary data. The plausible conditions to select Ofla woreda as the area of the study are: most of well established RUSACCOs are found in Ofla woreda (16 RUSACCOs); relatively in these woreda, books of accounting system are at good status; most of the cooperatives in this area have operated more than three years and the woreda is predominantly agricultural area. The study has adopted random sampling procedure for the selection of the members. The data analysis employed various statistical tools like correlation and regression. Tables and pie-chart were used to interpret the data. The correlation analysis reveals that the independent variables seniority at the SACCO, savings, size of loan and number of times loan availed have significant positive correlation with post– income of the respondents. Similarly, there is significant and positive correlation between seniority at the SACCO, size of loan and number of times loan availed and profit from economic activities, while the variable savings has significant negative correlation with the profit. The regression analysis reveals that the independent variables such as savings and number of times SACCO loan availed have significant positive relationship with the post–SACCO income, while the variables education and seniority at SACCO have significant negative relationship with the post–SACCO income, contrary to what was expected. Rigid lending system, high interest on loan etc. were perceived as problems of SACCOs. Recommendations are furnished for the problems faced by the respondents in the study area. Diversified lending system, training, member education, increasing the amount of credit, extending the repayment period and relaxing the collateral security needs have been suggested to improve their income, business, living conditions and empowerment (women) of the members. Concerted efforts are needed to organize seminars and campaigns to create awareness about SACCO. Cooperative Extension Work is to be promoted to persuade the non-members to join SACCO. The study also points out to the need of more number of SACCOs. The officials suggested that since most of the currently assigned cooperative organizers /personnel/are new to the sector, measures must be undertaken to improve their qualifications. The training has to be accompanied by career development schemes so as to increase their motivation. The staff should undergo practical on the job training in cooperatives so as to be acquainted with the day-to-day problems of cooperatives.The implementation of the above suggestions will lead to strengthening of the RUSACCO movement, which will unfold the prosperity to the poor members and empowerment of the women.