The implications of the New SACCO Act on the Governance, Safety and Soundness of SACCOs in Uganda
Part 1: Introduction
The SACCO Movement in Uganda under the Proposed SACCO Act
Savings and Credit Co-operatives (SACCOs) history in this country dates back to the early 1950s or there about. In 1972; SACCOs came together and formed a union (the Uganda Co-operative Savings and Credit Union Limited-UCSCU) that would represent their interests both to the Government of Uganda donors and also to the international cooperative fraternity. All these years, SACCOs have grudgingly operated under the cooperative societies act and then statute.
In 1997, an initiative was taken by the members of UCSCU after management had floated the idea of a separate law to regulate SACCOs. This came about after a realization that the law (the Co-operative Societies Statute) had a lot of inadequacies which were stifling the development of efficient and effective SACCOs able to compete under a liberalized economy that started in the early 1990s. A draft bill was prepared and forwarded both to the Registrar of cooperative societies and also to the Ministry of Finance. Changes in management and disinterest on the matter that followed after 1999 must have slowed the process dramatically. There was of course opposition from certain quarters of the rest of the Cooperative movement and the bureaucracy related to it and these could have contributed to the slowing of this process. There were murmurs about UCSCU initiating the break up of the cooperative movement, murmurs which may now be adequately addressed by the proposed SACCO Act in case the reasons for those murmurs were at all well founded.
However, the realization by the government of Uganda of the important role effective SACCOs can play in the deepening of financial services has totally changed the environment. The Ministry of Finance has since stepped in and intends to regulate the operations of SACCOs. UCSCU management was asked to contribute to this effort. Since UCSCU had already developed such a draft and in any case spent sizeable amounts on the exercise it was prudent that they would not have to go over the costly exercise once more and as such reviewed and submitted the said draft which has formed the basis for the work in progress on the proposed SACCO Act. I have to be careful and make it clear that the work on the said draft involved a cross section of people but most importantly SACCO leaders and some of the members. The ideas in the proposed SACCO Act are therefore not an imposition from above but carefully thought through ideas which members felt at the time were relevant and could contribute significantly to setting a new direction for the sector.
When this Act becomes law, it will be repealing “The Co-operative Societies Statute, 1991”. For the SACCO movement this has long been in coming. But what are the implications of this Act on the SACCO movement in this country. For any body with experience in cooperatives and SACCO operations in particular it is easy to appreciate the positive changes the new law will bring to SACCO businesses in general and SACCO members in particular. This paper attempts to highlight some of those changes.
Part 2: General
2.1 Definition
The proposed Act defines a savings and credit co-operative society (SACCO) as “a co-operative financial organization owned, used, and controlled by its members, according to democratic principles for the purpose of encouraging savings, using pooled funds to make loans to members at reasonable rates of interest, and providing related financial services to enable members to improve their economic and social condition”. In using this definition, the proposed Act clearly gives due recognition of the international credit union (SACCO) principles and sets forth that only organizations aspiring to those principles will be registered as SACCOs.
The proposed Act also defines the National Association of SACCOs; the Uganda Co-operative Savings and Credit Union Limited (UCSCU Ltd.) and its role as being that of promoting SACCO development and representing their interest locally and internationally.
The proposed SACCO Act also clearly delineates SACCOs from other financial institutions; SACCOs have as their objective “the promotion of the welfare and economic interests of their members”.
2.2 Registration
Legal recognition of any SACCO as an artificial person with rights and obligations is granted by way of registration. In contrast with the previous practice where this function was undertaken under the "The Co-operative Societies Statute, 1991" the proposed Act introduces a SACCO Regulatory Authority (SRA) whose functions will be to:
a. register, regulate, supervise, and license SACCOs including the Savings and Credit
Co-operative Unions,
b. set standards and formulate procedures for SACCOs and unions and enforce the implementation of the Act and regulations made under the Act
c. promoting the development of SACCOs
d. do all such other things as may be lawfully directed by the Minister.
The proposed Act also specifies who will be on the Board of Directors of the SRA. This will be the Permanent Secretary to the Treasury or his designate, the Commissioner for Microfinance or his designate, the Governor Bank of Uganda or his designate, four members (not public officers) with years of co-operative practice and management, business law, financial and economic or any other relevant field.
Under the 1991 Co-operative Societies Statute, the registration and regulation functions have hitherto been carried out by the Registrar of Co-operative Societies as outlined in Part 1 of that Statute section 1 to 11.
2.3 Minimum requirements a SACCO has to meet for it to be registered:
According to Münkner¹ there are two principle ways a registering authority can grant registration to a co-operative society. This can be done using either a system of normative conditions, or a system of concession. In a system of Normative Conditions, the lawmakers determine certain well defined minimum requirements for registration in the Cooperative Societies Act. Once those conditions are met, and the registering authority verifies that this is so then the applicants have a right to be registered. If the registering authority fails or refuses to register the society, the applicants can exercise their right by taking him to court.
In the System of Concession, the registering authority is empowered to decide at its own discretion whether or not to register a society despite the fact that the lawmakers have laid down certain minimum requirements for registration. Grounds for refusal could be that the registering society does not meet government policy, or that a similar society exists in the area or because it is considered undesirable to form such society.
The proposed SACCO act applies the system of Normative Conditions. Once the SACCO meets the conditions set out in the Act, then the SRA is under obligation to register it.
For a primary SACCO the proposed Act requires that a SACCO seeking registration must have a minimum of thirty persons all of whom have to be qualified for membership and are of legal age. There is no departure from the Co-operative Societies Statute in this regard.
In case of a secondary SACCO, the proposed Act requires that two or more registered primary SACCOs can come together and form a SACCO union. This is still so even in the Statute.
The proposed Act outlines the procedure a SACCO has to follow in the registration process. A SACCO has to submit an application in the prescribed form (this will normally be obtainable at the SRA), founding members have to execute an application for the said registration, file their bylaws with the SRA, clearly spell out the name of their SACCO, location of its head office of business and the names and addresses of the founding members and last but not least the members have to elect an interim board of directors as well as a Supervisory Committee. While the procedure remains the same in intent and purpose as has been hitherto in the Statute, the proposed SACCO Act recognizes the importance of a Supervisory Committee and makes it one of the requirements a SACCO must fulfill for it to be registered. This is a new and very important development in the movement. The importance of a Supervisory Committee was hitherto not taken seriously under the Statute and has hitherto been only provided for in the SACCO bylaws in spite of the important role this committee plays in ensuring compliance. This is an important development which will help promote good governance in and regulatory compliance in all SACCO operations.
Finally it is also important to note that the proposed Act just as was the case with the Co-operative Societies Statute will maintain the member friendly way SACCOs can be formed. This is reflected in the way the Act makes it simple and uncomplicated to start a SACCO, the minimum emphasis on initial capital and low administrative costs by eliminating unnecessary legal paper work that would require the services of lawyers.
Summary: Good governance, soundness and safety issues identified:
This section of the Act provides for the rights, responsibilities and obligations of SACCOs. SACCOs can only operate as such when they are properly registered by the SRA. They must have structures/organs created to run the day to day affairs of the SACCO on behalf of the members. All registered SACCOs are expected to run their operations in conformity with the provisions in the SACCO Act, Regulations, By Laws and Policies governing the SACCO. The provision introducing the supervisory committee as one of the organs brings into being a very important internal check mechanism that ensures that the SACCO is operated in conformity with the SACCO Act, Regulations, by laws and SACCO policy. The supervisory committee is there to oversee the financial safety and security of the SACCO. It is a step towards self assessment from within the SACCO and by the members themselves.
1. Hans H. Muenkner: Six Lectures on cooperative law, Marburg, 1977
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