Creating financial linkages with rural communities

Together with A Glimmer of Hope and the Agribusiness Market Ecosystem Alliance (AMEA), we are creating a tool for rural SACCOs. This will help create financial linkages with agribusinesses in the hidden middle.

A financial solution for rural households

Rural, poor households are typically excluded from formal financial sector opportunities. In fact, researchers estimate that less than 10% of poor, rural households have access to the most basic financial services. Therefore, many poor households depend on informal financial institutions and private lenders. Unfortunately, these organizations often charge high interest rates and exploit the households using them. Microfinance via Savings and Credit Cooperatives (SACCOs) plays a paramount role in income generation and poverty alleviation. These financial cooperatives reach out to areas where other formal service providers do not reach. Inclusive, rural financial services are particularly important for poor women and young people.

SACCOs are member-owned, member-managed financial cooperatives. They provide poor populations living in rural areas with small loans and low interest rates, while also helping them accumulate savings, extend credits, and access insurance services. SACCOs play a crucial role in the access to finance ecosystem.

SACCO members are simultaneously owners and users. This helps SACCOs obtain information about each member’s financial viability and encourages them to monitor each other, even at a group level.

Professional SACCOs have greater rural outreach

Ethiopia has one of the lowest levels of financial inclusion in the world, with only 22% of adults holding an account with a financial institution and just 14% able to access credit. This is because more formal financial institutions are not able to reach the rural areas. SACCOs have better outreach in rural parts, with greater potential to serve the low-income and active poor, unbanked sections of the population. This is not only the case in Ethiopia, as SACCOs play a crucial role in other African countries. 

Size and coverage of SACCOs often involve a trade-off relationship between substantial peer monitoring and financial strength. Besides the issues around the size and coverage, financial cooperatives often have weak management capacity. They are usually governed by a volunteer board of directors elected by and from the membership. They offer limited financial services and often lack timely auditing, knowledge and information on income-generating activities, and accountability for donor funds. 

No adequate tools were found to monitor and assess the performance or professionalism of SACCOs in developing countries. If such a tool were available, it could, with support, help these financial cooperatives to grow. The SACCOs could identify the gaps in their capacity and make data-driven decisions on how to improve. This would help them become efficient and effective institutions fighting against poverty. This was the impetus for the partners to work together to develop such a tool.

An approach with impact and potential

Both SCOPEinsight and A Glimmer of Hope — with the help of the Agribusiness Market Ecosystem Alliance (AMEA) — developed and piloted a tool for SACCOs in Ethiopia. The data from the SCOPE SACCO tool has helped A Glimmer of Hope provide the proper technical assistance to strengthen their service offerings to their members. As part of this project, A Glimmer of Hope assessed nine diverse SACCOs and one union in Libo Kemkem regarding their strengths and weaknesses. The assessment results then informed a list of recommendations on how to improve their professional acumen. A Glimmer of Hope used this information to design and target training and coaching plans for the cooperatives based on what they needed most. This is part of a five-year program intended to turn all the SACCOs into self-sustained financial resources for the local communities.

About the tools

While these tools are quite nascent, they hold much promise for helping to strengthen SACCOs in a data-driven way.

Are you interested in piloting the SCOPE SACCO tool? Contact us today to see how we can work together.

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