Background to 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. Globally, new cooperatives can be prone to a number of unique business problems. The
primary goal of new cooperatives is to help address the economic problems of members or seize
new opportunities. If these problems are due to overall weaknesses in the industry that members
operate in, the new cooperative may begin its life in a more hostile economic environment than
other firms that have the luxury of choosing their markets. The new cooperative can have little or
no choice of products or services to offer; the primary focus is on the well-being of members.
This can be particularly challenging when these products or services offer little or no growth
opportunity and thin profit margins

The aim of promoting these SACCOs is because in developing countries like Uganda, there are
low levels of saving culture owing to poor underdeveloped stock markets, dominance of urban
based commercial banks, Micro Deposit Taking Institutions (MDIs) 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 un- desirable
situation in low income countries especially helping members who in most cases are farmers.
Therefore, Savings and Credit Co-Operatives (SACCOs), one of the several types of co-
operatives are unique, legal, member-based Micro-Finance Institutions (MFIs) and unlike many
other Micro-Finance Institutions, SACCO owners are also the users of the service that the
SACCOs offer.

When discussing the failure of cooperatives in Africa and elsewhere, one needs to put some
lights on the issue. There exist practitioners who pretend that the reason for failure of
cooperatives in the African context is the inherent disequilibrium in their annual balance sheet,
between the financial equities and reserves ( shares, savings, and non-divided earnings ), and
their capital ( loans demand and cash ). In short, the lack of financial resources needed to their
functioning.
SACCOs in Uganda mobilize and intermediate savings exclusively with in their membership
under the co-operative statute1991. Furthermore, they are one of the several types of
cooperatives that are unique micro finance institutions categorized under tier four in the financial
market and therefore not regulated by Bank of Uganda.

There is growing urge by farmers to form Savings Credit and Cooperative Societies (SACCOs)
in Uganda and Wakiso District is no exception. There are over 100 registered SACCOs (District
Commercial officer- Wakiso District). Majority of the members of these cooperative societies
are farmers who have savings and in most cases do not have collateral to stake in commercial
banks and other financial institutions to access Loans. The paper seeks to discuss the contribution
of SACCOs as a source of financing agriculture, challenges faced by the SACCOs, lessons learnt
and the way forward.

Problem statement

Although the government of Uganda through the Cooperatives inspectorate has initiated programs to
encourage youth to save especially the rural folk. Many youths in Wakiso district are inclined
toward saving despite the countrys low formal savings rate. The vast majority make at least some
effort to set aside money, often hiding it in mattresses or burying it in the garden. The public awareness
campaign has shown that rural residents can be motivated to move their savings into the formal sector.
Saving is the best method for meeting daily needs and achieving future goals. Poor infrastructure.
Both social and physical infrastructures are lacking or poor. Since cooperatives tend to be
undercapitalized because the primary source of equity is members, and youths may not be in a
financial position to invest the necessary capital. A lack of capital may translate into inadequate
development therefore it is against this background that the researcher decided to conduct the
study
 Objectives

To establish the contribution SACCOs on the development of the youth

To determine the strategies used by SACCOs to fight poverty among youths

To examine the challenges faced by SACCOs in youth development

Conceptual framework

INDEPENDENT VARIABLE DEPENDENT VARIABLE

SACCOs Youth development

- Loans - Employment
- Saving mobilization - Social well being
- Financial advice (investment - Wealth accumulation
advice)
 INTERVENING VARIABLE

- Poverty
- Government policies
- Entrepreneurship skills
- Education

Source; (NDP report, 2014)

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter contains a discussion of the literature specific to the research topic and research
objectives and questions. The literature from the developed world, Africa, Uganda is reviewed.
The chapter discusses the statements made about SACCOs and women in terms of impact and
benefits and importance.

2.1. Theoretical Literature Review

SACCOs as defined by (Asiama & Osei, 2007), encompasses the provision of financial services
and the management of small amounts of money through a range of products and a system of
intermediary functions that are targeted at low income clients through the provision of small
loans and other facilities like savings, insurance, transfer services to poor low-income household
and micro enterprises. Schreiner (2001) support this view by defining SACCOs as the attempt
to improve access to small deposits and small loans for poor households neglected by banks.

Therefore, SACCOs involves the provision of financial services such as savings, loans and
insurance to poor people living in both urban and rural settings who are unable to obtain such
services from the formal financial sector. Related concepts to SACCOs are micro savings; micro
insurance and SACCOs. They are briefly explained in the subsequent paragraph.

A sustainable livelihood is that which can cope with and recover from stresses and shocks and
maintain or enhance its capabilities and assets both now and in the future, while not undermining
the natural resource base. Access to capital is one of the determinants of a households ability to
achieve well being, defined broadly to include natural, physical, financial, human and social
capital (Barry et al., 1996).

Sustainable livelihood framework

Sustainable livelihood framework is a holistic, asset-based framework for understanding poverty

and the working of rural poverty reduction. It also points out the need to building the assets of
individuals and households. Moreover, this asset-access activities framework is iterative and is a
process unfolding over time for individuals, households, and communities (Simon et al., 200).

Asset Resources: Assets are resources owned, controlled, and claimed to access by the individual
and the household who needed to cope with stresses and shocks, and to maintain and enhance
capabilities now and in the future (Ellis, 2000). Resource assets can be natural, physical,
financial, and social and human that contribute to a sustainable livelihood are interdependent
(Lipton pers. Comm. cited in Scoones, 1998).

Natural capital comprises the land, water, and biological resources that are utilized by people to
generate means of survival. Whereas physical capital is produced goods comprising building,
irrigation canals, roads, power lines, water supplies, tools, machines, technologies and housing
that are created by economic production processes. Financial capital refers to stock of money to
which the household has access. It is chiefly likely to be cash, savings, and access to credit in the
form of loans. Further, human capital is demographic such as gender structures, the body of
education, skills, knowledge, ability to and good health and physical capability important for the
successful pursuit of different livelihood strategies. So, human capital refers to the available to
the household; its education, skills and health that is enhanced by investment in education,
training and pursuing one or more occupations (Scoones, et al., 2001). Social capital is the social
resources (social networks, social claims, social relations, affiliations, associations more
generally; and consensual norms and relationships of legitimate authority) upon which people
draw when pursuing different livelihood strategies (Scoones, 1998: Ellis, 2000; Stephen and
Simon, 2001).

2.2. SACCOs and its role in development of the youth

SACCOs has a very important role to play in development according to proponents of youth
unemployement. UNCDF (2004) states that studies have shown that SACCOs plays three key
roles in development.

- It helps farm households meet basic needs and protects against risks,

- It is associated with improvements in household economic welfare,

- It helps to empower women by supporting womens economic participation and so promotes

gender equity.

Otero (1999) illustrates the various ways in which SACCOs, at its core combats poverty. She
states that SACCOs creates access to productive capital for the poor, which together with human
capital, addressed through education and training, and social capital, achieved through local
organization building, enables people to move out of poverty.

The aim of SACCOs according to Otero (1999) is not just about providing capital to the poor to
combat poverty on an individual level, it also has a role at an institutional level. It seeks to create
institutions that deliver financial services to the poor, who are continuously ignored by the
formal banking sector. Littlefield and Rosenberg (2004) state that the poor are generally
excluded from the financial services sector of the economy. So, SACCOs have emerged to
address this market failure. By addressing this gap in the market in a financially sustainable
manner, SACCOs can help households to access capital markets to fund their lending portfolios,
allowing them to dramatically increase their income.

Brownstein, Fleck, Shetty, Sorensen, and Vadgama (2007) mentioned that micro finance is a
good tool for poverty alleviation but it is not a magic to solve the problem of poverty in a night.
In Sub-Sahara Africa micro finance is performing well but cannot solve the problem of poverty
because the problem is big and the weapon is very simple and lose. Micro finance should be
given more support to yield some fruitful results. Currently we have demonstrated there is need
for greater awareness, greater coordination, additional aid, and technological improvements for
increased efficiency. Significant increases in micro financing is a critical first step in
accelerating Sub-Saharan Africas progress towards the Millennium Development Goals, but
micro financing is only one pillar in the systemic approach needed to reduce poverty and hunger
in the region. SACCOs can serve as a catalyst that enhances other programs and lifts the region
out of impoverishment. The concept of micro finance is simple and allows people to determine
their own future, to identify exactly how to prosper, and they will do it.

Siddiqi (2008) mentioned that in Pakistan micro finance is not clear till now that whether this has
a positive role or negative role. Obviously the role of micro finance should go for the positive
side but due to some hurdle and lack of performance the role of micro finance is not so
profitable. The first hurdle is the interest rate. SACCOs charge a high interest rate. The second
hurdle which put a black spot is the interest (Riba) itself. Our society is an Islamic society and
most of the peoples have an Islamic mind setup. In Islam Riba is not allowed therefore they
hesitate in getting micro loans from the banks. The third hurdle is the empowerment of women
because the woman clients are abused by the male relatives for getting loans. Islamic micro
finance (akhawat) is much better then conventional micro finance because work according to the
needs of the poor peoples not merely profit generation while conventional micro finance work
for profit generation instead for helping the poor.
Ali & Alam (2010) concluded that SACCOs is the most important resource to provide loans and
other basic financial services to increase the employment rate, productivity and earning capacity.
It will impact the peoples lives through removing poverty, improving living standards, such as
health, education, food and other social impacts. The SACCOs sector is developed day by day in
Pakistan. Most of the population of Pakistan is based on the rural area, where people live below
the poverty line. The need for micro credit is higher in the rural area than urban area. The large
numbers of SACCOs borrowers show the market opportunity and need in Pakistan. Study
showed that high interest rates on micro credit are one of the problems faced by the SACCOs
sector. But poor people still favor and want micro credit because they dont have access to the
commercial loans, which are collateralized loans. These poor people are very hard working and
may have innovative ideas about business but they dont have opportunity. That is why they take
micro loans on high interest rate and often they get success in their business and repayment of
these loans.

Tenaw & Islam (2009) mentioned that micro finance has vital role in improving and maintaining
livelihoods of rural people in Bangladesh and Ethiopia. The financial system that was originated
by the local population proved useful tool in promoting self help and independency. The main
draw back of this local originated financial system was that the rules and regulation was in the
hand of originator. The main sector of income in Bangladesh and Ethiopia is agriculture but poor
technology, dependent on unreliable climate, poor infrastructure, small and fragile market creates
hurdle in the development of this sector. Micro finance is the only method through which these
hurdle can be overcome. When agriculture sector become stable in these countries, poverty will
be eliminated automatically. So for poverty alleviation agriculture sector is the founder
stone and for agriculture sector development micro finance is must.

Abiola & Salami (2011) in his study mentioned that a lot of literature is present on the positive
role of micro finance in poverty alleviation, but every time and everywhere, micro finance is not
so profitable. Many scholars wrote that micro finance is a good tool for poverty alleviation but in
many occasion the result is opposite. The main reason behind the negative effect of the micro
finance on poverty alleviation is due to the time shortage. The time is not enough for generating
the income i.e. the shortness do not give room for loan to generate future income. The researcher
mentioned that at the repayment time the loan taker is not in the position to repay the loan, if he
so his business will collapse. He shows through the respondents that before the end of the loan
the business would have almost collapsed. At the time of repayment he is almost in the middle of
the business process. If he pays he has to close the business because the business is not in the
position to continue any more. This put an extra pressure on the client. The client lost his time as
well as some money in his business.

2.3 The role of SACCOs on poverty reduction

Dichter (1999), states that SACCOs is a tool for poverty reduction and while arguing that the
record of SACCOs is generally well below expectation he concedes that some positive impacts
do take place. From a study of a number of SACCOs he states that findings show that
consumption smoothing effects, signs of redistribution of wealth and influence within the
household are the most common impact of SACCOS programs. Hulme and Mosley (1996) in a
comprehensive study on the use of SACCOs to combat poverty, argue that well-designed
programs can improve the incomes of the poor and can move them out of poverty.

Wright (1999), states that there is significant difference between increasing income and reducing
poverty. He argues that by increasing the income of the poor, SACCOs are not necessarily
reducing poverty. It depends on what the poor do with this money, oftentimes it is gambled away
or spent on alcohol, so focusing solely on increasing incomes is not enough. The focus needs to
be on helping the poor to sustain a specified level of well-being by offering them a variety of
financial services tailored to their needs so that their net wealth and income security can be
improved.

The types of micro finance used in the Islamic part of the world include the Islamic micro
finance and the conventional micro finance. Akhtar, Akhtar and Jafri (2009) mentioned that
Islamic micro finance is of the effective means to fight poverty. The authors mentioned that in
Muslim world, the conventional micro finance could not be fruitful because of the Islamic social
principles. Most of the people prefer Islamic micro finance on the conventional SACCOs.
Bakhtiari (2006) concluded that micro credit and SACCOs have received extensive recognition
as a strategy for poverty reduction and for economic empowerment particularly in rural
areas having poor population. Providing poor people the small amounts of credit at reasonable
interest rates give them an opportunity to set up their own business at small scale.

Mawa (2008) conducted a research study focusing the issue under discussion and concluded that
SACCOs is an innovative step towards alleviating poverty. The author mentioned that SACCOs
facilities provided to the people help them to use and develop their skills and enable them to earn
money through micro enterprises. Moreover provision of micro finance helps them to smooth
their consumption level and manage unexpected risks. Micro finance helps the poor to built
assets, educate their children and have a better quality of life.

Gurses (2009) conducted a study in Turkey and mentioned that micro finance especially micro
credit is a powerful tool to reduce poverty. The author has mentioned that one fifth of the
population of turkey was at risk due to the poverty even then it is not a poor country according to
global standards. This is due to the introduction of micro credit by two NGOsKEDV and the
Turkish Foundation for Waste Reduction (TISVA).

Moreover the author mentioned that poverty, both in Turkey and all over the world, is not only a
function of micro credit but a political problem, and political intervention of the state holds the
ultimate resolution to struggle against poverty.

Rena, Ravinder and Tesfy, Ghirmai (2006) concluded that micro finance is the founding
stone for poverty reduction. Their study showed that there is a fundamental linkage between
SACCOs and poverty eradication, in that the latter depends on the poor gaining access to, and
control over, economically productive resources, which includes financial resources. Previously
implemented programs not produced good results due to the non involvement of the peoples for
which the programs was designed (the poor). They suggested that the government poverty
alleviation program should be restructured if not re- designed and should be centered on the
basic needs approach. Micro finance is the mean for income generation and the way for
permanent reduction of poverty through the provision of health services, education, housing,
sanitation water supply and adequate nutrition. In many instances, micro enterprises rather than
formal employment create an informal economy that comprises as much as 75 per cent of the
national economy.

Kumar, Bohra & Johari (2008) found that micro finance is the only way to overcome poverty in
India. A great potential exist for micro finance in the country. Major cross-section can have
benefit if this sector will grow in its fastest pace. An annual growth rate of about 20% should be
continuing if they want to control poverty. At present, the outstanding balance is 1600 crores.
This amount should be increase to 42,000 crores in next five years.

Strategies used by SACCOs to fight poverty among youths

Having access to MF services have led to an enhancement in the quality of life of clients, had
increased their self confidence, and had helped them diversify their livelihood security strategies
and thereby increase their income (Robinson, 2001). Health care and education are two key areas
of non-financial impact of MF at a household level. Wright (2000) stated that from the little
research that has been conducted on the impact of MF interventions on health and education,
nutritional indicators seem to improve where SACCOs have been working. MF interventions
have been shown to have a positive impact on the education of clients children because one of
the first things that poor people do with new income from micro-enterprise activities are to invest
in their childrens education (Littlefield et al., 2003).

Moreover, women empowerment is also a key objective of MF interventions. Women need

empowerment as they are constrained by the norms, beliefs, customs and values through which
societies differentiate between women and men. SACCOS cannot empower women directly but
can help them through training and awareness rising to challenge the existing norms, cultures
and values that place them at a disadvantage in relation to men and to help them have greater
control over resources and their lives as Kabeer, quoted in (Mosedale, 2003).
The SACCOS has a number of development assistance programs to promote community
interaction and to sustain social contact either through extended family networks or geographic
proximity as a means of building social capital through frequency of mandatory meetings with
borrower groups. In addition, group lending, achieves clients to meet weekly in groups to make
loan payments low rates of inco me, builds new social capital among participants and
strengthening existing social capital. These meetings encourage regular interaction among
members of highly localized communities. Encouraging clients to meet more often (for six to ten
months), leads to persistent increases in social ties. Besides, social interactions encourage norms
of reciprocity and trust. In fact, participation in groups is often used to measure an individual's or
community's degree of economic cooperation (Feigenberg et al., 2010). In addition, as a result of
getting together, Isserles came with the data that the use of contraception and child immunization
had increased.

The contribution of SACCOs funding to the rural and urban women and youth, business
expansion is the vital role played by SACCOS. These institutions play a vital role in boosting up
the incomes of their clients. At the SACCOs services, the reason behind the massive use of the
loan service as compared to the rest of the services is that most small scale entrepreneurs require
funds for starting up ventures, reinvesting in the existing businesses or overcoming various
financial obligations (Charles, 2003).

Shastri (2009) revealed that there is no way better then micro finance in the war against poverty.
Creating self employment opportunities is one way of attacking poverty and solving the
problems of unemployment. The authors reported that there are over 24 crore people below the
poverty line in India. The Scheme of Micro-finance has been found as an effective instrument for
lifting the poor above the level of poverty by providing them self - employment opportunities
and making them credit worthy.

The study conducted by Shirazi and Khan (2009) show that two type poor were taken in
consideration such as the poor and the extreme poor. The authors examined the impact of micro
credit on poverty alleviation. Micro credit had reduced the overall poverty level by 3.07
percentage points (from 6.61 percent to 3.54 percent) and the borrowers have shifted to higher
income groups during the reported period. The poverty status of the extremely poor borrowers
has been marginally increased (by 0.63 percentage point), showing obviously no effect of micro
credit on poverty status of these households. The reason behind no effect of micro credit on
extremely poor is that, the extreme poor get the loan for protective purposes not for further
income or self employment. In case of ultra poor, the net impact of micro credit shows a
reduction by 1.45 percentage points which is a positive

Impact. Hassan (2010) mentioned the reasons behind success of micro finance and highlights
that it is only having no collateral against loans. The negative point of the conventional micro
finance is the fixed high interest rate. Interest is not acceptable in Islam that is why the Muslim
clients prefer Islamic micro finance. According to the researcher, if conventional micro finance is
combined with the Islamic financial system like Zakat and Awqaf, the result will be different.

Knight and Farhad (2008) mentioned that micro finance directly improves quality of life and
promotes poverty reduction. By getting loans the client become self employed and protect
himself for the external threats. By getting employment they become raised from the poverty line
and the poverty decreased. Micro finance is in the initial stages and in these stages most of the
peoples do not know about the reality of micro finance. Some peoples take that example of micro
finance where the result of micro finance is negative. It is more important that the examples
where the result of micro finance is more positive then negative should be highlighted so that
more and more peoples get benefit from micro finance and cross the poverty line.

Seibel (2003) proved through the survey that micro finance is that chemical through which the
germ of poverty can be killed. The study also showed that micro finance is equally profitable in
the poor countries as in the rich countries. He rejects the concept that that SACCOs is a poor
solution for poor countries. If properly regulated and supervised, they have great potential in
poverty alleviation and development, both in rural and urban areas.

Matovu (2006) mentioned that with out any doubt it is obvious that micro finance play an
important role in poverty alleviation but the part of micro finance in poverty alleviation is like a
drop of water in a sea. Micro finance helps in improving the standard of living of peoples. The
main hurdle in this is the finding of relevant data. It is very difficult to find the poor people and
help them. It requires a deeper analysis to find the poor people and help them through micro
finance. Next hurdle was the kind of poor peoples. It was difficult to divide the poor into
different portion and what be the base for this division. Along with positive role, micro finance
has also a negative role because micro finance only finds out the symptoms not the real causes.
Other portion that is not well developed till now is the woman empowerment by the help of
micro finance. It requires much more research for the real empowerment of women by giving a
chance to them to get access to the micro financial institutions.

Gopalan (2007) concluded that micro finance increase the self confidence of the poor by meeting
their emergency requirements, ensuring need based timely credits and making the poor capable
of savings. The study als o shows the credibility of SACCOs in health related issues in a positive
manner. It has been postulated that by making policy towards income generation and
enhancement, ultimately to eradicate poverty alone can improve the health status through better,
timely and easy access of health care. The survey shows that peoples do not consider micro
finance as a help full tool for health problems. This is shown by the survey that a small portion of
peoples take loans for health facilities. When the peoples do not consider it necessary they
cannot control poverty and health problems.

Challenges face by SACCOs in youth development

Several reasons are adduced to the painfully failure of the cooperative movement in the Indian
context. They are as follows:

1. Lack of spontaneity:

Co-operative movement in India lacks spontaneity in the sense that it has not been emanated
from the people themselves. They usually do not come forward to organise co-operatives on their
own accord.

India
Image Courtesy : upload.wikimedia.org/wikipedia/commons/0/09/FMSC_881575%29.jpg

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On the other hand, the ruralites perceive the cooperative societies and banks as government
lending agencies. They are interested only in deriving benefits from them instead of contributing
anything in return.

2. Lack of funds:

The cooperatives have resource constraints as their owned funds hardly make a sizeable portfolio
of the working capital. With weak owned fund base, the borrowings of the cooperatives from the
central financing agency are considerably conditioned. This has stood in the way of adequately
meeting the credit requirements of the existing as well as new members.

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3. Neglecting the demand aspect:

Historically, the cooperatives have been viewing the problem of agricultural credit from the view
point of supply. The demand aspect is neglected.

4. Loans for productive purposes only:

The Cooperative Credit Societies do not cater to all the credit requirements of the farmers. They
grant loans only for agricultural operations. Farmers approach the money-lenders to meet their
other requirements. This divided allegiance to the co-operative society and the money-lender
stands in the way of the growth of the cooperative movement.

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5. Negligence of non-credit aspects:

By and large the Primary Agricultural Cooperative Societies are disbursing credit only and have
not yet emerged as true multipurpose institutions, undertaking diversified functions besides
credit.

6. Regional disparities:
There have been good deals of regional disparities pertaining to credit availability. The picture of
credit availability in the Eastern states, tribal and hilly regions is simply dismal. Consequently,
the farmers in these regions farm technology.

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7. Lack of co-operation on the part of the people:

In the Indian context, most of the people are in the grip of illiteracy, ignorance and conservatism.
They do not understand the significance of cooperation in their lives. Absence of willing
cooperation on their part hinders the growth of cooperative movement.

8. Horizontal and vertical linkages, though, structurally established, have not yet operationally
become effective.

9. Exploitation:

In the absence of proper marketing arrangements and functions at the level of Primary
Agricultural Cooperative Societies, the rural poor falls prey to the mercy of middlemen who
exploit the situation.
10. Defective management:

The cooperative credit structure is criticised on the ground that it is mostly managed by landlords
and large farmers. Hence small and medium farmers do not get their fair share. They are often
deprived of the assistance from the co-operative society.

Large farmers and landlords, with their superior economic and social power, manage to have a
greater hold on these societies. A lions share of benefits goes to them. In this way, the
cooperatives suffer from nepotism, favouritism and partiality. The growth of the cooperative
movement, thus, is severely affected.

11. Political interference:

Sociologists like Sujata Patel and Daniel Thorner hold the view that political interference acts as
a formidable obstacle for the growth of cooperative movement. The co-operative societies have
become the hot bed of politics in rural India. The selection of beneficiaries is mostly done on
political considerations.

12. Non-viable character:

It is observed that many agricultural credit societies in India are of non-viable character. It is
because dedicated, honest and efficient people do not come forward to join such societies.
Factors like red-tapism; undue political interference and the strong hold of large farmers have
arrested the growth of co-operative movement. Hence the cooperative movement has not come
up to the level of expectation.
13. In the absence of high standards of performance, cost of credit and other operations of the
institutional cooperative system do not remain at a low level. Further, inadequate interest acts as
a setback to finance the weaker sections.

14. Lack of co-ordination:

There has been a lack of co-ordination among the institutional agencies at the grass-root level.
Defaulters of co-operatives can become borrowers of other agencies. Such double financing and
over-lapping are found simply because of lack of co-ordination.

15. Problem of overdues:

Last but not least, the major problem of co-operative credit is ever-rising overdues. The
performance on the recovery side has been dismal. 27 to 50 per cent of the overdues have been
reported in respect of the Cooperative Credit Societies. Overdues also exist with respect to
Central Co-operative Banks and Land Development Banks. Obviously, the high level of
overdues hinders the process of recycling of credit.
3. METHODOLOGY

3.1. Description of the Study Area

Agaro is the town and separate district in the south western of Ethiopia in the Oromia regional
state and it is one of the 17 district town of Jimma zone. It is located 390 km south west of Addis
Ababa and 50 km west of Jimma town. The average annual rain fall is 1560 mm and the small
rain fall is ranges from March to April and the main rainy seasons extend from June to October.
The monthly temperature varies between 12.67oc and 27oc. It has 70 51N and 36035E
coordinates and an elevation of 1560 meters above sea level. Ecologically Agaro town is
classified as 96% wet weinadega and 4% kola (Wikipedia, the free encyclopedia).

According to the 2007 national census, a total population for this district was 25,458, of whom
12,946 were men and 12,512 were women. The majority of the inhabitants were Muslims with
60.7% of the population, while 33.76% of the population practiced Ethiopian orthodox
Christianity, and 5.04% were protestant. The 1994 census reported this town had a total
population of 23,246 of whom 11,687 were men and 11,559 were women.

3.2. Type of Research Design

A cross-sectional type of research design was used, which employed comparative study between
participants and non- participants of micro finance scheme. Furthermore, descriptive survey type
of research was used. Cross-sectional survey design was selected to collect data from the sample
population at specific point in time and based on the results to make generalizations. Descriptive
survey research was chosen to generally describe the differences experienced by households
aroused from obtaining SACCOs services in comparison with non-beneficiary households.

3.3. Data Sources and Types

Two types of data sources, primary and secondary were used to obtain the desired qualitative and
quantitative data types in order to meet the study purposes. Primary data has been obtained from
the potential informants (beneficiaries and non-beneficiaries) and the micro finance specialists
who were working for the organization delivering the scheme. The secondary data were further
gathered from document of the SACCOs institution that exists in the study area.

3.4. Method of Data Collection

Primary data was gathered through informal and formal survey. Informal survey was under taken
first; to collect background information which was useful for subsequent survey. Then formal
survey was conducted to assess the role of SACCOs institution in improving household
livelihood in the study area by using open ended and closed ended questions for semi-structured
interview schedule and checklist for focus group discussion. The interview was help to gather the
necessary qualitative and quantitative information through asking questions and writing down
the response of the respondents which build research purpose. It was proposed to those people
selected as a sample. On the other hand, focus group discussion was used by the researcher to
obtain qualitative data. FGD allowed a dialogue among participants and stimulates them to
openly express their views on the issues raised.

Secondary data was gathered through reviewing of documents, reports and records of published
and unpublished documents. It is the main source of information and these data were easily
available inexpensive and obtained quickly. These secondary data indicate the past and current
performance of SACCOs institutions in improving livelihood through providing SACCOs credit
service.

3.5. Sampling Techniques and sample size

The sample frame comprised of two categories: the SACCOs participant and non- participant
households. The sampling frame was compiled by drawing together lists of names of
beneficiaries obtained from the SACCOs documents who were providing micro finance service
to them. For non-participants names were obtained from village savings and credit cooperatives
using credit seekers data.

The total number of target population is 580 i.e. the number of households registered in credit
seeker data and the clients of the OCSSCO in the two kebele. From the total of.580 target
population 60 respondents were selected randomly as a sample. Hence the corresponding number
of respondents from the two kebele was obtained based on the principle of probability
proportional to size (pps) as it is indicated in the table below.

illustration not visible in this excerpt

Table 3.1 Sampling Techniques of the Respondents

The participants in the micro finance service were selected from the lists using stratified random
sampling method, based on the loan cycle of the beneficiaries. OCSSCO provides SACCOs
credit and other services for 35 kebeles. Among these kebeles, two kebeles Genji-dalecho and
Bulbulo were selected through random sampling techniques. Purposive stratified random
sampling technique was used to select a total of 60 households (35 households participating in
micro finance scheme and 25 non-participants) for the study. Those participants who have
reached second the loan cycle and above have been targeted to study the role of the OCSSCO
scheme in improving household livelihood.

illustration not visible in this excerpt

3.6. Methods of Data Analysis

The quantitative data, which was collected, based on semi-structured interview analyzed by
using inferential statistics like cross tab, Custom table and independent sample t-test. Descriptive
statistics such as frequency, percentage, mean and standard deviations were used to analyze the
quantitative data. Chi-square (for categorical variables) and t-test (for continuous variables) were
used to identify the significance of the relationship of independent variables with dependent
variables. It includes the comparison of demographic factors, income, sources of income, and
household income and expenditure on food items & non-food items using SPSSS. Moreover, the
qualitative data was analyzed by describing, summarizing and interpreting for further clarity.

3.6.1. Econometric Method of data analysis

The modeling methodology used to analyze the factors determining households participation in
credit program is logistic regression that allows the prediction of discrete variables by a mix of
continuous and discrete predictors (McCullagh and Nelder, 1983). The model constrains the
estimated probabilities to be either 0 or 1, relaxes the constraints that the effect of independent
variables is constant across different predicted values of the dependent variable.

The logit model assumes that while only the values of 0 and 1 are observed for the variable Y ,
there is a latent, unobserved continuous variable Y* that determines the value of Y. It is assumed
that i is normally distributed across observations, and the mean and variance of are normalized
to 0 and 1. The Y* can be specified as follows:
Y*i = 0 + 1x1i + 2x2i + + kxki + i (1) and that: Yi = 1 if Y*i > 0 Yi = 0 otherwise. It
is assumed that yi* is a function of observed and unobserved variables yi* = 0 + x1i 1 + x2i 2
. + xki k + i (2)

illustration not visible in this excerpt

Where: yi*= latent and measure of credit market participation by i th household,

Xi = a vector of explanatory variables describing the personal, social, economic and

environmental factors,

i= a vector of parameters to be estimated, and

i = a random error term (assumed to follow a standard normal distribution).

The model is determined by the assumed distribution of . The observed and coded discrete
credit market (SACCOS) participation variable, yi* , is determined from the model as follows:

Pr(yi=1)

illustration not visible in this excerpt

Where, represents the cumulative normal distribution function. The interpretation of this
models primary parameter set, , is as follows: positive signs indicate likely factor for
households participation in credit program as the value of the associated variables increase,
while negative signs suggest the converse.

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