Effectiveness of Loan Portfolio Management in Rural SACCOS: Evidence from Tanzania

Abstract

This article uses 496 loans from ABC rural SACCOS located in the Northern zone of Tanzania to describe the effectiveness of loan's portfolio management. The data analysis is done by using the multivariate regression, descriptive and qualitative methods. The data for this study was collected at the end of May 2013. The findings reveal that women constituted 52.6% of the loan portfolio. Also the doubtful and bad loans were 51 and 31 million TZS which was more than 10% of the loan portfolio. The findings show loans were aged into 4 classes and the loans aging was not very effective because loans of different ages were classified in a single class. The results from the regression analysis reveal that the quality of loan portfolio was positively influenced by the loan size while the influence of gender and location of the borrowers were not significant. Moreover, ABC rural SACCOS used portfolio diversification, collateral, guarantors, letter from the village/ward government offices and the affidavit from the lawyer as credits risk mitigation techniques. The findings also revealed that fluctuation of the price of agricultural produce threatened the quality of loan portfolio. This article recommends that ABC rural SACCOS should seek the effective insurance services, use the effective software for loan portfolio management, search the market for agriculture produce, write off non repaid loans, enhance the repayment of overdue loans and revise the loan classes and maturity in order to improve the quality of the loan portfolio in the SACCOS.

Effect of Competitive Strategies on Growth of Savings and Credit Cooperative Societies in Tharaka Nithi County, Kenya

“…Over 60 million people depend on SACCOs in Africa [25]. Cooperative movement in Nigeria is not very popular despite its old age [10].…”

“…Kenyan SACCOs play a vital role in wealth creation, poverty alleviation, employment, and development of the society. Just like other businesses, SACCOs face challenges in their attempt to survive and grow [25]. Competition is very stiff in the financial service industry because commercial banks and other financial institutions target salaried employees who are SACCO members hence SACCOs have lost a significant number of members to commercial banks and other financial institutions [45].…”

“…According to Rutto [25], product development in SACCOs can be illustrated, for example, by the frequent introduction of new types of loans based on circumstances, the frequent reduction of loan processing and distribution time to borrowers, and the frequent changing of loan conditions. In a study on market and product development strategies used in response to environmental changes faced by SACCOs in Nyeri County, Kaara [18] notes that firms seeking growth should offer members products/services customized to their tastes and preferences.…”