Savings and Credit Cooperatives in Ethiopia: Development and Challenges

Abstract

Savings and Credit Cooperatives (SACCOs) in Ethiopia are playing an active role both in rural and urban areas. Their number has increased from 5,437 in 2006 to 14,453 in May 2014 showing a compound growth rate of 28% per year. The aggregate number of membership during the same period increased from 0.38 million to 1.7million and their capital increased from one billion birr to 5.2 billion birr. These figures indicate that financial cooperatives have had the support of the people in undertaking activities contributing to their economic development. SACCOs are considered to have immense potential in financing short term loans for agricultural production technologies and undertake off-farm income generating activities in areas where both the state and the private sector have failed. Serious efforts are being made to strengthen capital resource of SACCO’s base through increasing members’ subscription and mobilization of savings in rural and urban areas. Therefore, the objective of this paper is to examine the current status and challenges of SACCOs in Ethiopia. The study is based on review of pertinent literature on SACCO operations, policy and regulatory framework documents as well as secondary data obtained from various sources. The paper identifies challenges such as, absence of financial cooperatives policy and regulatory environment, weak institutional capacity, narrow product range and inappropriate loan security requirements. Finally, it suggests that the establishment of cooperative bank is required to combat the problems.

Keywords: Financial cooperative, savings, regulatory environment, cooperative bank