Building a savings and loan association scheme

The case of

Uganda’s Catholic Workers Movement

Guest Lecture at Mountains of the Moon University

19. September 2012

Dr. Birgit Galemann,

International Finance Development

www.financedev.eu

Mr. Raiffeisen founder of the co-operative movement

• As major of a town in Germany he wanted to

help the needy, especially in the rural areas

but also in the suburbs of the town

the level of poverty was extreme

After different approaches he concluded that

the people must help themselves in order to

solve their economic problems in a

sustainable manner

He developed the corporate form of a

“Savings and Credit Co-operative” (SACCO)

• It functions based on the three principles

of self-help, self-responsibility and self-

administration

To strengthen the small institutions he set up

a 3-graded alliance connecting these primary

institutions across Germany on regional and

national level

Mr. Raiffeisen 1818 - 1888 in Germany

founded in particular the

German Cooperative and Raiffeisen

Confederation (DGRV) DGRV - Deutscher Genossenschafts- und

Raiffeisenverband

Slide 2

Raiffeisen Confederation and Network of CW-SLAs

Raiffeisen’s Christian conviction:

“We therefore emphasize Christian

charity which has its roots in the

devotion to God and in Christian

obligation, from which its draws its

livelihood.

The more it is practised the greater is

the satisfaction derived from it. No

material compensation, which it

disdains, can replace it.”

In analogy to Raiffeisen’s idea of a 3-graded

Cooperative and Raiffeisen System

we build up a network of Catholic Workers-

SLAs across Uganda

connecting - and with this strengthening - them

on diocesan and national level,

practicing Christian Solidarity through them

Volksbanken

& Raiffeisen

banken

(Peoples Banks)

Catholic Workers

Savings- and Loan

Associations

(CW-SLAs)

Slide 3

SACCOS versus Savings- and Loan Associations (SLAs)

There are many SACCOs in Uganda - some are strong, others are weak

Some do reach the people in their neighbourhood well some don’t

However, of these SACCOs, even the well functioning ones are in

general not able to provide the following services to their members:

• Reach out to people very deep in the villages

• Let all members fully participate in managing the affairs of the association

even if they are illiterate

• Provide loans of tiny sizes

• Offer high interest on the member’s savings

• Educate members regarding

• the usage of money in form of savings and loans

• how to start, run and grow a business

Solution: Foundation of Savings and Loan Associations (up to 20 members)

concentrating on these services

linking with a nearby good SACCO or MFI /MDI or Bank just in case

o the association has too much savings or needs to borrow additional funds

o the area of operation is too insecure as to keep money in a cash box

Slide 4

What are the main principles of a CW-SLAs?

1. Self-selection of members in a group of 10-20 people who save together and

take small loans from the Loan Fund build up over time out of those savings

(shares) plus the loans’ service charges. This self-help group must be

composed of members who trust each other and who can regularly meet and

buy 1-5 shares.

2. Self-administration: The Group has a five person Management Committee

elected for one cycle (~1 year). Each member has one vote in electing the

Committee and to develop a constitution. The Group must have the will and

means (social pressure) enforcing this set of rules.

3. Self-responsibility: A CW-Trainer will train members but never manage the

association, write in the passbooks or touch money belonging to members.

The Trainer who is certified in training CW-SLAs will receive fees from the

Group for this training.

4. Transparency: All transactions are performed at meetings in front of all the

members. Between meetings cash and passbooks are therefore locked in a

cash box secured with 3 padlocks. A backup of the passbooks is secured

through the internal Analysis- &Audit System of the CW-SLA network.

5. At the end of every cycle the Loan Fund is shared out and the profits from the

loans' service charges are distributed to members according to the number of

shares each member holds.

Slide 5

CW- Pilot Trainers from 8 dioceses were trained by Dr. Galemann

• Certified CW-Trainers will teach the self selected CW-SLAs in 7 modules

• They will be paid a small fee by the groups

• The next generation of trainers will be selected from the first CW-SLA Pilot

groups and will be trained by the Pilot Trainers

Slide 6

Module 1: The Group and the Group members, ...

Individual self-selection

better drop out now if you can’t meet these criteria

• Know each other and be from a similar economic background

• Not live too far from where the meetings will be held

• Have a reputation for honesty and reliability

• Be able to attend all meetings

• Attend all meetings on time

• Follow all rules

• Have a cooperative personality. Someone who is known to create

conflict should probably not join.

• Be able to buy at least one share each meeting

• Be able to repay loans on time

• There is only one member from the same household

Other topics are: leadership and election procedures

Slide 7

Module 2: Seating Arrangement of a CW-SLA

Reasons:

• ensures that all members transact in order of their identification numbers

– assessed in the first savings meeting using member identification cards

• allows all members to see clearly what is happening

• allows executing all meeting procedures correctly

Seating arrangements for a group with 18 members

Added in

CW-Method:

3. Deputy

Record

- keeper

5. 4. 6. • The Deputy

Record-keeper is

not a member of

the Management

Committee but for

practical reasons

(s)he needs to sit

next to the Record

-keeper and table

• Applying the

4-eye principle,

(s)he prepares the

input for the

Analysis- and

Audit Tool by

coping the

entries made in

the passbooks into

the “Group

Savings and Loan

Ledger

Templates”

Management

Committee

Slide 8

Seating Arrangement, of a CW-SLA

Slide 9

From left to

right:

• Chairperson

with fines

bowl

• Record-

keeper

• Deputy

Record-

keeper

• Box-keeper

with cash

box

• 2 Money-

counters

Module 2: ..., Share-purchase rules, ...

The Trainer explains that members of a CW-SLA save by buying

shares

At each meeting, each member has the opportunity to purchase

between 1 to 5 shares

The members need to agree on the value of a single share

o The amount is too big if the poorest member will have trouble

regularly saving at least one share

o The amount is too small if during a lean season of the year better of

members feel that 5 shares will still be too little

The savings build the basis for the loan fund, i.e. the money that is

available for each member to take out a loan

However, no member should feel obligated to take a loan!

Some people might only want to have a secure place to save

Slide 10

Module 2: ..., Lending rules, ...

Trainer explains that borrowing takes place only every four weeks to

• keep admin part of most meetings short allowing to discuss business

issues

• keep record-keeping simple

• allow the Loan Fund to build, so that members can borrow useful amounts

The amount borrowed

cannot be more than three times the member’s savings

the maximal term is 3 month (later on 6 months) to ensure that

• everybody has fair access to loans

• loans are not too risky

• members can pay loans back easily

Borrowers have to pay a service charge which end’s up back in

members’ pocket at the annual share out. This fee is

• paid every four weeks

• quoted as a percentage – this percentage is called Interest Rate (IR)

• The Interest Rate is applied to the outstanding loan amount, i.e.

not to the initial amount (we are NOT using “flat interest rates”)

Slide 11

Module 2: ..., Lending rules (2) and Cash Box

Since the service charge percentage is

• applied to the outstanding loan amount (not the initial)

the service amount changes during the term of the loan but

the borrower only pays for what (s)he owes the group

The Group decides the level of the service charge

• If the fee is too high, the little businesses of the members can’t grow. It

should be not more than 10% for each period of 4 weeks.

• If the fee is very low, the loan fund can’t grow quickly.

The loan fund is made up of the savings and service charge amount.

The fee should thus not be too low.

• The fee should not be much less than 3-5% for each period of 4 weeks on

the decreasing balance of the loan

The Group buys a heavy-metal cash box including some tools to

• protect the Social Fund and the Loan Fund

• perform the administrative duties for recording savings and loans

Slide 12

Cash box and additional tools needed

• 3 locks with 2 keys each

• 20 passbooks

• 20 member identification cards

• Stamp to mark shares plus ink

pad and spare bottle of ink

• Calculator of good quality

• Ruler

• 2 coloured bowls

• 2 pens one in red, one in blue

• 2 coloured bags for Loan and Social Fund

• 1 small note-book

Group makes down payment of 25% now

and pays balance at end of cycle

Slide 13

Module 3: Constitution - Group Governance, ...

• The existence of fines e.g. supports members being on time and not chat to much

Slide 14

• There are

strict rules

regarding

governance,

financial and

operational

procedures.

• Following

these rules

agreed upon

together

strictly

makes these

groups

successful

First procedure: Chairperson calls the meeting to order

• The Cash-

box is still

locked

since none

of the

members

in the

manage

ment

committee

has a key

Second procedure: Opening of cash box by key-keepers

• There are

three Key-

keepers

• None of

them is on

the manage

ment

committee

Share purchase & Loan taking and repayments

• For each share purchased a stamp is

input into the passbook

• Unused boxes in the line for the

respective meeting are crossed out

Slide 17

• Loans are recorded in the second half

of the passbook

• The amount, service charge ( =

interest) and the end date is entered at

disbursement

• In the next loan meeting the amount

paid, the new loan balance, the new

service charge and he new total

outstanding is derived and entered

Passbooks for recording of shares and loans

Slide 18

2 stamps for 2 shares bought in 13th meeting

3 stamps

cancelled

in red for

3 shares

sold in

17th

meeting

Record keeper calculates the Service shares

and Total Outstanding using the calculator

A member states his case for a loan request

Slide 19

Borrower making a loan repayment

Slide 20

Strengthening CW-SLAs through a 3-graded network

National Level:

CWM NEXCO

Primary Level:

CW-SLAs

Regional Level:

Diocesan

CWM-Committees

Arua

CW-

SLA 6

CW-

SLA 8

CW-

SLA 9

CW-

SLA 1

CW-

SLA 2

CW-

SLA 3

Tororo

CW-

SLA 7

Luwero

Gulu Hoima

Jina

Kampala

CW-

SLA 13

CW-

SLA 12 CW-

SLA 11

CW-

SLA 10

CW-

SLA 14

CW-

SLA 15

CW-

SLA 16

CW-

SLA 17

Slide 21

Kasese

CW-

SLA 18

CW-

SLA 19

In analogy to the existing German Cooperative

and Raiffeisen System (DGRV)

the CWM structure is used to build up

a 3-graded network of CW-SLAs:

National Level = CWM NEXCO

• supports work on regional level using the

national CW-SLA Analysis- and Audit Tool

Regional-Level = Diocesan Committees

supports work on primary level through

• usage of regional CW-SLA Analysis- and

Audit Tool for

INTERNAL AUDIT

comparative analysis of CW-SLAs

• field visits based on findings

Primary Level = Local CW-SLAs

operate independently but gain strength via the

CW-SLA network through

• sharing of specific business experience

• being audited on regional level

CW-

SLA 4

CW-

SLA 5

Masaka

Template for “Group Savings Ledger” of reg. Analysis- &Audit Tool

• For each member, deputy Record-keeper counts the number of shares (stamps in passbook)

• (S)he inserts this number either into column “IN” (shares bought) or “OUT” (shares sold)

• After 12 meetings the “Ending number of shares this page” is filled by the Record-keeper

• The deputy Record-keeper transfers the numbers into the third column for the meeting

Slide 22

Regional Analysis- and Audit Tool – Group Savings Ledger

Yellow cells are manually filled at diocese based on “Template of Group Savings Ledger”

White cells are automatically derived by underlying Excel formulas

Slide 23

The 2 errors will be reported

Record-keeper and his deputy handling passbook & savings ledger

Template for “Group Loans Ledger” of reg. Analysis- &Audit Tool

• For each loan the Record-keeper had calculated manually (using a calculator) the

Loan Balance, Service charge and Total Outstanding

• The deputy record-keeper needs only to transfer these and some other numbers into the

Group Loans Ledger

Slide 25

Regional Analysis- and Audit Tool – Group Loans Ledger

• At the diocese only the yellow cells of the Analysis- and Audit Tool need to be filled with

numbers from the Loans Ledger template

• Service Charge, Tot. Outstanding and many other numbers are derived by the Excel formulas

Any error is

automatically

marked in red

and reported

Slide 26

Analysis- and Audit Tool – Balance Sheet & Internal Audit

Based on the numbers copied

from the Group’s Shares and

Loans Ledger and a few

additional numbers, in the

Analysis- and Audit Tool

indicators for the group’s

Savings

Loan Portfolio

and

the whole Balance Sheet

are automatically derived

For each meeting an internal

audit report results, displaying

the aggregated

• total number of errors (err.) or

• total resulting differences

per error category

Slide 27

Analysis and Audit-Tool vs Template for “Operational Performance

Questionnaire

to judge how

well the key

operating

procedures – as

agreed on by the

group in it’s

constitution –

are lived by the

group

This internal

audit regarding

the operational

performance is

performed 2 - 3

times during

one cycle by the

CW-Trainer’s

supervisor

Slide 28

Analysis-

and Audit -

Aggregation

Indicators on

financial and

operational

performance are

summarized for any

two user defined

reference days

for each group to compare

read off the

growth over the

time period

For each diocese

results from groups are

aggregated to derive

regional indicators

These will be

aggregated into

national indicators

(National Tool)

Slide 29

Education in Basic Business Knowledge

The CW-Trainer teaches about basic business knowledge, topics are:

• How to get a good business idea?

• How to do a little market analysis

• How to get started with any kind of business?

Making a financial plan including a potential loan

• How to stir the business to profitability ?

Regardless in which cycle at the end of each meeting the group

discusses business issues sharing experiences and trying to assist each

other with words and deeds

New business ideas involving future loans are discussed in particular.

The group tries to project the business’ income and cost using the CW-

Financial Projections Template for Income and costs

Specific knowledge required for this business is obtained via the CW-

SLAs network for the next meeting(s)

For financial projections of larger group projects an attempt is made

• to use the electronic version of both the cost income and the cash flow

projection template of the CW-Financial Projections Tool at the diocese.

Slide 30

Cost-Income Projections - all in one Template only blue cells to fill

For a group project we

could analyse how the

business might develop

over time, i.e.

over several of these

single op. periods

whereby a loan is taken

out

Slide 31

Production of Chapatti – Cash Flow Projections

The shortfalls in the 1. and

2. period are absorbed by

the accumulated assets

during the next 4 weeks:

15.306 – 10.498 = 4.808

Slide 32

Module 7: Share-out procedure at end of each cycle

The Social Fund is counted, the amount

announced and put away. It does not get

shared out.

Loan repayment and fines money for this

meeting are combined with the Loan Fund

If any member still owes the Group money,

that amount is recovered by cancelling the

number of shares in his/her passbook that

equal the value of the amount owing

Then the Record-keeper fills out the last

three lines on the last used page of the

passbook. The very last line is the

“Member’s ending number of shares”

The Money Counters start counting the

“Total of the Loan Fund”

The Record-keeper determines the “Group’s

total Number Of Shares” by adding up all

the “Member’s ending number of shares”

Slide 33

Module 7: Share-out procedure (2)

Using the calculator the Record-keeper

determines the “Ending Value of a Single

Share” by

dividing the “Total of the Loan Fund” by

the “Total Number of Shares”.

The result is written down to three decimal

places, e.g.: UGS 1,800.125

Next, the Record-keeper determines for

each member the “Member’s ending Value

of all Shares” by

multiplying the “Member’s ending number

of shares” with the “Ending Value of a

Single Share” and

rounding the resulting amount down to the

lowest (meaningful) unit of currency.

The Money Counters put that amount into

the member’s passbook, which is set aside.

The Record-keeper then cancels all of the

members shares by drawing a large cross on

each page of the passbook on which there

are share stamps

Slide 34

Module 7: Share-out procedure

Slide 35

Record-keeper

derives

• Total no. of

shares

for each

member

then for

the

group

taking

the sum

• Money

counters

count the

amount every

member

receives

Module 7: Share-out procedure

Slide 36

Members

sign the

amount

received,

i.e. Ending

value of

single

share

times

member’s

total no. of

shares at

end of

cycle

Module 7: Preparation for the next cycle

Any member who wishes to leave the Group should be free to do so

New members can now be allowed to join, if all remaining members agree

The continuing members decide on the share price for the next cycle

If the group might wish to establish seed capital to initiate the next cycle, they

should now do so.

All members, including new members, must contribute the same amount.

It can be more than 5 shares on this one occasion.

The number of shares is recorded in the passbook of each member, in the

“Starting number of shares this page” box

The Money-counters count the seed capital and place it in the Loan Fund bag in

the cash-box

The box is locked and the cycle is formally ended party!

The CW-Trainer then explains to the Group that in their next meeting, they must

hold elections and then

revise their Constitution, which new members must sign.

(S)he then offers to attend the next meeting to assist with elections and the

Constitution.

Slide 37

Contacts for (Young) CWM

For more information contact

• the chairperson of CWM-Fort Portal:

Mr. Francis Byaruhanga

Mobile: 0772- 848 335

0704- 848 335

• the national secretary of the YOUNG CWM

Charles Bukenya

Mobile: 0702 329 362

E-Mail: ycwmuganda@gmail.com

Webpage CWM: www.cwm-uganda.net

Annex 1: Importance of Savings

The Trainer explains that savings are important

• as a cushion for unforeseeable circumstances (risks) causing a

shortage

• to build up assets over time - improving the family’s standard of

living step by step

Savings are just another word for saying that people must set

aside something for use in the future when they would otherwise

not have it

In particular savings are a prerequisite for taking out a loan, so

that if things go wrong (business risk) the loan can still be paid

back

Saving large amounts is possible by saving small amounts

frequently!

The Trainer then asks if people feel confident to regularly save

Slide 39

Annex 2: Understanding of Loans &Interest on loans

The Trainer works out with the group the purpose of a loan

• Horticulture, in particular seeds for planting

• Products for trading

• Tools to produce / repair something, …, i.e.:

Generally for investments into income generating projects

Exceptionally for bridging a cash shortfall if there will be income after a

short period to repay the loan

Example:

A mother has a bag of sugar in her store after harvest but current market prices are low

and school fees are due. She knows that the price will double in about one month. This

expected income will be higher than the school fees = the loan amount requested plus a

service charge / interest paid on the loan to the group

Reasons to ask for a service charge on a loan

• Money that is lend could potentially be used by the lender to invest in a

business that brings income

• To cover potential losses from unpaid loans

• To increase the group’s assets for lending

• To discourage borrowing without a serious need or purpose

Slide 40

Annex 3: Share-out procedure - example

Example:

Total of the Loan Fund = UGS 2,000,500

Total Number of Shares = 1,010 shares

Ending Value of a Single Share = UGS 2,000,500 / 1,009

= UGS 1,980.693

Frances’ ending Number of shares = 51

Frances’ ending Value of all Shares = 51 * UGS 1,982.656

= UGS 101,115.456

= UGS 101,100 after striking off ones and tens

The amount Frances had saved in total = 51 (shares) * UGS 1,500 (initial value) = UGS 76,500

Therefore the Annual Return on her Savings = (101,100 - 76,500 ) /76,500 = 32%

Share-out procedure continued:

All passbooks are treated in the same way before anyone receives any money!

Once the process is complete, there will be a small amount of money remaining

due to rounding, but there should not be a shortfall

If there is a shortfall, the process is repeated until the amounts are correct

Any small amount remaining is put in the Social Fund

All members are given their passbooks with all the money in their hands

Slide 41