Research Paper entitled “Determinants of the Financial

Performance of saving and Credit Cooperative Unions in South

Wollo Zone” which is presented in the “Ethiopian Cooperative

Development Conference” organized by Federal Cooperative Agency

& Hawasa University, held from May 7-8, 2015.

Presented by:

Ergetew Temeche Molla

Email: ergetiet@gmail.com /+251910852351

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Contents of the presentation

1. Background of the study

2. Statement of the problem

3. Objective of the study

4. Research Questions

5. Methodology

6. Findings

7. Conclusions and

8. Recommendations

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Cont..1. Background of the study

1st SACCO in world German(1846) in Africa Ghana

(1959) and In Ethiopia by procl No 44/1961 in.

High rates of investments depend on high rates of saving

(Pelrine & Kabatalya, 2005),

SACCOs link borrowers and savers (Tache, 2006),

SACCOs maximize wealth(exactness, quality of

benefits and the time value of money) (Kyendo, 2011),

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2. Statement of the problem

• The two fundamental functions of SACCOs are

financial intermediation and investment.

• The most basic one is financial intermediation.

• That is bringing savers and borrowers together (Pelrine,

2001). But different problems have retarded the growth

of SACCOs

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Previous studies about the determinant the financial

performance of SACCOs:

1. Zerfesha(2010) focused on the nature of SACCOs

2. Kifle Tesfa Mariam(2012) emphasized on gender,

household income; amount of loan borrowed and year

of cooperative membership

3. Dr.Sambasivam (2013) emphasized on the financial

health, sign of growth, efficiency of saving mobilization

and the loan services strategies.

Therefore, the above studies have not identified:

- the internal determinants of financial performance and

- the financial position growth trend of the SACCO unions.

- This study will fill the gap by assessing the above two

points.

3. Objectives of the Study

3.1. General Objective

The general objective of the study is to assess the

determinants of financial performance of saving and

credit cooperative unions in South Wollo Zone.

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3.2. The Specific Objectives

• To assess the main internal financial performance

determinants of SWSACCOUs,

• To analyze the growth trend of the overall financial

position of the unions and to provide Recommendations.

4. Research Questions

• What are the main internal factors determining the

financial performance of SWSACCOUs?

• What seems like the financial position growth trend of

SACCO unions?7

5. Methodology:-

Research Design: Cross sectional Descriptive research,

Population: 4 SACCO unions,

Sample size: 3 SACCO unions,

Sampling Technique: purposive

Sources of data: secondary

Data Collection Methods: Survey

Method of data analysis: frequency, percentage, tables,

and ratio analysis.8

6. Findings:

Internal Determinant of the Financial Performances of

SACCO Unions (Ratio Analysis)

1. Liquidity Ratio Analysis:

current Ratio is employed(CA/ CL) . Standard 2:1 to

other businesses but 1.2:1 to SACCOs

- All SACCO unions considered in the study have been

found in a better position to pay their current obligations.

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This implies that the financial position of the unions

were satisfactory to fulfill their short term obligation in

the respective years but the trend is erratic.

2. Leverage Ratio:

2.1. Debt Ration(standard>50%) the table 3 shows that

except Dessie Amba SACCO union all the unions have a

total debt ratio above the required standard.

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2.2. Debt Equity Ratio(standard>1x<=3:1: ) table3

shows that except Dessie Amba, the two SACCO unions

have used more borrowings and members’ are borrowing

to finance their operation than equity financing.

2.3.Capital Adequacy Ratio(standard 50%):

• Table3 shows that the capital adequacy ratio of all the

selected unions is below the given standard and

• implies that the unions’ member patrons own less of

their SACCOs assets.

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3. Profitability Ratio Analysis

3.1. Return on As set (ROA)( standard 5%):

Table5 shows that the return on asset ratio of all SACCO

unions of this study was below the known standard

This implies that the unions have not got a return which

is equal or better than the interest rate of the money they

borrowed.

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3.2. Return on Equity (ROE)(standard 20%):

Table5 that owner members own less proportion of

the union’s assets.

Most of the selected SACCO unions have not a better

financial performance on return on equity.

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3.3. Operating self sufficiency

Table5 shows that the operating self sufficiency trend of

Dessie Amba is improved,

Mekaneselam and Wubaye SACCO Unions’ operating

self sufficiency ratio is erratic.

3.4. Net profit Margin

Table5 shows that the NPM ratio of most of the unions is

found in a fluctuating trend due to the fluctuating

performance of the unions14

4. The Financial Position Growth Trend of the Three

SACCO Unions

the financial growth trend of most of the unions is good

they are in a position to expand their activities and the

social fund from profit earning and

they could pay the dividend fund to their members.

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7. Conclusions

The main purpose of this research is to study the determinants of

the financial performance of SACCO Unions in South Wollo Zone

Amhara regional state.

The research is descriptive and analytical in nature.

The data used for the study was secondary.

The collected data were analyzed by using simple statistical

analysis like percentages, tables, and financial ratios.

The three years’ auditing report and the financial analysis tools

such as liquidity ratios, leverage ratios, profitability ratios, and

trend analysis of balance sheets from the period of 2004 to 2006

E.C. were used

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the Result revealed that

liquidity level of the SACCO union is fairly high but in a

decreasing rate.

The leverage ratio of SACCO unions are highly

leveraged

Their profitability rate is below the minimum required

rate

The financial growth trend of most of the unions also

good and they are in a position to expand their activities

and the social fund from profit earning and they could

pay the dividend fund to their members. 17

8. Recommendations

Increasing the financial liquidity and profitability,

Reducing the leverage by enhancing loan provision and

collection efforts,

Selling additional shares,

Minimizing periodic expenses and developing

organizational culture by using financial ratios to

effectively manage their assets are the possible

recommendations.18

“Saving is not only placing some thingfrom the remain of the basicconsumption but also sacrificing something from what you have”.

ቁጠባ ማለት ሲተርፈን ብቻ ማስቀመጥ ሳይሆን ዛሬ ካለንነገር ለነገዉ መሥዋዕነት መክፈል ማለት ነወ፡፡

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Thank You!!

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