How do Cooperatives work?

13 July 2010 at 00:01 7 comments

By James Allman-Gulino, KF11 Uganda

I have now started the phase in my Kiva Fellowship when I will be working with MCDT SACCO, a relatively small MFI located in Kampala, Uganda.  MCDT lends to clients based on the Grameen Bank methodology – to take out loans, borrowers form groups that collectively guarantee each member’s loan.  If one member misses a repayment or defaults, the other members of the group are responsible for that individual’s loan amount.  MCDT’s clients come primarily from the peri-urban areas surrounding Kampala city, and are all women.

However, probably the most unique aspect of MCDT SACCO is that it is organized as a cooperative.  The “SACCO” in its name refers to “Savings and Credit Cooperative,” which is a term used in many countries to refer to what Americans might know as a credit union. A cooperative/credit union provides most of the same services as other financial institutions: savings accounts, access to loan credit, and other basic financial services.  However, the distinctive thing about cooperatives is that they are actually owned and controlled by their clients.  Cooperatives’ clients (“members”) invest financial capital in the institution, receiving shares and thereby becoming partial owners of the cooperative.  This ownership entitles the members to a say in aspects of the SACCO’s decision-making, and the ability to elect a Board of Directors; each member receives a vote, regardless of how many shares they hold.  The votes on policy decisions and Board membership happen at the institution’s annual shareholders’ meeting (actual voting is done through elected member representatives; having several thousand borrowers all vote together would be logistically impossible).  Cooperatives thus give members a means to actually influence how their own financial services are structured, in a way they couldn’t at a large financial institution.  This is particularly important given the high interest rates and fees that microfinance clients can sometimes face; in a SACCO, these problems can be mollified by giving clients a bit more of active role in determining fee structures and other policies.

The great credit staff at MCDT's Kampala office

MCDT functions by offering both savings accounts and lines of credit to its members; to access these services, you must purchase at least one share of the cooperative.  One share costs a member 10,000 Ugandan Shillings (a bit less than $5); in order to get larger loan amounts, a member must buy additional shares.  The provision of these shares, in addition to the savings accounts that members hold, helps supply MCDT with a supply of capital from which they can issue microfinance loans.  Depending on MCDT’s yearly financial performance, owning shares also entitles members to a share of the SACCO’s profits, if any.

It’s been particularly interesting to see how MCDT’s status as a cooperative affects its members, and empowers them to influence the institution’s decision-making.  For instance, I was with a group of borrowers last week who were discussing MCDT’s various service fees.  They were happy that MCDT had recently lowered the interest rate on their basic loan product, but one member was annoyed because she thought the fees for client passbooks (basically a small ledger to keep track of accounting) were too high.  The other group members encouraged her to bring the issue up before the upcoming annual shareholders’ meeting, where member representatives could nominate to change or eliminate that particular fee.  Other members chimed in with more suggestions, and one of them noted everyone’s sentiments to remember for later.  The credit officer I was with also reminded them that such service fees were important for the SACCO to maintain good financial performance and produce profits, which could then be passed back to the members.  It was refreshing to see such a vibrant conversation between borrowers about the actual policies that affected them; clearly MCDT’s structure had helped empower the members to want a more active role in the cooperative’s operations.

I hope that gives a quick but helpful summary of how cooperatives work, and the unique aspects of that particular model for a microfinance institution.  Please feel free to leave any comments/questions about MCDT and their operations, or how their cooperative structure affects what they do.  Also if you’re a Kiva lender and the idea of a cooperative particularly appeals to you, make sure to check out Kiva’s other Field Partners that are organized as cooperatives, including CCT, GDMPC, Cooperativa San Jose, and PMPC.

To support MCDT SACCO and their work with Kiva, please consider making a loan to one of their clients today.

Entry filed under: KF11 (Kiva Fellows 11th Class), Micro Credit Development Trust SACCO (MCDT), Uganda. Tags: , , , , , , .

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  • 1. Alexandr  |  28 April 2012 at 02:10

    Learning about cooperatives.Thank you.Sincerely,Alex,Donetsk,Ukraine.

  • 2. Jenny Jin  |  15 July 2010 at 03:57

    Thanks for the reply James! I’ve been reading that SACCOs are far more popular than MFIs in Kenya. Curious to understand the comparative differences, and where the trend is heading in East Africa.

    Keep the posts coming!

  • 3. Robert Nelson  |  13 July 2010 at 06:28

    I would like to know how to start this type of cooperative for young people in the United States, can you refer me to any “How To” information resources?

    • 4. James  |  13 July 2010 at 11:05

      Hey Robert, thanks so much for your interest. I’m probably the wrong person to give any real advice on this front, but for federally-chartered credit unions in the US I can refer you to the National Credit Union Administration: Hope that helps!

  • 5. Mason Champion  |  13 July 2010 at 04:23

    Interesting and insightful post, James. Thanks for all of your sincere intention to serve and impact others through the Kiva platform. Keep up the great work and stay safe. We all miss you back home.


  • 6. jennyjinkiva  |  13 July 2010 at 01:13

    Great post James! Can’t wait to learn more about how SACCOs work from your hands on perspective. 🙂

    A very basic question to start- How and who can join a SACCO?

    • 7. James  |  13 July 2010 at 11:12

      Hey Jenny, thanks for the comment! As for who can join, in MCDT’s case it’s any person who is taking out a loan or starting a savings account with them. They also exclusively loan to women, so their clients are women in Kampala and the immediate suburbs who hear about the organization through MCDT’s outreach/friends who have gotten loans, or come to MCDT applying for a loan. All the clients then get shares in the SACCO. Hope things are going well in Kenya!

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