African SACCO Congress The Seven Deadly Sins of Credit Unions/SACCOS Lois Kitsch, ICUDE

Which one are you?

Worldwide there are over 52,000 credit unions operating in 100 countries serving over 200 million people. The world’s largest credit union (Navy Federal Credit Union) serves 4 million members. No matter their size, for all SACCOs the key focus remains on the members and on the idea of people coming together to help each other. A quick look around the world

5 minutes to list top 3 things members want from your SACCO? What do your members want from your SACCO

THE MODEL CREDIT UNION CREDIT UNION IDEOLOGYOPERATIONS FINANCIAL MANAGEMENT PRODUCTS AND SERVICES VISION DEMOCRACY SERVICE SOCIAL PHILOSOPHY POLICIES CONTROL PROCEDURES STRUCTURES SYSTEMS LOANS SAVINGS OTHER SERVICES PROTECTION STRUCTURE QUALITY ASSET RATES OF RETURN INTERNATIONAL CREDIT UNION PRINCIPLES AND STANDARDS

External dependency Unclear financial Information Uncompetitive products & services Poor public image Undisciplined financial operations Share based loan analysis Social philosophy over common business sense The Seven Deadly Sins of SACCOs

Credit Unions should: Not depend on Government or subsidized loans? Not use external credit to fund operations? Savings should be the primary source of funds for loans demand: Savings promote Independent decisions Savings promote cost control Savings promote member thrift Sin 1 – External Dependency

Monthly Financial Statements should: Be accurate and timely Include Profit/Loss Statement, Balance Sheet, Cash flow information Include Delinquency assessment from loans at risk Include Key Performance Indicators Incorporate the Financial Disciplines Sin 2 – Unclear Financial Information

Delinquency Control Delinquency goal of below 5% Control of non-earning assets Maximise earning assets at 95% Non-earning asset goal below 5% Raise capital to 10% of total assets Maintain adequate reserves Capital accumulation Financial Disciplines

Loans & Savings: Uninformed members One size fits all Uncompetitive pricing Adoption of new technology We have always done it this way! Sin 3 – Uncompetitive Products & Services

Loans ‘Classic’ loan policy Members have to wait their turn to get a loan Loan sizes too small for members Loan terms not matched to member needs Savings Credit union does not promote savings Does not offer youth accounts or specialised accounts eg Christmas savings Loan and dividends rates not market driven Sin 3 – Uncompetitive Products & Services

Loans & Savings: Do products match members needs? At a price members can afford to pay? On terms that are convenient? Has appropriate new technology been adopted? Is your SACCO available when members need it? Sin 3 – Uncompetitive Products & Services

Lack of public trust: Inefficient operations Leadership irregularities Run-down infrastructure Poorly trained staff Unequal treatment of members or potential members Sin 4 – Poor public Image

Inefficient operations Members have to wait for loans (IN)Adequate tools to meet the members needs Unequal Treatment Written policies ensure consistency and fairness Poorly trained staff Is it just the Board who get the training? Sin 4 – Poor public Image

Improved public image: Well- lit clean buildings Happy and well-trained staff Equity in the membership Quality products and services in a timely fashion Result – A growing, self-reliant Credit Union Sin 4 – Poor public Image

Undisciplined financial operations leads to: High delinquency Low collections High expenses/non-earning assets Improper pricing of savings and loans Lack of liquidity Sin 5 – Undisciplined fiscal operations

Share based lending Does not measure capacity to repay Is easier, but more costly to the SACCO because it creates high delinquency! Sin 6 – Share based lending analysis

Capacity based lending Income to Debt Reflects a member’s ability to pay Results in lower delinquency Sin 6 – Share based lending analysis

Social philosophy Charity mentality Lack of profitability Jeopardising safety and soundness to accommodate an individual over the success of the group. Common business sense ensures Equal opportunity for all Profits that are necessary to ensure financial strength The needs of all members are considered and protected Sin 7 – Social philosophy over common business sense

External dependency Unclear financial Information Uncompetitive products & services Poor public image Undisciplined financial operations Share based loan analysis Social philosophy over common business sense Summary

The End