Esther K. Ishengoma
Bank requirements and governance for savings and credit co-operative societies (SACCOS) in Tanzania and Kenya
As suppliers of wholesale commercial funds to savings and credit co-operative societies (SACCOS) for on-lending to their clients, banks are key stakeholders. According to the agency theory, banks influence the operations of SACCOS. However, empirical knowledge remains scant on the measures banks apply to control these operations and on SACCOS’ governance-related reactions to bank requirements. In an attempt to fill this gap, this paper explores measures used by banks to monitor and control SACCOS-partners in addition to assessing SACCOS’ governance-related reactions to bank requirements. The paper utilizes data collected through in-depth interviews held with both the management of five banks selected primarily because of their active involvement in wholesale lending to SACCOS. In addition 11 SACCOS linked to these five banks were selected in Tanzania and Kenya. Thematic content analysis was used to analyse the data. The findings reveal that measures applied by banks to monitor and control SACCOS-partners include accessing and investing in information on SACCOS-partners and their clients, and requiring both guarantees and forced savings. Compliance with these measures was found to result into two governance-related reactions: 1) improved compliance with own by-laws, regulations, policies or procedures, and government regulations; and 2) realignment and/or reduced compliance with some of their own by-laws, policies, regulations, and procedures, and thus some of the government regulations, to accommodate bank requirements.
This paper examines the relationship between the economic wellbeing of microfinance cooperatives’ (MFCs) clients and financial linkage intensity, moderated by multiple linkages and linkage duration. It applies regression models on data from 575 clients of 20 MFCs which were involved in financial linkages with formal financial institutions (FFIs). Findings revealed that the MFCs clients’ income is positively associated with linkage intensity. However, multiple linkages and linkage duration weakened the association between linkage intensity and MFCs clients’ income. This could be an outcome of high costs of maintaining multiple linkages, unfavourable conditions and terms of loans from multiple FFIs as well as high costs of lock-in among MFCs with a long-term relationship with FFIs. The costs trickle down to MFCs clients and worsen their economic wellbeing. MFCs need to avoid borrowing from multiple FFIs at the same time and linkage duration which may lock them in. They should also use their long-term relationship with FFIs to bargain for better terms.