|dc.description.abstract||ENGLISH ABSTRACT: Despite the consensus among economists that finance plays a critical role in growth and development at national/regional and enterprises/household levels, more than 90% of Tanzanians are excluded from the mainstream banking. To fill the existing financing gap, there has been an explosive growth of microfinance institutions including Saving and Credit Cooperatives (SACCOs) during the past two decades. Given the risky segment in which SACCOs operate, such an explosive growth may signal either a stairway to economic heaven or a highway to micro-financial crisis. Hence, it is necessary to empirically investigate the performance (efficiency and sustainability) of the SACCOs. Specifically, knowledge of SACCOs’ performance could generate valuable and concrete information for policy makers, industry managers and academics. This is of particular interest for the nascent but fast-growing Saving and Credit Cooperatives industry in developing countries such as Tanzania. The aim of this study is to conduct an empirical investigation of the performance of SACCOs in Tanzania. Specifically the study addressed the following three questions: a) How efficient are they? b) Are they sustainable and profitable? c) What drives their performance in terms of efficiency and sustainability?
The study employed data envelopment analysis with bootstrap approach to estimate the efficiency of the SACCOs. Standard financial ratios were used to assess profitability and sustainability. A multiple case study approach was used for an in-depth investigation into the drivers of performance in high- and low-performing SACCOs. Secondary data from 103 SACCOs was collected from the Ministry of Cooperatives and Food Security and the regional headquarters of the Cooperatives Audit and Supervision Corporation. Primary data was collected from managers, board members and regulators through face-to-face interviews. The results of the study have been organized into four empirical essays. The first essay investigates the technical and scale efficiency of SACCOs using data envelopment analysis. The bias corrected results show that average scores are 32%, 43% and 77% for technical, pure technical and scale efficiencies, respectively. Since most of the inefficiencies are either technical or scale in nature, the study recommends increasing the operating scale for smaller firms. Firms operating beyond the optimal scale may need to downsize. The managers from technically inefficient firms may reduce the waste of productive resources by utilizing inputs more efficiently.
The second essay estimates the profitability and financial sustainability of SACCOs. The results show that approximately 61% of the SACCOs in the sample are operationally sustainable and 51% of the SACCOs are both operationally and financially sustainable. The average sustainability score was 127%. On average, our results for profitability, measured by return on assets, are higher than some of the results reported for standard microfinance in the region and globally. The third essay benchmarks the performance of SACCOs using an efficiency-profitability matrix to distinguish best performers from struggling SACCOs. The findings show that the majority of the firms (61%) were classified in the low efficiency, low profitability category. Only 12% (12 out of 103) of the SACCOs are classified as best performers in both efficiency and profitability dimensions. It can be concluded that the performance of SACCOs in Tanzania needs a well thought through turnaround strategy to mitigate the problem of low performance. For the majority of the SACCOs, both profit- and efficiency-increasing strategies are required. The last essay complements the previous three essays by using a multiple case study approach. The essay explores the perceptions of regulators, board members and managers to elicit the key drivers of performance in the industry. It emerged that limited capital, low level of members’ education on cooperatives, effective governance and leadership are major performance constraints common to both high and low performing SACCOs. High performing SACCOs tend to have an income diversification strategy, committed and dedicated leaders, as well as well-articulated lending processes and procedures which apply to everyone including board members and management. In contrast, weak performing SACCOs have weak governance and/or management teams, discriminatory lending processes allowing management and board members to have special privilege on loan allocations, and a less diversified income strategy. A more conservative capital growth strategy that leverages on internal capital mobilization, effective oversight of management, members’ education and training could foster the prosperity of the industry. In conclusion, it was found that there is a significant potential for performance improvement in both efficiency and sustainability. While SACCOs are on average sustainable, the fact that about 49% of them are not financially sustainable is a matter of concern. The effort in resolving capital constraints, effective regulation, governance and members’ education could improve the performance of the industry.||en_ZA