Friends or Foes? Regulation and Collective Action: The Case of Cooperative Organisation of Savings and Credit in Uganda

Abstract

"Many development practitioners in Uganda are concerned about both over- and underregulation of institutions of collective action in the realm of savings and credit. This paper identifies 4 underlying assumptions regarding the risk of regulation capture (over-regulation of small institutions of collective action), leadership capture and abandoning of the SACCO by its most economically potent members (under-regulation of medium-sized institutions of collective action) and capitalist capture (turning institutions of collective action into a shareholding company). The paper interprets savings and credit cooperatives (SACCOs) and savings groups in the terms of the theory of collective action, constructs financial indicators to proxy the depth of collective action in these institutions, and constructs a framework to measure regulation. Regulation encompasses monitoring, sanctioning and providing subsidies. The paper finds, across 7 data-sets, quantitative and qualitative evidence that regulation of Uganda’s SACCOs does not provide conditions for dynamics that institutionalise economic performance. E. g. MFIs monitored and sanctioned by the central bank enjoy such provisions, however the advantages materialise in the longer run only, in the short run joining that framework is very expensive. SACCO performance hangs strongly on the performance of individual leaders. Government of Uganda (GoU) focuses too much on providing subsidised loan funds and too little on creating robust nested enterprises which would provide effective monitoring to the SACCOs. In the light of this unsatisfactory performance of the existing regulations for a thousand-odd SACCOs, GoU’s recent announcement to micro-regulate hundreds of thousands of savings groups is clearly a wrong priority; particularly as that segment appears to be performing rather well, mainly because its design principles are close to those identified in long-lasting common-pool resources. In contradiction to what most practitioners think, the data-set for GoU-supported SACCOs, with 735 institutions the largest data-set in the study, performs well on indicators of collective action and reports low external credit relative to its savings and members’ shares. This finding relates to a highly aggregated level, though."