The untold story behind Saccos’ collapse

DAR ES SALAAM: FOR nearly three decades, Savings and Credit Cooperative Societies (SACCOS) were presented to Tanzanians as the people’s bank, a grassroots alternative to commercial lenders built on trust, small savings and mutual guarantees.

Villages, ministries, parastatals and market associations formed thousands of them. Yet today, a sobering pattern has emerged.

A handful of large, well-run SACCOS, mostly civil-service and institutionbased schemes with tens of thousands of members, dominate the sector, while many smaller, community-based SACCOS have collapsed, become dormant or entered liquidation.

Why did so many fail while a few grew into giants? Interviews with practitioners, TCDC guidance documents and academic research on the sector point to a convergence of structural, behavioural and regulatory factors rather than a single cause.

SACCOS occupy an awkward position in Tanzania’s financial architecture.

They are neither fully fledged banks under Bank of Tanzania (BoT) prudential supervision nor informal community groups.

This “in-between” status has historically limited their access to affordable wholesale funding, refinancing facilities and technical support available to commercial banks.

Many small SACCOS relied almost entirely on member savings and shares to fund lending, leaving them with little protection against liquidity shocks.

When loan defaults increased or members withdrew savings simultaneously, undercapitalised societies had few options.

Larger SACCOS, by contrast, built stronger balance sheets, diversified their funding and, in some cases, secured credit lines or correspondent banking relationships, advantages smaller societies could not easily replicate.

Alongside these financial constraints, SACCOS have also carried a political burden.

Government-driven cooperative revival campaigns sometimes influenced leadership appointments, while in some cases loans were extended or forgiven for reasons of patronage rather than creditworthiness.

Where local political figures sat on management committees or influenced lending decisions, ordinary members could perceive a double standard: Strict recovery action against small borrowers but leniency towards politically connected individuals.

Such selective enforcement undermined confidence and, over time, weakened the culture of repayment on which cooperative lending depends.

Beyond institutional weaknesses, borrower behaviour has also contributed to SACCOS failures.

Research on SACCOS in Tanzania, including memberlevel studies, has identified both institutional and personal factors as being associated with failure.

In practice, this has included wilful default among members who viewed SACCOS funds as “community money” and therefore less deserving of repayment discipline than bank loans.

Other problems have included side-selling of produce pledged as security in agricultural SACCOS and multiple borrowing from different SACCOS and microfinance institutions without effective credit-reference mechanisms.

Peer-guarantee models, intended to enforce social pressure for repayment, have sometimes produced the opposite result.

When one member defaulted, guarantors could also default rather than honour another member’s obligation, creating a chain reaction that weakened the entire society.

Closely related to borrower conduct has been the lack of sufficient and enforceable collateral.

Unlike banks, many primary SACCOS have traditionally lent against social guarantees, salary checks or modest movable assets rather than registered land or other hard security.

This has kept lending accessible to lower-income members but has also left SACCOS exposed when defaults rise.

Recovering a loan secured only by a guarantor’s signature or an unregistered household asset can be slower, more difficult and more costly than enforcing a mortgage or registered charge.

Many small SACCOS lacked the legal capacity and sometimes the willingness to pursue defaulters through the courts. As a result, bad loans accumulated until reserves were exhausted.

Larger SACCOS generally responded by tightening collateral requirements, introducing salary-deduction arrangements with employers and, in some cases, requiring registered security for larger loans.

Smaller member-owned societies were often slower or less able to make these changes. Perhaps the most consistently cited problem, however, is weak internal governance.

Many SACCOS were run by volunteer committees with limited accounting, credit-analysis and risk-management skills, managing members’ funds with the informality of a village welfare group.

Common weaknesses included poor record-keeping, irregular reporting, inadequate credit appraisal, weak internal controls and failure to build adequate loan-loss provisions or maintain sufficient liquidity buffers.

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TCDC’s supervisory efforts in recent years including requirements for licensed SACCOS to submit regular performance and operational reports reflect growing recognition that weak reporting and internal management have been persistent problems.

The societies that survived and expanded were generally those that professionalised early by hiring qualified managers and loan officers, computerising records and adopting modern core banking systems.

Underlying these challenges were regulatory gaps that took years to address. For much of the sector’s history, oversight was fragmented and underresourced.

The Cooperative Societies Act of 2013 and the Savings and Credit Cooperative Societies Regulations of 2016 established rules for licensing, lending and prudential conduct, but enforcement capacity did not always keep pace with the rapid expansion of SACCOS.

Many societies operated for years with limited on-site inspections, inconsistent auditing and weak consequences for breaches of lending or governance requirements.

In recent years, TCDC has moved more assertively, including through stronger supervision, reporting requirements, technology guidelines and oversight of the liquidation of failed societies.

While these measures can improve discipline, they came too late for some societies that had already accumulated unsustainable non-performing loans.

Taken together, these pressures produced a natural sorting process.

SACCOS anchored in large, stable institutions particularly public-sector and parastatalbased societies with salarydeduction arrangements, diversified membership and professional management had greater capacity to absorb shocks, invest in systems and enforce repayment discipline.

Small community and agriculture-based SACCOS, by contrast, were often exposed to a single crop cycle, employer or local economic activity.

Their vulnerability was compounded by political interference, weak collateral enforcement and concentrated membership.

As defaults mounted and confidence weakened, members withdrew, new savings dried up and many societies faded away or were formally wound up. Looking ahead, the remedy requires more than tighter supervision.

Industry stakeholders broadly point to stronger prudential regulation backed by effective enforcement, professional management, computerised record-keeping, credit-reference sharing to curb multiple borrowing and stronger protection of cooperative leadership from political interference.

Viable SACCOS also need access to refinancing facilities and technical assistance that can help them build resilience before, rather than after, a crisis.

Without such reforms, Tanzania risks developing a financial-inclusion landscape dominated by a shrinking number of large societies, while the grassroots cooperative movement that once served millions of low-income Tanzanians gradually disappears from many communities.

Jacob Danda is Manager, Loans Workout & Recovery at TIB Development Bank Limited.