Project Report on Investors Behaviour Towards Reliance Mutual Funds

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					UNIVERSITY OF ZULULAND
 THE ROLE OF FINANCIAL SERVICES COOPERATIVES
 (FSCs/SACCOS) IN SAVINGS MOBILISATION AND ECONOMIC
 DEVELOPMENT.




PAPER PRESENTED TO THE FIRST INTERNATIONAL CONFERENCE HELD AT
  THE ICC-DURBAN
      23RD – 26TH FEBRUARY, 2009



Paper Prepared by: Gilbert Okoye, HOD - Cooperative Programme,
University of Zululand
STRUCTURE

• Introduction
• Savings Mobilization – What is Savings Culture
• SACCOS – Why SACCOS
• SACCO Loans vs. BANK Loans
• Role of SACCOS in Economic Development and
  Poverty Reduction
• How Savings, Loans and Banking Operations
  Work
• SACCOS’ Contributions Globally
• Challenges that Face SACCOS in South Africa
INTRODUCTION

I would like to quote some bleak statistics
which were published in the press in
November, 2008.
Statistics on Debt Crisis in South Africa

• In a Consumer Debt Report compiled by the National
  Debt Counselling Agency, it was revealed that South
  Africans are trapped in the worst debt crisis.
• Whites who make 9.2% of the population owed R680
  billion in household debt,
• Blacks owed R310 billion,
• Coloureds owed R82 billion and
• Indians owed R65 billion.
• Household debt had quadrupled to R1.1 trillion in the
  past five years.
Statistics on Debt Crisis in South Africa
(cont)
Household debt was defined as money owed to banks for
mortgages, overdrafts, leases, instalment sales, and credit
cards.

Statistics show that 6,000 vehicles and 2,000 homes are
being repossessed every month.
Statistics on Debt Crisis in South Africa
(cont)
• More than six million people, half of South
  African’s labour force, can not pay their debts;
• On average, each South African owes R95,000 in
  unsecured debt – which comprise credit cards,
  personal and student loans, and utility bills;
• The most debt ridden group is 25 – 35 year olds
  who earn between R8,000 and R12,000 a month;
• KwaZulu Natal, which follows Gauteng and West
  Cape, has individuals owing R177 billion;
Statistics on Debt Crisis in South Africa
(cont)
• In the first quarter of 2008, the majority (89%) of
  the population spent 82.3% of their disposable
  income on household debt, as compared to
  60.2% in 1998.
• Conspicuous consumption tendency which
  generally characterises the lifestyle of the
  majority of our people is a retrogressive strategy
  for poverty entrenchment not poverty
  reduction.
Statistics on Debt Crisis in South Africa
(cont)
• Speaking to a corporate-sponsored gathering of
  investors at a Kaya FM function in October, 2008, David
  Shapiro, an investment expert, said that South Africa's
  economy was vulnerable due to the fact that the country
  lacked a savings culture and relied on foreign investment
  at a time when global conditions were tightening up.

• “The problem is that South Africans are not savers, we
  spend. To develop we have to rely on foreigners, but
  when things turn sour the expected development funds
  do not flow in.”
WHAT IS A SAVINGS CULTURE ?
Savings is a habit just like other good and bad habits found in human
beings, for example, politeness, punctuality, rumour-mongering, and
drunkenness.

One becomes a drunkard because he or she has nursed the habits of
drinking for so long that his or her entire inclination is geared towards
drinking.

To develop a savings habit, one needs to develop the character,
attitude, behaviour, outlook and focus that goes with the habit.

There is no such thing as “too poor to save, or too rich to save”.
WHAT IS A SAVINGS CULTURE ?
(Cont)
Education is a core strategy and campaigns have to be
directed at helping people to understand the importance of
savings.

As more people move into gainful employment,
families begin to have more money that can be directed
towards savings. Saving is all about discipline and people
are spending less than they earn.

People will have to adjust their lifestyle and the manner in which they
live so they can accommodate the redirection of income into a savings
scheme. After a few years, people will get used to the idea.
WHAT IS A SAVINGS CULTURE ? (cont)

 "If a household is not saving enough to fund its needs, whether it is consumption or
 investment, it will have to borrow. The more you borrow, the less creditworthy you
 become and the higher the interest rate you have to pay.

 Exactly the same happens at the country level. If South Africa relies on foreign
 savings it will require that we justify the decision of foreign investors to invest their
 money in this country.

 Therefore, for South Africa to be able to attract capital inflows we have to be able to
 offer offshore investors a good return and that means a higher interest rate and a
 higher cost to this country to borrow the capital.

 The higher cost of capital results in higher costs of production, making the country
 less competitive. However, if the cost at which South Africa borrows is lower than the
 rate of return that it enjoys, then it can be beneficial. Borrowing is not bad in it's own
 right, it is when it is unsustainable that it creates serious problems.“ Says the South
 African Savings Institute.
WHAT IS A SAVINGS CULTURE ? (cont)

 To develop a savings culture we have to re adjust our
 focus and change our habits. Savings is a culture, a habit
 and a way of life. When you have developed the culture,
 you will start to see your wealth grow.


 The development of a savings culture will entail
  the destruction of old and useless in-built habits
  and principles, and the assimilation of new ones.
WHAT IS A SAVINGS CULTURE ? (cont)

Commit ourselves to participate in this socio-
economic revolution brought about by SACCOS by
saving regularly at least 5% of your salaries, or
other income, into a SACCO so that through the
strength of numbers, the pool of savings created
could be a source of cheap credit guaranteed only
by the members of the SACCO.
WHAT IS A SAVINGS CULTURE ? (cont)

You can then use the money borrowed to meet your basic
needs like health, education, shelter and food, before
graduating to higher needs like cars, business premises and
plots of land.

Not easy to create wealth by acquiring bank loans, unless
you are going to invest the money in a project that will give
you enough returns to pay back the loan, meet your basic
needs and save the rest. It is only the savings you realize
out of this that will start you on the road to creating
wealth.
WHAT IS A SAVINGS CULTURE ? (cont)

For Example,
Suppose all the 450,000 teachers in KwaZulu
Natal formed a SACCO and decided to
contribute only R100 per month into their
SACCO, they will have R45 million per month
into their kitty. In 6 months, they will have R270
million in their savings account. In one year they
will have accumulated R540 million.
WHY SACCOS ?

SACCOS can be formed by any group of people who either has a common bond (like in
the case of one employer), or people with similar objectives.

•   Government employees,
•   Employees of Government parastatals,
•   Teachers,
•   Nurses,
•   Doctors,
•   Traders,
•   Mall workers,
•   Municipal workers,
•   Taxi workers,
•   Employees of private commercial companies,
•   Parliamentarians,
•   Hawkers, and
•   Domestic workers.
WHY SACCOS ? (Cont)

The basis of SACCOS is traceable to large numbers. It is only through
the pooling of savings from a large group of people that SACCOs are
able to create a pool of funds that can be lent out to other members.

The focus in SACCOS is savings, and not borrowing.

Members of the SACCO are the ones to decide on: How much interest
has to be charged on loans given to members; how much can be loaned
to a member; the repayment period of any loans given out; and the
collateral required. This makes the SACCO a democratic business entity,
unlike the commercial banking firms that also lend money.
WHY SACCOS ? (Cont)

• Financial Services Cooperatives and SACCOS in
  particular, are increasingly being heralded as some of the
  most exciting development innovations since perhaps
  the green revolution.
• Financial services cooperatives and SACCOS have been
  credited for lifting thousands of people from a life of
  penury and bondage in India and South East Asia.
• Non-formal financial intermediaries –ranging from the
  merry-go-rounds, stokvels and informal moneylenders
  should be allowed to slowly graduate to the level of
  SACCOS.
WHY SACCOS ? (Cont)

• SACCOS and other financial intermediaries have linked
  themselves to Cooperative Banking Systems creating a
  “second tier” banking industry owned by indigenous
  Kenyans.
• It is imperative that members of Savings and Credit
  Cooperative should contribute capital so that at least the
  cooperative has some hedging funds.
The Role of SACCOS in Economic Development


•   Establishment of micro-business both in the rural areas and urban
    areas which has raised the standard of living for the people.
•   Provision of financial services to all vulnerable groups including
    women, the youth and the disabled. This has helped to elevate
    their status in Society through economic and social
    empowerment.
•   Capacity building for SACCO members and staff through
    awareness and training on various skills like leadership and
    management skills, record keeping, importance of savings,
    management of micro-projects and basic financial management.
•   Inculcation of a culture of savings in the lives of people and
    discouraging non-productive expenditures
The Role of SACCOS in Economic Development (cont)


•   A source of direct employment for the members and the staff of
    the SACCO and indirectly impacting the lives of many households
    who depend on the members and staff of the SACCO.
•   Many rural micro projects i.e. restaurants, taxis, salons,
    handicrafts, shops and kiosks have been started from the loans
    taken by members of SACCOS.
•   SACCOS have enabled to the savers to acquire the capacity to
    build low cost, yet high quality, housing units, and to buy vital
    household items, and put their children through affordable school
    system.
•   SACCOS have enabled members to put some of their loans in
    agricultural development thereby increasing the productivity in
    the agricultural sector and enhancing food security.
SACCOS SUCCESS STORIES

•   760 million people around the world are members of SACCOS.
•    SACCO members make up 29% of the population of Argentina, 33% of
    Norway and 40% of the USA.
•   SACCOS provide 100 million jobs worldwide.
•   SACCO businesses are among the largest and most successful in the world.
•   In the United States SACCOS serve 4 million members and their gross
    business is about $93bn. fourteen of these SACCOS are included in the
    'Fortune 500' List of the largest corporations.
•   Credit Mutual in France and the Rabobank in the Netherlands are leading
    banks in their countries and in the industry globally.
•   In Sweden half the population has at least one insurance policy with the
    Folksam Group.
•   Private sector SACCOS are well developed In Argentina, Brazil, Chile and
    Uruguay.
SACCOS SUCCESS STORIES (cont)

•   Elsewhere in Latin America there are numerous examples of successful
    SACCOS. For example, in Bolivia a poultry producer’s SACCO in Cochabamba
    produces 60 per cent of the country’s chickens and nearly 30 per cent of its
    eggs.
•   In India, where they play a major role in supporting the green revolution,
    90,000 such SACCOS exist, where they supply 34 per cent of fertilizer inputs.
•   The Anand SACCO movement is the largest producer of dairy products,
    comprising over 57,000 dairy co operatives who receive payments through
    the SACCO with more than 6 million members.
•   In Tunisia, 60 per cent of milk production is marketed and payments are
    made through SACCOS.
•   In some of the economies in which agricultural exports were important,
    private sector SACCOS contribute substantial percentages of financing
    agricultural exports; for example, Cote d’Ivoire; cotton, 99 per cent and
    coffee and cocoa, 44 per cent; Costa Rica: Coffee, 37 per cent; and Brazil:
    wheat, 50 per cent and cotton, 40 per cent.
CHALLENGES FACING SACCOS DEVELOPMENT


1. PROMOTION OF A SAVINGS CULTURE
The reduction of consumption trends and reliance on easy-to-obtain
loans should be discouraged. This can be done through sensitization
campaigns to help change the culture of expenditure on unnecessary
goods, and learning how to produce some of the basic items like
vegetables, fruits and maize and rice. A culture of savings needs to be
inculcated amongst all young and old people. The starting point is in
schools where a cooperative curriculum should be developed and taught
at all levels of the school system. The formation of Savings and Credit Co
operatives in all work places should be made mandatory, while
encouraging the formation of savings clubs in our educational
institutions. Countries like Kenya have introduced cooperative training in
schools.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


   2. CHANGE OF ATTITUDE AND DEPENDANCE SYNDROME
In as much as I appreciate the social benefits that the South
African Government grants to its disadvantaged citizens, too
much reliance on handouts and an attitude of dependence
should be discouraged in the society. Even where the
individuals could mobilise themselves and produce goods
and services, or where the individuals could come together,
work together and save, the motivation to do that is not
present. The remedy would be to identify opinion leaders in
our society and let them travel outside this country to see
what the other people have done for themselves.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


3. FUNDING OF UNVIABLE COOPERATIVES.
When the Government funds a weak SACCO, it will never make the
SACCO become strong. In fact wholesale lending of funds to such a
cooperative runs the risk of doing more harm than good when it is lent to
SACCOs with weak management, ineffective governance or poorly
performing portfolios. Wholesale loans to a SACCO can impact the
savings culture of the members positively or negatively. In the weak
SACCOs that we have seen here, government support in terms of funding
changed the orientation of the cooperative from savings-led, to being
simple mechanisms for the disbursement of funds, resulting in a
deterioration of loan portfolio quality and amounts of member savings.
However, the change in a SACCO's savings culture depends more on the
quality of management and governance than on anything else.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


INADEQUATE INSTITUTIONAL SUPPORT STRUCTURE
The current institutional support structures for SACCOS are weak,
      understaffed, and lacking in knowledge and skills in cooperative
      management. A suggested model that could be tried is the re-
      arrangement of the Cooperative Division as follows:
At District Level:
The introduction of the offices for District Cooperative Officer in charge
      of all cooperative staff and activities in the District, and
Other Cooperative Officers supervising specific cooperative activities e.g.
      Savings and Credit, Agricultural Cooperatives, Housing
      Cooperatives, Handicraft Cooperatives etc.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


At Provincial Level
• The creation of a position of Director of Cooperatives
• Deputy Directors, assisting in planning and policy matters.
• Senior Cooperative Officers responsible for various activities e.g.
   Savings and Credit, Housing Cooperatives, Handicraft Cooperatives,
   Agricultural Cooperatives.

• The creation of specialised departments at the Government level to
  deal with specific areas like Savings and Credit Cooperatives,
  Agricultural Cooperatives, Non-agricultural Cooperatives, Education
  and Training, Women and Youth Cooperatives, Housing Cooperatives
  and Handicrafts is essential in providing sufficient institutional
  support for cooperatives in the province.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


• CAPACITY BUILDING IN THE COOPERATIVE MOVEMENT
Efficient capacity building in cooperatives is crucial, since the
success of SACCOS is largely dependent on the quality of
human resources, governance and management.
Unfortunately, there is much evidence of insufficiently
trained manpower; overlaps and contradictory messages
given by different training providers to the SACCOS; poor
timing of interventions; lack of accountability, and a
mismatch between institutional assessments and the
assistance given to cooperatives.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


• MONITORING, EVALUATION AND MENTORSHIP
Monitoring and mentorship of cooperatives
especially SACCOS are not adequate. SACCOS should
be constantly monitored to find out whether they
comply with a) Cooperative Act, 2) Cooperative
Banks Act, c) Their own internal By Laws and d) internal
documents like Business Plans and Budgets. Such constant
monitoring could lead to improvements in management
practices of the SACCO.
CHALLENGES FACING SACCOS DEVELOPMENT (CONT)


• REGULATORY FRAMEWORK
Regulatory and legal framework needs to undergo
through the necessary legislative development
concurrently with the imperative of designing
management and accounting systems appropriate for
financial cooperatives and building service capacity among
the SACCOs. The development of SACCOS’ regulatory
framework is an ever-changing phenomenon and there is
therefore a need to learn from countries that have
progressed more in the SACCO field.
•THANK YOU ALL

				
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