CHAPTER ONE

INTRODUCTION

1.1 Introduction

The study was about the impacts of SACCOs on unemployment reduction in Uganda.

Nakanyonyi SACCO in Jinja City was used as a case study. The chapter therefore highlighted

the background of the Study, statement of the problem, objectives of the study, research

questions, research hypothesis, and scope of the study and the significance of the study.

1.2 Background of the study

1.2.1 Historical Background

Unemployment as defined by the International Labour Organization (ILO) occurs when people

are without jobs and they have actively looked for work within the past four weeks. The

unemployment rate is a measure of the prevalence of unemployment and it is calculated as a

percentage by dividing the number of unemployed individuals by all individuals currently in the

labour force, ILO (2002).

The term “unemployment” is not new to many Ugandans because it is a prevalent problem

throughout the country. Reports reveal that in 2002, youth unemployment in Uganda was

estimated to be at approximately23% and has today skyrocketed to 32.2 %, Young Leaders

Think Tank for Policy Alternatives (2012)

Youth un-employment therefore poses a serious political, economic and social challenge to the

Country and its leadership. Its persistence is making it increasingly difficult for Uganda to

reduce its poverty levels.

World Bank Report (2008), Uganda is among the countries with the youngest population and the

highest youth unemployment rate of 83%. This finding was in agreement with the budget of

Uganda (2011/2012), the Minister of Finance recognized that because of the high levels of

unemployment, the Ugandan economy can only absorb 20% of its youth, Kiwanuka (2011).

The Uganda National Household Survey revealed that the unemployment rate was at 4.2 percent

in 2009/2010 compared to 1.9 percent in 2005/2006, UBOS (2010). The Uganda National House

hold survey further revealed that the labour force in the country was approximately at 11.5

million people reflecting an increase of two million from 9.5 million in 2005/2006 an annual

growth rate of 4.7 percent. According to the survey, the high growth rate of the labour force

poses a challenge to the Uganda since it requires that jobs should be secured to match the

increasing labour force. The survey also used the labour Force Participation Rate to assess the

employment situation in Uganda. Labor Force Participation Rate means the number of persons in

the labour force expressed as a percentage of the working-age population. The labor force

participation rate for youth (International definition, 15-24 years) rose from 44 percent in

2005/2006 to 60 percent in 2009/2010. The Labor Force Participation Rate for the youth as

nationally defined, 18-30 years increased from 77 percent in 2006/07 to 87 percent in 2009/10.

Consequently, Uganda required about 15.6 million jobs for her active population aged 15-64

years by 2010. Due to the current unemployment rate of over 3.5% and whopping youth

unemployment rate of over 32.2%, about 4.37 million people have remained jobless.

The history of SACCOS in the world can be traced based on two origins of modern cooperation.

The first modern cooperation emerged in certain working-class environments in European

industrial cities in 1840s, particularly in Great Britain and France. These pioneers invented

models of the consumer and labor cooperative that defend and promote the interest of working
class in the face of the social disasters endangered by the Industrial Revolution (Assenga, 2008).

In Uganda, savings and credit cooperatives (SACCOS) are financial intermediaries, channeling

savings into loans, provide saving opportunities for the teachers, especially in the rural areas.

1.2.2 Theoretical Background

Two theories advanced by scholars regarding Microfinance include economic and psychological

theories. The economic theory treats microfinance institutions (MFIs) as infant industries, while

the psychological theory differentiates microfinance entrepreneurs from traditional money

lenders by portraying them as social consciousness driven people (Khandakar, Q., E. Danopoulos

and P. Constantine, 2004). Many societies have embraced microfinance based on economic

theory as a major strategic tool to combat the severe poverty, particularly in rural areas. This

stems mainly from the belief that providing small loans, savings facilities, insurance products,

money transfer services and skills training to poor people, and more especially women, could be

a way of providing opportunities to be self-reliant and play active roles in their households and

communities and the economy as a whole (Yunus, 2001). Also the SACCOS enabled them to no

longer depend on money lenders (usurers) and to find the credit necessary to modernize their

agricultural operations. In African countries, the first experiences of savings and credit

cooperatives were to a large degree the work of foreign missionaries (Mwelukilwa J. S, 2001).

Many of the first savings and credit cooperatives emerged in the English- speaking countries,

primarily in Ghana 1955, Uganda 1946 and in Nigeria dates back to 1951-1953 (Mbwana, K.,

and J. Mwakujonga,, 2013). In Tanzania SACCOS emerged in 1954, Kenya in 1964 and Liberia

1965.

The total labor force in Uganda increased from 10.8 million persons in 2005/06 to 13.4 million

persons in 2009/10, an increase of 23 percent; by industry, agriculture employed 66 percent of

the working population, while by occupation, 60 percent of the working population were

agriculture and fishery Workers; by employment status 79 percent were self-employed in

2009/10. Statistical abstract (2011)

The above findings are in line with the local statistics where an estimated 83% of the youth are

unemployed, African Development Indicators (2008).

World Bank (2008) reported that Uganda had the highest youth unemployment rate and the

youngest population in the world and warned that unless Uganda scales up her efforts to create

jobs, the youth would be more involved in crime and armed conflicts. UN Department of

Economic and Social Affairs (2011)

Several steps have been taken by the government of Uganda to address the problem of

unemployment such as establishing industrial parks, supporting the informal sector, investing

heavily in business, technical and vocational education and training and encouraging formation

of SACCOs for financial accessibility, Otaala (2010). However, SACCOs as a form of delivery

of financial services to the poor has now taken root in Jinja City and Uganda in general. A

number of operators - ranging from government - funded programmes, donor – funded

programmes, NGOs (both indigenous and foreign), community – based organizations, credit

institutions are involved in the delivery SACCO services to people Bategeka (1999).

1.2.3 Conceptual Background

SACCOs are among the financial services strategies to be implemented in this exercise. Services

provided by savings and credit cooperative organizations (SACCOs) and other major financial

institutions play a crucial role in improving the reach and access of financial services. It is

notable that the financial services and its assets contribute to GDP.
Provision of small loans, regular saving deposits which teachers will deposit in their SACCOs

and later SACCOs provide investment advisory services which in the long run will lead to

improved household income thereby enabling teachers to invest in both liquid assets and

nonliquid assets to enable them pay school fees, pay medical bills and improve on food security.

Government of Uganda has taken steps to create an appropriate environment for the operations

of SACCOs in Uganda through recognizing them by Law, which is The Uganda Cooperative

Societies Statute 1991, and the Cooperative Societies Regulations of 1992 Kabamba (2006).

1.2.4 Contextual Background

Government of Uganda is planning to put in place strategies to create jobs for the youth which

includes promotion of self-employment schemes through provision of micro credit set ups such

as SACCOs, Opio (2009)

From the outset, Uganda Cooperative Savings and Credit Union; as the umbrella body of

Savings and Credit Cooperatives has unwaveringly encouraged the formation and development

of Safe and Sound SACCOs to ensure that financial services reach the population across the

country as a way of encouraging savings mobilization and employment creation.

The government of Uganda has subsidized the founding of new SACCOS all over the country.

Newly established SACCOS can apply for a start-up grant from the government owned apex-

institution Microfinance Support Centre (MSC). MSC also gives out interest free loans to the

SACCOS or other subsidized loans. In addition to grants and loans SACCOS can also receive

operational support from the government. The government pays salaries and rent for the first two

years after the start-up. These support schemes are important elements of the government’s “One

SACCO per sub-county” initiative, which is a part of the wider program “Prosperity for All”
(Statehouse, 2007).

Uganda's savings and credit co-operatives (SACCOs) have grown by 40 per cent since the year

2000, Nakkazi (2006). The Commissioner for Co-operative Development in the Ministry of

Trade said the increase of SACCOs is a sign that Ugandans are adopting a saving culture and

further noted that the advent of micro credit institutions has changed the face of banking by

forcing large banks to create new credit lines for small savers, Mwesigye (2006)

1.3 Statement of the problem

Uganda has the highest youth unemployment rate and the highest youth population in the world,

World Bank (2008). Unemployment rates in Uganda continue to increase with more graduates

being frustrated with nowhere to work after coming out of school, Kabarwani (2012). Youth

unemployment and under employment continue to impose heavy social and economic costs and

result in the loss of opportunities for economic growth in Uganda and Africa at large, World

Bank (2008).

Several steps have been taken by the Government of Uganda to address the problem of

unemployment. These include: establishing industrial parks, supporting the informal sector,

investing heavily in business, technical and vocational education and training, and encouraging

formation of SACCOs for financial accessibility, Otaala (2010). The Government of Uganda has

put in place other strategies to create jobs for the youth. These include: provision of relevant

education and training for the job market, promotion of self-employment schemes through

provision of micro credit set ups such as SACCOs and creation of short term employment, Opio

(2009).
However, the extent to which the SACCOs, Nakanyonyi SACCO in particular have addressed

the problem of unemployment has not been established. Therefore, the researcher undertook a

case study of Nakanyonyi SACCO in Jinja City to find out the extent to which SACCOs were

contributing to reduction of unemployment in Uganda.

1.4 General objective

To find out the impacts of SACCOs on unemployment reduction levels among people in

Uganda

1.5 Specific Research objectives

1. To find out the unemployment reduction services offered by Nakanyonyi SACCO in

Jinja City

2. To establish the impacts of Nakanyonyi SACCO on unemployment reduction in Jinja

City

3. To examine the challenges faced by Nakanyonyi SACCO in reducing unemployment in

Jinja City

4. To suggest possible measures to address the challenges faced by Nakanyonyi SACCO

in reducing unemployment in Jinja City

1.6 Research questions of the study.

The researcher was guided by the following research questions to ascertain the impact of

SACCOs to unemployment reduction in Uganda;

 1. What are the unemployment reduction services offered by Nakanyonyi SACCO in Jinja

City?

2. Are there impacts of Nakanyonyi SACCO on unemployment reduction in Jinja City?

3. What are the challenges faced by Nakanyonyi SACCO in reducing unemployment in

Jinja City?

4. What are the possible measures to address the challenges faced by Nakanyonyi SACCO

in reducing unemployment in Jinja City?

1.7 Hypothesis

The study tested scientifically the following two research hypotheses; null hypothesis

(Ho) and alternative hypothesis (H1).

a. Ho: There is no relationship between SACCOs and unemployment reduction in Jinja

City.

b. H1: There is a relationship between SACCOs and unemployment reduction in Jinja

City.

1.8 Scope of the study

The scope of the study was divided into three parts namely; the content scope, the area

scope and the time scope

1.8.1 Content scope of the study:

The study was on impacts of SACCOs on unemployment reduction among the people in Uganda

and Nakanyonyi SACCO in Jinja city was used as the case study. The study was based on the
following objectives: finding out the unemployment reduction services offered by Nakanyonyi

SACCO to the people of Jinja City, establishing the impacts of Nakanyonyi SACCO on

unemployment reduction in Jinja City, examining the challenges faced by Nakanyonyi SACCO

in reducing unemployment in Jinja City, and suggesting the possible measures to reduce the

challenges faced by Nakanyonyi SACCO in reducing unemployment in Jinja City.

1.8.2 Geographical scope of the study:

The study was carried out in Jinja city with Nakanyonyi SACCO used as a case study.

Nakanyonyi SACCO is one of the several SACCOs found in Jinja City specifically in Bugembe

town council. Nakanyonyi SACCO is registered with the Uganda Co-operative Alliance (UCA) -

the umbrella body of co-operatives in Uganda. The researcher chose Jinja City with Nakanyonyi

SACCO as a case study because of presence of UCA, MSC and AMFIU in Jinja town and being

well conversant with the case study. Those three cooperative and Micro finance bodies have

regional offices in Jinja town which has made the information about Nakanyonyi SACCO

available and accessible

1.8.3 Time Scope of the study:

The study mainly focused on the period between January and April 2022 but references on

previous years were made.

1.9 Significance of the study

The study findings are beneficial to policy makers especially the Government of Uganda to put

forward policies that will greatly encourage job creation in Uganda after obtaining better results

from this study

The study has created a benchmark for further research into better ways of unemployment

reduction among people in Jinja city.

The study helps future researchers as a source of literature for topics related to SACCOs and

unemployment reduction.

The study findings are beneficial to Nakanyonyi SACCO to acknowledge different products and

services of SACCOs and possible weaknesses that requires improvement.