CHAPTER ONE

1.1 Introduction

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

SACCO in Jinja City is 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.

1.1.1 Historical Background

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.

Evidence shows that teachers are looking for opportunities to save their income in case of

emergencies or to be able to undertake larger investments in the future (CGAP, 2006). There is a

high potential to mobilize savings among low income people in Uganda.

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

highest youth unemployment rate of 83%. This finding is 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 is 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 is 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.
1.1.2 Theoretical Background

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)

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).

1.1.3 Conceptual 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 is 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 unemployment levels. 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).

1.1.4 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)

1.2. 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

14.1. Specific Research objectives

i. To examine how Nakanyonyi SACCO mobilizes financial /loans to members as a way of

contributing to reduction of un employment

ii. To assess how Nakanyonyi SACCO ensures that members make regular savings deposits.

iii. To examine how Nakanyonyi SACCO provides advisory services to society members on

how to undertake income generating activities through the provision of credit.

1.5 Hypothesis

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

(Ho) and alternative hypothesis (H1).

i. Ho: There is no significant relationship between impact of SACCOs and

unemployment reduction in Nakanyonyi SACCO.

ii. Hi: There is a significant relationship between impact of SACCOs and

unemployment reduction in Nakanyonyi SACCO.

1.6 Scope of the study

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

the time scope .The study is on impacts of SACCOs on unemployment reduction among the

people in Uganda and Nakanyonyi SACCO in Jinja city is used as the case study. The study is

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. The study

is 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
accessibleThe study mainly focused on the period between January and April 2022 but

references on previous years were made.

1.7. 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.

1.8. Conceptual Framework

Independent variable Dependent variable

IMPACT OF SACCOS UNEMPLOYMENT REDUCTION

 Provision of financial  Investment /business start

services up

 Provision of advisory  Job creation

services
 Increase in earning /
 Saving mobilization
productivity
/regular saving

Source: Adapted from Khan (2014) and modified by researcher

The conceptual framework reflects two variables namely role of SACCOs as the independent

variable and unemployment reduction as the dependent variable. In other words, it’s
conceptualized that unemployment reduction depends on the role of SACCOs. In this study, the

performance indicators of role of SACCOs of issuing of loans, acceptance of deposits and

advisory services can lead to a direct effect in unemployment reduction of members of the

SACCO in Bugembe town council through enhanced investment levels, provision of

employment.

1.9 Definition of Concepts and terms

Credit line; Credit line is an arrangement between a financial institution, usually a bank, and a

customer that establishes a maximum loan balance that the bank will permit the borrower to

maintain. The borrower can draw down on the line of credit at any time, as long as he or she does

not exceed the maximum set in the agreement, Investopedia (2013)

Employment; Employment is an agreement between an employer and an employee that the

employee will provide certain services on the job, and in the employer's designated workplace, to

facilitate the accomplishment of the employer organization’s goals and mission, in return for

compensation. The agreement can be verbal, implied, or an official employment contract. Heath

field (2008)

Labour Force Participation Rate: This refers to the number of persons in the labour force

expressed as a percentage of the working-age population UBOS (2010).

Micro Credit: This refers to extension of small loans to very poor people for self-employment

projects that generate income, allowing them to care for themselves and their families, Gramean

(2011)
Savings and Credit Co-operative League of South Africa (SACCOL) defines SACCOs as a

democratic, unique member driven, self-help co-operative. It is owned, governed and managed

by its members who have the same common bond: working for the same employer, belonging to

the same church, labor union, social fraternity or living/working in the same community

Self-employments; This is a situation where a person owns a business or an individual who

earns a living by working for himself/herself and not as an employee of someone else, Murray

(2008)

Unemployment; This is defined by the Bureau of Labor Statistics (BLS) as people who do not

have a job, have actively looked for work in the past four weeks, and are currently available for

work. Also, people who were temporarily laid off and are waiting to be called back to that job

are included in the unemployment statistics, Kimberly(2012)

Youth unemployment; this is the lack of job opportunities for people typically aged 15–24 years

old, Wikipedia (2013)

Limitations of the study

The study is costly due to the fact that money is required for buying food when in field, getting
stationary, air time and other necessary items. This is solved by requesting for money from my
parents and my elder brothers.

Manager and top employees of organizations fear to give information in regard to the
Nakanyonyi SACCO fearing the disclosure of the organization’s information to third parties. I
overcome this by explaining to them the purpose of the study and explained to them the level of
confidentiality that will be given to their information and the report will only be for academic
purpose
Information technology equipment is not readily available to the researcher and the researcher
will solve this problem by constantly borrowing from friends