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Financial sustainability of Tanzanian saving and credit cooperatives

This paper examined the profitability and financial sustainability of Saving and Credit Cooperatives (SACCOs) in Tanzania. The data set used in this study came from SACCOs’ audited financial reports for the year 2011. Profitability was estimated using return on assets and financial sustainability was estimated using the ratio of total expenses to total revenue. Linear regression was used to investigate the determinants of financial sustainability. The results show that about 61% of our sample SACCOs are operationally sustainable and 51% of the total sample is both operationally and financially sustainable. The average sustainability score was 127%. On average, our results for profitability (measured by return on assets) are higher than some of the results reported for standard microfinance both in the region and globally. In terms of sustainability our results suggest a promising future for the financial cooperative business model as an alternative form of financing the poor. This study contributes in two ways. First it contributes towards the scanty empirical literature on the performance of saving and credit cooperatives in developing countries and Tanzania in particular. Second, it provides provocative evidences which appear to contradict earlier and more pessimistic accounts on members based microfinance. It challenges the existing ontology about the potential of extending member-based microfinance. We acknowledge that only SACCOs with audited financial statements were included in our study, thus the conclusion is limited to SACCOs with similar characteristics. Future work might consider extending the analysis to include SACCOs with non-audited financial statements.

Working paper 529
1 July 2015
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