THE NEW VISION SACCOS CROSSES THE SH10B MARK, SO WHAT?

The New Vision SACCOS held its annual general meeting last Friday. The highlight for me was that it crossed the sh10b in assets mark last year 17 years after its inception.

I remember vividly seven years ago marveling at another SACCO who assets stood at sh9b then, while the New Vision SACCOS’ stood at just under sh4b.

The management reported that members had saved sh4.8b a far cry from the sh62.4m members had pain stakingly saved by the end of 2005, the SACCOS first year of operation. The sh118m dividend payout was almost twice the total savings in the first year. Profit was about a billion shillings.

This are small monies comparted to those the bigger SACCOS are reporting and hopefully will be laughable when comparing with how the SACCOS will have grown in ten years, but it would not have happened if a mechanism for members to pool their money in a convenient and safe way had not been started.

And that is the key. When people say we are not saving enough as a society its not for lack of money but for lack of convenient mechanism to do so...

Thankfully with the help of SACCOS like at New Vision – there are more than 2,000 SACCOS in Uganda today, the gap between our monies stocked away under our mattresses and the formal financial sector can be bridged.

Apart from banks not being close to the people, I was surprised to learn that some people don’t save in banks because they are intimidated by the large banking halls and busy workers. The launch of the agency banking a few years ago is helping in that direction as well.

The real game changer however is the rise of mobile money. Last month MTN reported that their mobile money deposits rose by sh300b to more than sh950b. This trend is nothing to be frowned upon.

It has be said that of all the money in circulation in Uganda only about 20 percent is in the formal financial sector the remainder – 80 percent is under our mattress, in our socks and bras. In more developed economies the revers is more true.

When money is in your pocket it is doing nothing for you or anybody else, but when your money is in the financial sector it maybe earning you interest as well as helping other people with need for money. They access your money by borrowing from the banks.

Essentially the money is working. We can say the less the money in circulation works, by being employed in the formal financial sector, the poorer a country is...

Our low saving rate is one of the reason the lending rates in our banks are high. Banks make money by lending to government, businesses and individuals. If we all got our little monies and headed for the nearest bank, banks would be forced to bring lending rates down, because holding money is a cost so they cannot allow to seat around. So the banks would have to bring their lending rates lower to send money out the door as fast as they can.

Believe it or not this is already happening.  There is a time when interest rates were as high as 50 percent and you could not borrow without collateral!

My experience with the SACCO has shown this to be true. While you have to pay interest on savers money, they cannot borrow all of the money that comes in. At one time it was discovered that only 40 percent of the members had loans with the SACCOS.

As a manager you have a choice you either lend more to your members, more likely by lowering lending rates or you ship the money out, investing in other things outside.

So SACCOS should be supported mainly through capacity building, to grow stronger in their capacity to mop our excess liquidity.

SACCOS do not need handouts from government. In fact this may be detrimental to their effective management. They can grow under their own steam if they are managed well.

Banks shouldn’t worry. They will cut back on their branches, leaving a few to service SACCOS and such like small institutions, while servicing corporate borrowers and the government.

"If I dare to dream, the equity of the New Vision SACCOS grew by 20 percent last year, that means it will double every four years. So 16 years down the road the net asset value of the SACCO will be sh92b!

DO NOT DESPISE SMALL BEGINNINGS

A major challenge of the Ugandan economy is our low saving rates. While it has grown over the years to about 19 percent of GDP in 2019 according to the World Bank it lags behind neighbours Tanzania at 35 percent, Zambia at 40 percent.

While it is about level with the sub-Saharan average these are still dismal figures that need to be pushed up.

"Low savings rate affects the cost of borrowing, high savings rates lead to lower lending rates and vice versa...

The argument though is that we save, its just not in the financial sector. Our savings are in livestock, crops and real estate.

Saving in these “real’ assets is a hangover from a time when inflation would eat up the value of  ones savings faster than one could accumulate them or when banks were not credible, folding at the slightest crisis.

The challenge with continuing to save the way we do is that there cannot be any significant ripple effect. My chicken will lay eggs for me, my cow will produce milk for me and on the occasion that I slaughter it feed a few dozen people in the village.

Saving in a formal financial institution, which will then take your money and lend it to those in need of capital has more far reaching effects, aiding the expansion of businesses, speeding up growth and development.

I was therefore tickled silly when a few weeks ago I “happened” upon Mushanga SACCO in Sheema district, western Uganda.

It was not its new double storey headquarters that caught my eye, but that almost every adult in its surrounding area had an account with the SACCO. 

Suppliers and workers accept payment through their accounts at the SACCO, which accounts they can access via their mobile phone.

While the lending rates are rather steep – three percent a month, the SACCO membership have worked out that since this is levied on a reducing balance they can reduce the interest they pay out by accelerating their repayments. No financial literacy class would have taught this better than hard experience.

But even better for me is that the SACCO has incentivised its members to providing it with long term capital in the way of fixed deposit accounts and by selling shares.

The net effect of this is that the SACCO which turned 50 in 2019 has total assets of about sh23b with sh9b of this being member equity. Not bad for a SACCO whose members minimum obligation is to save sh10,000 monthly....

Essentially what Mushanga SACCO and hundreds of others like it are doing, is mopping up the small monies the high street banks can’t be bothered to go out and look for and funnelling them into the formal financial sector.

On a local level the SACCO is spurring the economy of the area by shifting monies from where it is not needed to those who need it. While the lending costs are still high one would like to think that as their cost of funds falls this will be addressed, for now they have an effective mechanism for financial intermediation  that will make the difference for the area more than if it were not there.

The lessons for me are many but off the top of my head two stand out particularly.

One, that it is not true that we can not build our own financial institutions to even compete with the high street banks sometime in the future. These SACCOs, most of which are in the rural areas, have shown that even our small monies when aggregated can be leveraged as a force for good and push our own development priorities.

Secondly, that if our big fish in the cities will not put their resources together to create the banks that serve our people, the small people in the villages and in the streets will not wait around but take matters in their own hands to get access to financial services.

The challenge for Mushanga SACCO and others like it is leadership. Bad leadership can scuttle this progress in less than a year with questionable lending practices and  reckless spending. These SACCOs just like their bigger brothers the banks, biggest asset is confidence. Bad management can irreparably damage this trust and collapse these institutions.

But barring bad management or averse government policy, these institutions can serve as a real force for rural and national  transformation. 

Looking to the distant future it’s not inconceivable that these SACCOs with a tradition of prudent management, sensitive to its stakeholders will form the seed of our own local banks

To take them to the next level while keeping them grounded in their rural roots, government needs to  handhold these institutions in the way of  innovative regulation, capacity building support and eventually fiscal incentives to ensure they grow to take their rightful place at the high table of the financial sector. 

THE IDEA WAS GOOD BUT FOR THE EXECUTION

This week the government was finalising paying out the Covid-relief monies to the 500,000 eligible households.

First off this was a better intervention than the posho and beans that were dished out last year, which benefitted a few connected people more than the intended beneficiaries.

I was shocked to learn recently that

of the sh59b that was earmarked for the distribution of that posho and beans, easily half of it went into logistics...

On this front alone, that the sh53b will get to the intended beneficiaries, this has been a succcessful intervention. Going by this logic more people have benefitted frrom the sh100,000 than those that benefitted from last year’s food handout.

Of course there was also the argument that, what if I don’t need or want or like posho and beans? Your relief is more a poke in the eye than help to me. With money I can decide to buy charcoal instead or pay for medicine or send it to a more needy relative, that is more meaningful relief than the photo opportunity of distributing food.

But now that the intervention is coming to a close, it’s a good time to look back and assess whether it met its intended goals and how can we do it better in future.

First off notice that we are completing the process at the end of the 42-day lockdown. Talking about shutting the barn door after the horse has bolted. This is a major failure and that is where the assessment has to start. I would like to give the government the benefit of doubt, but previously we know that delays heighten crises, allow for ignoring established procedures leaving room for grubby fingered opfficials to make a killing.

We urgently need to invest in data gathering and management. A lot of time was spent trying to find out the intended beneficiary because we were using 20th century, manual processes like asking village chairmen who their vulnerable are. Also the delays came as result of verifying the intended beneficiaries, a discrepancy between their names, phone numbers and ID numbers  led to rejection. No suprises that the most discrepancies were in the Kampala area. This data should be at the end of a button click, gathered and updated in real time. It would have meant that by the end of the first week of the lockdown we would have sent the money.

Also with this we would have a real assessment of who the vulnerable are. While we were constrained by finances, the 500,000 families were not arrived at scientifically – be suspicious of round numbers when dealing with human situations. Also sh100,000 handout was not arrived at scientifically, it just sounds like a nice number to dish out, how do we know the real need was not sh78,000 or sh111,000 per family.

There have been suggestions that to speed it up even more a voucher system should have been employed. Under this scheme beneficiaries would have vouchers acceptable by everybody to buy what they want. But knowing our government’s reputation as a bad dedbtor, this would only stress local economies more. So forgoing speed for efficiency is a good idea. Also it means that even informal businesses, like your neighbourhood rolex seller will be a beneficiary.

In the long term with better data collection and management government can extend this to other relief interventions. In other places such interventions are targetted at single mothers or out of work people or invalids and are ongoing. The telephone system has shown to be a cost effective way of distributing this, we just need to smoothen the means of identifiying beneficiaries.

Related to that the importance of the ID has been shown. People were reluctant to get IDs for all sort of funny reasons, never mind the usual suspects who hold all government programs in suspicion. But even more mindboggling is the number of IDs,  thousands of them that lie unclaimed. Sometimes in this country you don’t know whether to cry or laugh.

We criticise government for poor service delivery but refuse to show up for even the poor services...

These shortcomings not withstanding government took the right route in dishing out cash, but there is a lot of room for improvement in getting out such relief in a timely and appropriate manner.

 

TO BELIEVE OR NOT BELIEVE THE BUDGET

In last week’s budget we heard that the economy grew by 3.3 percent in this financial year compared to last year when the economy grew by 3.0 percent.

This is pitiful given that, prior to the covid-19 pandemic it was projected that this year the economy would grow by more than 6.0 percent.

During the Absa Bank Uganda post budget forum held on Friday it was interesting to hear various experts note that while the economy had been badly hit it was still showing growth, which has a lot to do with the way our economy is structured.

"It helps of course that we can feed ourselves as a nation. Despite the restrictions on movement and congregation the agriculture sector kept us afloat in this important aspect...

But beyond feeding us our farms also produce our biggest tradables among ourselves and in the region.

Commissioner General John Musinguzi who was a panelist at the Absa Bank forum, which was themed “Implications of the budget proposals on trade and manufacturing” said the two sectors accounted for just over half of the revenue collections.

While both sectors took a hit in the last year they still dominate the revenue collections, which suggests that it was wise for government not to restict the movement of cargo, never mind that truck drivers caused us a lot of grief in hte first pandemic wave.

While Absa mananging director Mumba Kalifungwa along with others were glad to hear governmnet maintained its commitment on the infrastructure development, Damalie Ssali, coutry director at Trademark East Africa however, pointed out that we also need to improve the roads within the country.

She reported that

Uganda loses $1.5m (Sh5.2b) daily from cars idling in Kampala traffic...

They are all connected – agriculture, higher trade volumes and manufacturing revenues and the traffic jams of Kampala.

The losses due to traffic are not just numbers, somebody has to pay for them. Beyond the increase in hypertension among drivers,  its the poorest who bear the burden of these losses in terms of poor service delivery. Because that is money that is disposable income that would have gone into buying goods and services, increasing demand for our products, keeping people in jobs or creating more altogether.

I suspect even the $1.5m daily loss is understated.

The finance ministry’s director of budget Ken Mugambe in speaking about the parish development model said at least sh5trillion has been earmarked for the programs, flowing down to the 10,000-plus parishes. While there are seven pillars of the model, government will focus on three – financial inclusion, beefing up the parish administration structures and data collection.

On one hand people see this as an attempt o byass the middlemen and get resources nearer the household, the critics however, point to the inadequate administration structures as the loophole, which will not only frustrate the program’s inception but also provide an avenue to enrich a few bureaucrats who take advantage of the confusion.

Other critics wonder whether the same work can not be executed through existing government structures and that the parish development model may be a duplication of functions.

"The intention is good, it may be failed by the implementation...

In the parish development model among other things they have provided for extension services, irrigation and bulking of products, which are useful if we are to bring agroindustrialisation into reality.

The truth is

while we can feed ourselves as a country, we do not produce enough surpluses to sustain a robust agro-industrial complex....

Production in the agricultural sector has to make quantum leaps before agorindustrialisation and its benefits of improved farmgate prices, higher export receipts and job creation can be a reality.

Increased agricultural production can increase jobs by more than the million jobs government looks to create by building industrial parks and free trade zones.

Increased production requires a market to absorb it. The East African Community now account for about a quarter of all our trade and the promise of the Africa Continental Free Trade Area look set to snap our increased production. But Uganda Manafacturer’s Association (UMA)  executive director Daniel Birungi, worried that if we do not have robust trade dispute resolution mechanisms as we have seen wth our dealings with Rwanda, where our common border has b een closed for two years, what hope is there for trading efficiently with countries far afield on the continent?

"So while we are feeling the pain of the covid pandemic in our pockets, continued macro economic stability, the improved business environment due to infrastructural improvements and the promise of increased agricultural productivity give us hope for the future....

Time will tell.

WHAT THE SACCO TAUGHT ME ABOUT BUSINESS

Next month I end my four-year stint as the chairperson of the New Vision Staff Savings & Credit Coop. It has been a great learning and a gratifying experience. A learning experience because there is no better way to learn about business than to be in business and gratifying because of how many people the SACCO helped, helps and will continue to help well into the future.

1.       1+1=11

I once read a definition of synergy which went, with synergy 1+1 is not 2 but 11. That the sum of the whole is much more than the sum of the component parts. I understood that on an intellectual level but seeing it in action was a revelation.

When the SACCO started in 2005 with about 50 members saving a minimum of sh40,000 we did not envisage how big it could become in a small while. In our first year we made sh2.3m in profit and built an asset base of sh66m. Last year we made a profit of sh661m and logged assets of sh9.6b. There are now about 1,200 members of the Coop.

The human mind tends to think in arithmetic progressions but when you work as a group geometric progressions kick in.  So given our sh10b asset base, arithmetic progression would suggest that we will double that over the next 15 years, but geometric progression, given the past rate of growth, suggest that the asset base will almost triple over the next 15 years.

This wisdom was not lost on our ancestors who said, if you want to go fast travel alone but if you want to travel far move with others.

2.       PROFIT IS GOOD, EQUITY IS BETTER

For mere mortals looking in on a business they get excited by profits made, but when you are in the business, the more important thing to focus on is the balance sheet – the statement of assets, liabilities and equity. Profit is good, it shows that the business model works – you are making more money than you spend, but the strength of the balance sheet – how much higher the assets are than the liabilities, is what determines the sustainability of the business.

Profit is where you determine how much you made, the balance sheet tells you how much of what you made you have kept. That is how wealth is created.

Many a Ugandan business has been profitable, or at least made sales, but collapsed the next year because they ate all the profit in the good times and when a small crisis happened it crumbled like a pack of cards. 

3.       CUTTING COSTS IS NOT AN EVENT, IT’S A BEHAVIOUR

Related to the above is the issue of the costs. For many companies they start cutting costs when they get into trouble, but holding costs under control is not an event but a behavior. US billionaire Warren Buffet says it’s a red flag when he hears management is going into cost cutting, for him cost cutting is like breathing, no resolution needs to be made to manage costs.

Cutting costs by a business is an admission that they made some unwise spending decisions in the past, why not keep costs low, without compromising the productivity of the business, to begin with?

Even more important is that the savings from managing costs should be ploughed back into the business.

4.       GET GOOD PEOPLE, LET THEM RUN

The customer is king, but to make him feel like a king you have to have the right people working for you. We have three staff – Edith, Treasure and Emmanuel, who know their work and are everyday increasing their understanding of what the business is about.  They run the day to day business. We have been fortunate to hire only good workers over the 15 years of the SACCO and I would like to think that this is the factor of the executive committee’s putting the stability of the business ahead of family and friends.

But more importantly good people treat your customers well and as a result the business grows. There is always scope for improvement.

Whenever a businessman now complains that the economy is doing badly I ask them how their customer service is. You will be shocked how much business falls through the cracks because your employees treat your clients with contempt.

 

5.       MAKING MONEY IS NOT SEXY

Most of the processes that are required to make money are very mundane and boring activities. When you think about it, making money is about putting money in one side of your business and it coming out the other side with something extra on top. And repeat until rich.

It took the NV SACCO almost 15 years to achieve a net worth of a million dollars, so who are these overnight millionaires (are they millionaires?) in our poor economy?

Critics can brand you conservative but in chasing sexier lines of business, which show huger margins, it often is that you are increasing the risk to the business – in a financial institution this risk can mean sinking the business altogether.

Innovation should be encouraged and that is where new value is created, but for every business this should always be with an eye on the downside, the risk of loss.

6.       ITS ALWAYS ABOUT THE LONG GAME

The company’s vision is important, no, critical. The New Vision SACCO’s vision is, To serve as a vehicle of financial freedom for the members. One becomes financially free when he no longer has to labour for money, but that the assets he has created or bought throw off enough income to sustain him.

Last year the coop paid out just under sh450m in interest and dividends to its members, but the payroll of the New Vision is about sh20b a year so there is still some way to go. Achieving the long term goal will take the continued profitability of the SACCO but also improvements in the members’ financial literacy, because you can take a horse to the water but you cannot force it to drink.

 

IF I WAS RUNNING FOR PRESIDENT

The campaign season is now truly here. 

Last week the NRM’s Central Executive Committee filled its top positions. The election of older persons, people with disability and youth chairmen at village level were  concluded. In the constituencies far and wide its getting hot under the collar.

The main event – the presidential elections will be decided in February.

I got to wondering if I was a presidential candidate what would I propose as my action plan for the next five years.

Below are my first and ready thoughts for some of what candidate Paul Busharizi’s economic plans would be.

1. Introduce a Covid-19 bond

The challenge of the Covid-19 pandemic will be with us long after next year's polls. The major challenge is keeping businesses open and expanding.

As it is now with depressed economic activities people are out of work, making companies returning to full production difficult as there are no people to buy their goods.

We have two choices either to let every one for himself, God for us all and the devil take the hindmost. There will be a lot of pain – closed business and lost jobs, for a year or two but the ingenuity and resilience of our people will come through.

Or provide some government support to businesses and the most vulnerable, avert the worst effects of the economic slow down and provide a base for economic recovery.

This will cost money. 

I will propose the initiation of a Covid-19 bond, with a tenure of between 20 and 30 years, to raise about 10 percent of GDP, $3b or about sh10 trillion. The money can be raised in four tranches, one auction every half of the next two financial years.

This money will be focused on providing unemployment benefits, grants and soft loans for SMEs, facilitating the creation of alternative financial institutions and encourage/compell more big companies to sell there shares or debt on the capital markets.

2. Cash transfers for the most vulnerable

As I understand it government is reluctant to offer cash grants to the most vulnerable because they don’t have the money and are averse to going bowl in hand to the donor communities.

The big political upheavals from Zambia to Sudan have come as result of the removal of subsidies. To allow the donor community to finance this would be a recipe for disaster when we disagree, as we inevitably do on one policy move or the other. I sympathise.

Hence my going to the open market. 

It is estimated that there are at least eight million living below the poverty line. The covid-19 pandemic is expected to raise this number to 11 million.  Assuming an average of five people per household that would be 2.2 million families. Assuming a handout of sh100,000  per family monthly or sh220b a month. I would provide this for a year long enough for people to get back on their feet. That would cost about sh2.7trillion. 

To access the money  beneficiaries must have a national ID and even better, a mobile money account to which the money will be sent directly.

This I would be a direct benefit to the families and boost demand in their local economies. 

3. Support for SMEs

Support of SMEs will take two forms the smaller part of which would be grants to keep them in business and the second part, soft loans offered at least half the market lending rates for up to five years.

In addition I would fund business support services to ensure that not only do the businesses survive and thrive but can repay the money. This will be a seed of a revolving fund to benefit SMEs well into the future.

To benefit from this facility SMEs will have to be registered companies.

4. Encourage alternate financiers

As it is now our financial sector is dominated by commercial banks, who are well suited to funding going concerns but not start ups or providing long term capital.

The capitalisation of Uganda Development Bank will continue but at more determined pace, the target will be a $2b capital base by the end of my first term. Incentives will also be offered for other development banks to set up shop here.

On the other side of the pendulum we provide tax incentives and seed some  angel investors and venture capitalists, who in more advanced economies finance start up companies.

My government will also actively nurture the growth of a broader and deeper financial sector ecosystems that can support businesses from the smallest to the largest. 

5. Compel companies to list on the exchange

There will be no more pussyfooting around banks, telecommunications companies and big industry during my time. We will encourage, compel them to list on the Uganda Securities Exchange.

With one stroke we will be able to increase local ownership in these companies – we encourage SACCOs and investment clubs to invest and secondly, improve the capacity of our capital markets to raise capital. This will be crucial for the country to raise capitalf for its companies and development.

There are other development issues like infrastructure development, quality social services delivery but I believe resource mobilisation and  building a robust and dynamic private sector are key to building a self sustaining economy. The taxes from these will more than cater for everything else.

By the way a major objective all the above initiatives will be to widen the tax base, as all beneficiaries of the above actions will become tax paying members.

IN THE NEW YEAR LET US LOOK TO OURSELVES

Professor Ezra Suruma published an interesting, if an unsurprising, commentary in the last week about the capture of the financial industry by foreign capital.

He argued that improved regulation of the banking industry – increased minimum capital requirements and improved governance requirements, was shutting out indigenous capital from bank ownership. He also argued that a new regulatory framework of SACCOs was going to plug the last loophole for indigenous capital.

I agree with Suruma in as far as foreign capital has the capacity and will to dominate our markets, I disagree with him in as far as he suggests that controls should be eased on local businessman to give them a chance to compete in the market. And this can extend to all markets from retail to construction to agriculture.

To start a bank today you need a minimum paid up capital of sh25b, far out of the reach of most, if not all Ugandan businessmen. But it was not always the case.

When the first bank in the NRM era went down, The Teeffe bank in 1993, minimum capital required for a bank was sh30m or about $20,000.

One of the main reasons of the bank failures, apart from mismanagement was that the failed banks were not adequately capitalised. What this means that when the losses started to climb, due to hard economic times, but mostly due to mismanagement, the shareholders could not cover them.

Banks are particularly senstitive to changes in the economy or business environment. Unlike a normal trading business they are structured in a way in which their shareholders’ interest is a small fraction of their liabilities or obligations to the public.

If you opened a shop you can have all your equity in stock and no major liabilities apart from rent, utilities and the wage bill, which in times of crisis the shopowner can cover for a while in the hope the business turns around.

What makes up for the huge mismatch between the banks’ liabilities and the shareholder money is confidence. The public’s confidence in the bank’s track record. Put more crudely, the confidence that when I want my money, which you are keeping from me I will get. Even if no bank can meet this high standard.

Without this confidence no bank can survive.

"With deposits in the banking industry up more than 50 times last year compared to 1999, when UCB was taken over by the Bank of Uganda, it would be irresponsible even criminal for the central bank to keep bank owners capital low to favour local banks....

Apart from enriching a connected elite, it does not guarantee improved service or even the overall health of the industry.

In fact, one can argue that the minimum requirement now of sh25b for the 24 banks in the market, should be increased substantially, quadrupled even, given that industry deposits are now about sh20trillion or sh20,000b.

But let us look at this issue of indigenous businessmen’s failure to raise capital.

What does it take to raise capital in this market?

I have seen some spectacular fundraising efforts being done for weddings. Families and friends come together and raise tens, even hundreds of millions of shillings in aid of a one day orgy of feasting and drinking to celebrate the marriage of their children.

We can contribute to such a cause because it promises the return of a good time at the ceremony, children. This will happen through a well understood institution, which has a better than average success rate in terms of a continuation of the clan and species.

So why cant we raise money for our business endevours the same way?

One, business owners would rather own 100% of a small enterprise than 10% of a bigger venture. We want to got it alone. Two, we don’t trust each other with our money. In fact, as the last year has shown with the collapsed Ponzi schemes, in order to separate people from their hard earned money we need to promise outlandish returns in order to overcome their mistrust.

"Our failure to raise capital to compete in the banking industry is down to our deficiencies in management, especially of other people’s money....

All those banks, which collapsed could not stand up to scrutiny by the most objective measures. Their promoters ignored the rules of prudent business and were caught in the act.

Suruma neglected to mention that right now their SACCOS and investment groups raising enormous amounts of capital from their members, growing by the year, in good and bad economic cycles, thanks mostly to their observance of good governance practices and foresighted leadership.

It is true that Bank of Uganda’s interest in them could cause some discomfort, but the central bank would be remiss as the custodian of the country’s monetary policy to ignore these huge pools of money, collected from normal citizens on nothing more than the trust of the SACCOS leadership.

As for the neocolonial plot to subvert the building of local capital, the above argument suggests that the neocolonialists will walk all over you if you are weak internally to begin with.

"Ethiopia, unlike the rest of the countries on the continent, was not colonized because they were united and not led by opportunistic leaders who either, sold their own into slavery or allied with the colonialists to try and subjugate local rivals....

If increased capital requirements are keeping indigenous capital out of the banking industry a lot of the blame for this sad situation is due to us. The sooner we acknowledge and do something about it the better.

BUSINESS LESSONS FROM BUILDING A SACCO

Last month the New Vision Staff Savings & Credit Cooperative hit the billion shilling mark in net worth – the difference between assets and liabilities.

This is also the year that the Coop turned ten. During the last decade a lot of lessons have been learnt about business during the building of the coop, which it is hoped has another millennia or so ahead of itself.

1.       Start where you are

There had been attempts to start a savings scheme for staff for years but it finally took off in 2005, with 26 (not 27 members). There was nothing to start with apart from an idea, the integrity of the founding members and the indulgence of the New Vision company. Clearly it was an idea whose time had come because the record shows that by the end of that year more than 100 people had signed up.

2.       Be clear about your objectives

From day one the objectives of the Coop have been clear. In decreasing order of importance, to help members save, to provide below market rate credit and to provide an investment vehicle for them. Everything the Coop did was with this in mind. This clarity of purpose has kept the Coop focussed and growing by prodigious amounts annually.

3.       Keep your costs low. Make your money make money

US billionaire investor Warren Buffett says it is red flag for him if he hears management announcing they are cost cutting. What have they been doing before he asks, cost cutting is like breathing you shouldn’t think about doing it you do it all the time.  The coop's major costs go towards interest payments to members and not to pampering an entitled administration or bad loans or losses from Hail Mary investments.

The Coop has invested mostly in government paper which revenue stream is growing every year as the stock of these investments grow.

4.       Collect what is due to you

The Coop’s major revenue stream is interest on member loans, which accounts for eight in every ten shillings the Coop earns. Thankfully we deduct at source so we collect most money due to us. However not everyone is willing to pay, for some strange reason they think monies owed the Coop will be forgotten. So with much discomfort debt collectors were contracted in the last few years to chase down these members who have chosen to abuse our hospitality. The results have been to the Coop’s satisfaction. They say profit is an opinion but cash is fact. One can be posting impressive profits year in, year out, but without cash even the most profitable company will sink.

5.       Don’t get excited

In the first year the Coop closed with sh33m in cash on its account. At the start of the enterprise to imagine that such amounts will be seating around earning anaemic returns from the banks was inconceivable. The temptation to go into speculative endeavours may have arisen but a clarity of mission helped to keep the Coop off the crooked path.  I remember a talk once where the speaker said that if even a million shillings fell from the sky it would discombobulate most people to the point of sweating.

6.       Take care of the customers and the money will follow

It sounds like a cliché but by working to keep the processes uncluttered with too much red tape and complexity the Coop has grown from strength to strength. It is true what they say,  if you want to get rich serve more and more people. Thankfully the coop is member owned so returns accrue to the members in terms of interest and capital appreciation so there are multiple benefits for the Coop’s members. And you can achieve win-win when measured against all the conventional business metrics of success. Last year the Coop showed a net profit margin of 57 percent and return on equity of 40 percent.

Understandably the Coop has social objectives, which mean it does not run with the sole intention of maximising profit otherwise they would charging extortionist lending rates while paying out a pittance in interest on savings.

But probably the final lesson will be that everything takes time. To get to a net of a billion shillings it has taken a decade of systematic and consistent practice, repeated with uncompromising diligence.

There are no short cuts you have to put in the time before you can drive the monster truck or holiday in the Bahamas. If you have not put in the time and are partying already rest assured doom is stalking your every footstep.