15 November 2012

Rwanda: Financing Teachers' Welfare

Capital constraints limiting umwalimu sacco impact on members:

With a net salary of Rwf57, 000, teacher Anonciata Akimana in her early 50s who was widowed 15 years ago, with two children and living with five more children from her extended family for many years was unable to repair leaking roofs and broken doors of her house.

She bore her situation until in 2008 when the teacher Savings and Credit Cooperative Umwalimu SACCO started. She joined it, first as just an obligation assigned by her school and but later on sought a loan in order to renovate her house. She got the loan but in both the times she has requested for credit in the cooperative, the money was always some value less than what she had requested.

"I got the loan but it was not the whole amount that I had asked for in order to be able to completely renovate my house. I asked for Rwf4 million but I was given only Rwf2.5million. This was a little setback to completing the work that I had planned in time," says Akimana.

Akimana's concern is no different from what other teachers like Veneranda Umulisa who teaches at La Colombiere. She is also a member of Umwalimu SACCO and has requested for financing before from the four years old cooperative.

"The Cooperative rarely manages to give us the money that we require and we are capable of repaying which affects the implementation of the projects we wish to undertake at the proposed levels," explains Umulisa.

The Managing Director of Umwalimu SACCO, Joseph Museruka affirmed that indeed the cooperative is still challenged by limited capital to lend to its members.

"It is true that we have not been able to finance teachers as each individual wishes resulting from the fact that we sometimes don't have enough cash to meet everyone's demands. However what we have been emphasizing is to make sure that we reach out to more teachers," says Mr. Museruka.

But even in this state, the cooperative according to Museruka meets the central bank's liquidity requirements of 30% since the financial institution's liquidity value often is at 40% or even more depending on the periods of the month.

Museruka adds that there has also been remarkable growth financially and coupled with other initiatives; there is basis to hope for a better tomorrow.

The cooperative has however seen an increase in loans to clients most teachers in recent years. In the last three years total loans increased from Rwf2billion in 2009 to Rwf39billion at the end of the month of October 2012. However, the cooperative is yet to recover Rwf14billion from clients.

The increase in the loan portfolio is a reflection of increased deposits that the cooperative has been receiving from its members which Museruka notes that they have been increasing alongside membership.

Currently, Umwalimu SACCO operates a total of about 60, 000 active accounts for members of whom over 90% are primary school teachers, about 9% are secondary school while 1% is from other departments of the education sector. This is an increased membership from 42,000 that the cooperative had in 2010.

The increase in deposits has resulted from determination of the teachers to save for the future, a move that Umwalimu SACCO championed through the teachers' general meetings. Despite a widespread outcry of meager pay, Rwandan teachers in the cooperative agreed on a permanent saving of 5% every month where Rwf2, 000 is the minimum that a teacher can contribute.

From Rwf600million in 2009, the teacher's permanent savings in their SACCO has grown to about Rwf5billlion by end of October 2012, a more than 7 fold increment.

As an initiative that was spearheaded by President Paul Kagame in 2006, Umwalimu SACCO continues to receive government support in order to enable it spur the socio-economic growth of Rwandan teachers as envisioned in the country's goal.

The government has pledged to finance the teachers' cooperative with Rwf30billion for the next 10 years, and the money will be disbursed in installments. In the 2012/2013 budget, the government allocated Rwf5billion to the teachers' cooperative while another Rwf1billion will be allocated in the following year's budget. The remaining part of the Rwf30billion will continue to be disbursed in installments for the 10 years period. According to Museruka, part of the government funds is meant to create a guarantee fund to simplify the loaning process for poorer teachers. "18% of the funds that the government has availed are to create a guarantee fund for teachers with no collateral."

Concurrently, the cooperative's profitability has been increasing since a reorganization that happened in 2010 and Museruka believes that the profits will keep rising to supplement other sources of funds. From a loss of Rwf454million in 2009, the net profit increased to Rwf64million and Rwf700 in 2010 and 2011 respectively, representing a more than 10 times increase in just the previous year. The cooperative had targeted to achieve Rwf1billion by 2012 but as a result of high investments that have been made, there might be a shortfall to the mark but will not go lower than the profits acquired in the year of 2011.

"We have built 10 branches this year in order to increase access to our services which was a costly activity that might leave us a little behind our projected net profit but not lower than what we made in the previous year," says Museruka. The new branches bring the total to 30 implying that Umwalimu SACCO now has presence in every district of the country.

Albeit having a branch in all districts, proximity for Umwalimu SACCO is still a strong bottleneck to being able to include all teachers. "Districts are a big territory to only have a single branch in each, however there is possibility of joining technology with another government financial initiative of the recently created SACCO in every sector in order for teachers to be able to access their accounts through the sector branches," Museruka further says.

Also another challenge that has given goose bumps to Umwalimu SACCO in the recent past is debt defaulting by teachers who left the profession after acquiring loans. "These used to give us hard times but we have now come up with a way to deal with them in which we have got lawyers who pursue the cases and we expect that this is going to solve it."

On every fully recovered loan, the lawyers are given a 15% of the amount as commission. However it is not an extra expense for the cooperative since the defaulting teacher is charged a 4% fine on every monthly installment which recovers the legal professional's expense.Besides, the SACCO's nonperforming loan ratio of about 5.7%, representing almost Rwf8million of the financial institution's outstanding loans is also not good. The value is more than double the average that Rwanda's central bank registered for all SACCO's.

To avoid losing the loaned money, Umwalimu SACCO designed a model where a loan is given in three installments; having a technical team inspect at every end of the installment to make sure that the beneficiary is using the money as planned.

However, teachers also find this as a challenge since at times the first installment is too small to get the borrower's project moving. "It would be better if we got for instance two thirds of the loan at the beginning in order to be able to give the project a good thrust at the start," suggests teacher Akimana.

But the big challenge is to get the cooperative to full independence and self reliant so that it attains its goal which is to support teachers out of poverty.

Museruka believes that developing good strategies that can strengthen the cooperative's system mixed with government financial support will get them to self sustainability in the next 10 years. "I believe beyond doubt that the teachers' cooperative will be capable of taking care of its financial needs in the next decade."

Museruka suggests that in a way of boosting liquidity, all public schools ought to be sensitized to bank their money with Umwalimu SACCO. "We want that all public schools' financial transactions be handled by us; this would help to reach more teachers and to also gain more money to engage in the daily activities of the cooperative." Also in order to boost the deposits on the SACCO's accounts, Museruka suggests that advocating to private schools to also start using the cooperative for their financial transactions would play a good role. Umwalimu SACCO has already initiated the advocacy yielding about 3000 teachers in the private sector.

Museruka says that low interests rates offered by Umwalimu SACCO on loans---at 14% and 11%--would be an attraction to the teachers in private schools to join it.

"We have also designed a way to support private schools in ensuring that they can be able to pay their staff in time because we know that this is often a challenge for them. In this provision, Umwalimu SACCO would pay teachers' salaries on behalf of the schools while they wait for the students to pay."

Luc Dushimerugaba a teacher in Kigali Christian School, which is private, is a member of Umwalimu SACCO. Although he says that limited money hinders the cooperative from meeting the expectations of its clients, he recognized that the SACCO provides low interest rates which can be good to teachers in private schools as well.

Dushimerugaba who also is an accountant by profession suggests that if Umwalimu SACCO was to open up for the outside world but keeping its priority on teachers, this would enable it to accumulate more cash to carry out other obligations.

However, the need for more money is one that cannot be overlooked but solutions are being sought and spirits are high that they will be achieved. "We are now sourcing for finance from other banks outside the country that can give us cheap loans. In a similar effort we received Rwf1.5billion teachers' mortgage loan from the Development Bank of Rwanda," Museruka highlights.

"We are seeking low interest funds in order for us to finance teachers at similar rates; this makes it hard to get them."

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