22 April 2014

Uganda: Watoto Saving Group About to Become a Bank

Group saving and lending has really taken off in the recent past, with the latest figures showing a growing trend. Simon Musasizi digs into the story of Y-Save, a Watoto church-based saving group that is worth Shs 10bn.

When Watoto church's young corporates started fellowshipping, they did not see themselves turning into a strong financial institution. Theirs was a platform that brought together young workers in the church to discuss workplace issues that affected them.

Meeting once a month, they soon realized that one member's greatest challenge was that they didn't know how to handle their finances. It was then that Derrick Kiboneka got an idea that would become the seed of something grand. Kiboneka wanted members to start saving as a group - as a way of teaching them how to save.

He had watched how workmates at the United States Agency for International Development (Usaid) had made great strides through group-saving. He first sold the idea to Danstan Kisuule, one of the most vibrant group members.


"When he brought the idea, I saw an opportunity. I sold it to members; some bought it, others were sceptical," Kisuule recalls.

As a result, the group had their first meeting on January 24, 2000. Present were 15 people, 10 of whom had already bought the idea. And thus began the group Y-Save ( acronym for young savers) microfinance association.

"The minimum saving amount was Shs 5,000 every three months. But still, some people failed to pay it, and we chased them out of the group," says Kisuule, the inaugural chairman.

"I remember when we chased the first members, people said 'but you are teaching people the culture of saving, why are you chasing them?' I told them if they are not saving, they are not going to be part of us. I don't want to have a saving scheme where you have non-active members."

With this instituted compulsory saving culture inculcated in people, Kisuule had laid a strong foundation for the group. By the end of the first year in December, the association had accumulated more than Shs 120m - with a membership of 50 people.

However, Kisuule recalls that members had not warmed up to the idea of borrowing even with such huge sums of money sitting on their account. But in November 2000, Barbara Ofwono Buyondo, one of the ten pioneer members, took a loan to start Victorious Educational Services in Bakuli, which is today one of the most successful schools in the country.

With this, members started seeing how far the group could take them. At that time, Barclays bank was paying the group an interest of 13 per cent per annum on their fixed account. This prompted Kisuule to invest part of the members' savings in real estate, buying 25 acres of land in Kyaliwajjala in 2001 at Shs 150m.

Little did he know that this would be a source of grievances among some group members.

"People talked a lot; that when we started, I told them we were saving for the future and the issue of buying land wasn't there. They said I wanted to use their money to buy land," Kisuule recalls.

Kisuule, who is commonly known as Uncle D, knew this land was just enough for each member to get a plot. He got surveyors to survey the land and tractors to grade it.

Plots of land:

Kisuule then divided the land into small pieces of 25 decimals, selling them at Shs 1.5m to members, enough to get back the money he had spent it. He says, at the time, people around Kyaliwajjala thought it was National Housing and Construction Company (NH&CC) that had bought the land.

"They couldn't believe that individuals could pool resources together, acquire land and hire tractors to grade the roads," Kisuule says.

Y-Save had made its grand milestone. In 2002 the association hired services of a professional auditor to audit them. It is then that they realized that they were actually operating illegally. The association had not been registered and yet it was busy collecting money and investing it in real estate. By this time, it had about 100 members. The auditor advised them to become a Sacco.

"For us, becoming a Sacco was not our intention," Kisuule says. They had transformed themselves into what they call the Young Savers Association for Ventures and Entrepreneurship, and for them, that was good enough to run any venture.

However, following the auditor's advice, in November 2004, the association decided to register the Y-Save Multi-Purpose Cooperative Society Ltd. This saw Kisuule, who had served for a long time as the chairman, appointed the CEO of the Sacco in 2008, forcing him to resign his job at NH&CC in 2009.

Today, Y-Save has grown in leaps and bounds. It has 650 corporate members, 2,800 Watoto children who save Shs 10,000 off the pocket money they receive from the church, and 600 women living with Hiv/Aids.

According to Kisuule, the Sacco has a share capital of at least Shs 2bn. People's savings are Shs 4bn and reserves stand at Shs 1bn. This is on top of unvalued pieces of land, which was scattered across Kampala's suburbs in Sisa, Suubi (Nsimbe), Namugongo, and Nalumunye, among others.

Culture of saving:

But to Kisuule, property is not the most important thing.

"If you asked me one thing that people have gained from Y-Save, I will tell you that people have learnt the culture of saving. People know that on a monthly basis after they have received their salaries, they have to save even before doing anything," Kisuule notes.

"For us figures are not very important because you may have Shs 20bn but how many of your members have benefited from it. For me, it's the impact that it is having on the lives of our members, but not the figures," he said.

Apart from land, Y-Save invests its money in issuing loans to its members.

"There is no business you can do that is as good as loans; a business that is going to give you a return of 18 per cent per annum, which is assured," he said.

"When you talk of investment, people want to see buildings, but the return on the buildings is not even 10 per cent per annum."

Where banks have failed to make people save, Y-Save has made great strides. For most of its members, it's the low interest rates and flexible loan terms that have worked for them.

So, are commercial banks happy with Saccos - given the fact that they are eating into their loan business?

The managing director of Centenary bank, Fabian Kasi, says Saccos are a good thing if they are used as a mechanism of encouraging people to save. And he should know better than most. He made his name at the helm of Finca microfinance, before going on to head one of the largest banks in the country.

Kasi, however, recommends a clear system of management that everyone understands to avoid mismanagement of members' funds.

"If people from those associations learn the benefits of saving, it is good for all of us because, eventually, they will end up in the banks because that is where the money is safe," he says. "It is from these saving groups that we can later have investment clubs," Kasi said.

But even Saccos have set higher targets. Y-Save actually wants to start its own bank.

"We want to build our own bank, but the regulations require you to partner with two other people (companies)," Kisuule says.

"So, we are looking for people who are like-minded so that we move our money away from other banks into our own bank," he said.

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