Savings and Credit Schemes in East and Southern Africa

The Agency for Coperation and Research Development(ACORD)carries out a rural development promotion programme in South Western Uganda named the Oruchinga Valley Rural Credit Society(OVRCS).

The aim of the credit scheme is to provide supplementary credit to rural producer groups at reasonable interest rates without collateral.

It also aims ti serve as a stepping stone for target groups to become eligible for institutional credit by organising and operating their own credit programmes abd by this to help strengthen internal organisational and financial capabilities of the target groups.

The credit scheme operates a loan disbursement method where groups of the target population initially operate a separate fund within each group.

Once the credit fund within the group is operating successfully(for one and a half years), external credit facilities are made available to the target group.

The external credit facilities are provided through a formal credit institution and as poor farmers do not have collateral to obtain loans from formal credit institutions, ACORD has established a small external fund for those in need of loans in the target group.

Loans are provided to the group as one unit and also to individuals.

Loans to individual members will be granted only if the whole group applies on behalf of the individual and is willing to stand surety for every individual loan.This makes the whole group responsible for every individual loan. To receive an individual loan, the group in which the applicant is a member must have administered an internal credit fund successfully for at least nine months.

Loans are provided for investment only and not for consumption or social purposes.Two types of loans are disbursed; production loans for all aspects of production activity and commercial loans to support the purchasing and marketing of some other producer’s produce.

Interest rates vary in the two types; 60% per annum on production loans and 84% per annum on commercial loans. The interest rate on production loans is kept lower than the other in order to encourage productivity.

Repayment schedules are negotiated with each loan and will depend on the purpose for which the loan is taken.As a usual practice, interest is payable monthly but the principal loan amount can be negotiated to be paid monthly or in a lumpsum at the end of the loan period. The maximum loan period for production loans is one year while commercial loans are for six months.

Applications for loans submitted by groups are handled by OVRCS credit officers who, after inspecting the applications and the group documents, will review the applications.After an application has been recommended by the credit officer, it is presented to the OVRCS Credit Allocation Committee which decides whether to approve or reject the application.

Loans are disbursed on loan agreements signed by the OVRCS and every member of the group applying for the loan. The group is wholly responsible for the loan. Repayments are collected by the group and paid into the OVRCS bank account by OVRCS project officers.

Defaulters are not eligible to receive subsequent loans until the loans are paid in full. Rescheduling of loans is not practiced except with regard to agricultural loans in exceptional circumstances and only if there is a possibility of new crop financing. If a loan remains unsettled for a longer time, legal action is taken.