Socio-Economic Role of Saving and Credit Cooperatives in

Ethiopia: The Case of Ethiopian Airlines Employees Saving and

Credit Association

A Thesis Submitted to the School of Graduate Studies of Addis Ababa

University in Partial Fulfillment of the Requirements for the Master of
Art in Business Administration (MBA)

By: Endalkachew Kassa

Advisor: Yohannes Workaferahu (Ph.D.)

ADISS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

January 2019

Addis Ababa, Ethiopia

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Declaration

I, the undersigned, declare that this thesis entitled “Socio-Economic Role of Saving and Credit
Cooperatives in Ethiopia (A Case of Ethiopian Airlines Employees Saving and Credit Association)”
is my own original work and that all sources have been accurately reported and acknowledged, and
that this document has not been submitted for a degree in any other universities.

Endalkachew Kassa ___________ ____________

Name of Author Signature Date

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Statement of Certificate

This is to certify that Endalkachew Kassa has completed her thesis entitled “Socio-Economic Role
of Saving and Credit Cooperatives in Ethiopia (A Case of Ethiopian Airlines Employees Saving
and Credit Association)” is his original work and is submitted for examination with my approval as
a thesis.

Yohannes Workaferahu (Ph.D) ______________ ____________

Name of Advisor Signature Date

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 Addis Ababa University

School of Graduate Studies

This is to certify that the thesis entitled, “Socio-Economic Role of Saving and Credit Cooperatives
in Ethiopia (A Case of Ethiopian Airlines Employees Saving and Credit Association)” was
carried out by Endalkachew Kassa under the supervision of Yohhanes Workaferahu (Ph.D)
submitted in partial fulfillment of the requirements for the degree of Master of Business
Administration complies with the regulations of the University.

Approved by the Examiners

Dr Getie Andualem (PhD) June 9, 2020

Name of External Examiner Signature Date

___________________________ _____________ ____________

Name of the Internal Examiner Signature Date

Yohannes Workaferahu (Ph.D) JUN 22, 2020

Name of Advisor Signature Date

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 Acknowledgement

First, I thank the almighty God for giving me the encouragement and patience to finalize my work.

I would like to express my deepest gratitude to my advisor Dr. Yohannes Workaferahu for his
valuable comments and unreserved support to carry out this thesis. My gratitude also goes to
members, employees, manager and board members of Ethiopian airlines employee saving and
credit association. This study may not successfully complete without their valuables data.

It is also with great pleasure that I acknowledge my indebtedness to the help I have been given by
my family.

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 Abstract

The aim of this study was to examine socio-economic role of saving and credit cooperatives in the
case of Ethiopian airlines employee saving and credit cooperatives. Descriptive research design
was used. The target population comprised 9167 active members with 383 samples using random
sampling technique, 14 employees with census inquiry and manager & board members of the
association. The study used questionnaires and interview as a tool for data collection. In order to
test the reliability of the instrument, the Crobanch alpha test was used. Finally, the responses of
the respondents from questionnaire and interview were analyzed separately using descriptive
Statistics. The findings of the study showed that credit services provided by the association have
economical than societal effect. And credit limit also small and should be improved per members’
request. The association also provide competitive interest rate on its saving service and enable
repayment of loan in line with increasing capital resource. And it needs to create awareness and
educate members regarding finance management. Non-financial services also not incorporated
under its services. It is also advisable to apply one of the models (Linked, Parallel & Unified)
regarding integration of non-financial services with microfinance. The association’s employment
opportunity also too low and needs improvement not only through self-employment but also hiring
individuals by expanding its services.

Keyword: socio-economic role, credit services, saving services, non-financial service, employment
opportunity

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 Table of contents

Content page
Acknowledgement .............................................................................................................................. i
Abstract .............................................................................................................................................. ii
Table of contents ............................................................................................................................... iii
List of figures ..................................................................................................................................... v
List of tables ...................................................................................................................................... vi
Acronyms ......................................................................................................................................... vii
CHPTER ONE ................................................................................................................................... 1
1. INTRODUCTION ......................................................................................................................... 1
1.1. Back ground of the study ........................................................................................................ 1
1.2. Statement of the Problem1 ...................................................................................................... 1
1.3. Research question ................................................................................................................... 5
1.5. Significance of the study......................................................................................................... 6
1.6. Scope and limitation of the study............................................................................................ 6
1.7. Organization of the research report......................................................................................... 7
CHAPTER TWO ............................................................................................................................... 8
2. LITERATURE REVIEW .............................................................................................................. 8
2.1 Concept of Microfinance ......................................................................................................... 8
2.2. Concepts, characteristics and role of SACCOs....................................................................... 8
2.3. Types of SACCOs................................................................................................................. 10
2.4. Principles of SACCOs .......................................................................................................... 11
2.5. Saving and credit cooperatives in Africa .............................................................................. 12
2.5.1. Historical back ground ................................................................................................... 12
2.5.2. African SACCOs and their environment ....................................................................... 13
2.5.3. Expreriences of financial systems in Africa .................................................................. 14
2.6. Cooperative movement in Ethiopia ...................................................................................... 15
2.7. Overview of empirical literatures ......................................................................................... 19
2.7.1. Evaluation of micro finance services and socio economic effects ................................ 20

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 2.8. Challenges for SACCOs ....................................................................................................... 24
2.9. Conceptual framework ............................................................................................................ 8
CHAPTER THREE ......................................................................................................................... 28
3. RESEARCH METHODOLOGY................................................................................................. 28
3.1. Research design .................................................................................................................... 28
3.2. Target Population and Sampling Technique ......................................................................... 28
3.3. Sample size ........................................................................................................................... 29
3.4. Data Types and Sources ........................................................................................................ 29
3.5. Instrument of Data Collection ............................................................................................... 30
3.6. Method of Data Analysis ...................................................................................................... 30
3.7. Research ethical consideration .............................................................................................. 31
CHAPTER FOUR ............................................................................................................................ 32
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION ......................................... 32
4.1. Analysis and interpretation of primary data.......................................................................... 32
4.1.1. Personal Background of Respondents ........................................................................... 33
4.1.2. Reliability Test ............................................................................................................... 35
4.1.3. Socio-economic role of saving and credit cooperatives ................................................ 36
4.1.4. Interview results ............................................................................................................. 44
CHAPTER FIVE ............................................................................................................................. 47
5. SUMMARY, CONCLUSION AND RECOMMENDATION .................................................... 47
5.1. Summary of Findings ............................................................................................................ 47
5.2. Conclusion ............................................................................................................................ 49
5.3. Recommendations ................................................................................................................. 50
5.4. Implications and recommendations for further studies ......................................................... 51
References ........................................................................................................................................ 52
Appendixes ………………………………………………………………………………………..58

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List of Figures

Figure 2.1. Conceptual framework .................................................................................................. 26

Figure 4.1: Gender of Respondents ............................................................................................... 333
Figure 4.3: Marital status ............................................................................................................... 345

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List of Tables

Table 4.1: Age ................................................................................................................................ 334

Table 4.2: Education Level ............................................................................................................ 344
Table 4.3: Year of participation ..................................................................................................... 355
Table 4.4: Reliability test ............................................................................................................... 366
Table 4.5: Socio-economic effect of accessing credit service ....................................................... 377
Table 4.6: Scale statistics of socio-economic effect of accessing credit service ........................... 389
Table 4.7: Socio-economic effect of accessing saving service ...................................................... 399
Table 4.8: Scale statistics of socio-economic effect of accessing saving service ............................ 40
Table 4.9: Socio-economic effect of non-financial service provision ........................................... 411
Table 4.10: Scale statistics of socio-economic effect of non-financial service provision ............. 422
Table 4.11: Socio-economic effect of the association in creating employment opportunity......... 423
Table 4.12: Scale statistics of socio-economic effect of the association in creating employment
opportunity ..................................................................................................................................... 444

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 Acronyms

FCA: Federal Cooperative Agency

SACCO: Saving and Credit Cooperatives

ESACAs: Employee Saving and Credit Associations

EALESACCs: Ethiopian Airlines Employees Saving and Credit Cooperatives

ROSCA: Rotating Savings and Credit Associations

DFS: Development of Centralized Financial Systems

EIB: European Investment Bank

ENTACCS: Ethiopian Thrift and Co-operative Societies

MFI: Micro Finance Institutions

ASCA: Accumulating Savings and Credit Associations

UNFPA: United Population Fund

EALG-SACCO: Ethiopian Airlines Group Saving and Credit Cooperative

SPSS: Statistical Package for the Social Science

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 CHPTER ONE
1. INTRODUCTION
1.1.BACK GROUND OF THE STUDY

Cooperative societies were believed to have originated from Europe before they spread to other part
of the world (Babatund, Fakayode, Olorunsanya & Gentry, 2007). According to Altman (2009),
cooperatives have evolved significantly over the last 200 years and are of increasing importance to
economies and societies throughout the world irrespective of their level of socioeconomic
development. Yet, cooperatives are peripheral to contemporary academic analyses. Moreover, they
are treated as inefficient and ineffective types of organization whose presence is normally transient
and of some importance in times of crises and to marginal socioeconomic participants. Even those
with a sympathetic eye consider cooperatives to be of marginal importance.

Currently, cooperatives are recognized as an important instrument for socioeconomic improvement

of the community. This importance is identified in their definition, which contemplates cooperatives
to be:

“An autonomous association of people united voluntarily to meet their common economic,
social and cultural needs and aspirations through jointly-owned and democratically-controlled
enterprises” (ILO 2002).

A cooperative is a group of individuals of limited means who voluntarily unite to achieve common
predetermined objectives. The goals are pursued through the democratically agreed organization and
contribution to attaining the needed capital base. Each of the saving and credit cooperative (SACCO)
members assumes a fair share of the risks that are imminent in the business (Sharma, 2003; Altman,
2009). Levi, Y. and Bar-Nes, D. (1999) also emphasized on arguments for cooperatives depend
heavily on assumptions about people's willingness to participate in them. Sometimes it is assumed
that, just because they are cooperatives, this form of organization will attract the time, energy and
commitment of members.

Cooperative organizations are widely disbursed organization in developing countries, they are
known for strong commitment as well as involvement in the decision making of their members
(Haan, 2003). These societies organize local savings and manage credit to members, thereby

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encouraging thrift and entrepreneurial activity. Earlier at the beginning, credit unions use relatively
simple administrative practices, hence the costs are very small and most interest income from loans
may either be divided to the members or reinvested in the credit union within a capitalization
program. Consequently, they can be set up in developing countries, where access to means of safe
savings and to credit at non-exploitative terms is of greatest importance (UNDESA, 1999).

According to Aimé and Mbabazi(1989) the first Savings and Credit Cooperative were established
in mid-19th Century, mainly in Germany by two men considered as the founding fathers of the credit
cooperative movements: Herman Schultze-Delitsche, who established a credit cooperative for minor
artisans and the urban middle classes, and Freidrich Reifeisen, the founder of the rural credit. After
consume cooperatives, the common type of cooperatives to be found in the modern world, including
the developing countries are the savings and credit cooperatives (Munyiri, 2006).

Saving and credit cooperative is currently enjoying wider acceptance as an anti-poverty strategy all
over the developing world. They undoubtedly opened great opportunity for many poor people who
could otherwise have no chance to access capital for business activities set they are not without their
own in built problems (Kifle, 2011)

Furthermore, saving and credit cooperative have become instrumental in creating common forum to
fight social and economic backwardness by allowing mass participation in development. Therefore,
they are considered as one way of accelerating the social and economic development for families,
community and the entire nation.

According to Emana (2009), modern forms of cooperatives were first introduced in Ethiopia in 1960.
Aredo (1993) also said that, cooperatives in Ethiopia have recent origins. The oldest ones were
established in the late 1960s, and they grew very slowly until 1978. One reason behind such slow
growth was the political and social instability that followed the 1974 uprising. The new cooperative
movement in Ethiopia was started by reforms made to the socio-political system. During the socialist
government (the Derg regime), cooperatives were formed to assist in the implementation of the
Government’s policy of collective ownership of properties. Under this system, cooperatives were
forced to operate in line with socialist principles, which meant that production and marketing of
produce were undertaken through collective mechanisms. Membership to a cooperative was also

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compulsory, which contravened the basic cooperative principle of voluntarily participation (Emana,
2009)

As a type of saving and credit cooperatives, employees’ savings and credit associations (ESCAs) for
purpose of savings and credit in Ethiopia started at the work place where by employees save certain
percentages of their income which gives them the entitlement to borrow money for reasons they
consider important to raise the living standards of their household. In most cases these include the
buying of fixed assets like house, car, machinery to start business, higher education, marriage,
medication of family members, and others) (Kolcha, 2014).

ESCAs operated for more than half a century in Ethiopia. They were categorized under Savings and
credit co-operatives (SACCOs) are designated as semi-formal financial institutions (Kolcha, 2014).
According to Tesfamariam (2015), the employees of Ethiopian Airlines pioneered establishment of
SACCOs in Ethiopia in 1964. From 1964-1973, national apex body known as Ethiopian Thrift and
Cooperative Societies Ltd (ENTACCS) were formed by 28 SACCOs. At that time, the apex had 28
SACCO with 6,247 members and savings amounting to USD 627,752 and was a member of the
Africa confederation of Cooperative Savings and Credit Association (ACCOSCA).

They are established with in governmental organizations and private businesses, and play a
significant role in mobilizing deposit and in allowing employees access to loans at a cheap rate.
Their deposit collection and loan recoveries are integrated to each organizations payroll system,
hence reducing administrative costs. The fact that they are protected by operational rules of
organizations reduces their credit risk because an employee cannot default as long as they earn salary
every month. In the event of default, loans are recovered from earnings of 3 guarantors who work in
the same organization. ESCAs also buying shares of different financial and non-financial firms in
the country to participate in the investment market.

The ESCAs, as important sources of savings in the country, need serious study. The existing
literature highly limited to only few studies on farmers unions and other agricultural related
cooperatives. Similarly, the government also highly attempted to expand farmer’s cooperatives and
union on the rural areas of the country while very little attention is given to ESCAs. Based on this
reality it is necessary to assess over all operation, especially socio economic role, of ESCAs existing
in Ethiopia, particularly in Addis Ababa.

3
Statement of the Problem

Undoubtedly, micro finance cooperatives have a pivotal role in a social system in various aspects;
economic, social and cultural aspects. As try to imply by UNOSAA (2013), in the current economic
environment of on-going global financial and economic instability, microfinance lies at the heart of
Africa’s efforts at delivering inclusive socioeconomic development. For instance, cooperative
associations are of great importance for social integrity, economic wellbeing and group solidarity of
their members. The saving and credit cooperative associations are not exceptional in this regard. The
researcher was conducted this research to know really saving and credit cooperatives as part of
microfinance institutions deliver inclusive socio-economic development by taking case on Ethiopian
airlines saving and credit association.

Saving and credit cooperatives conceived as the instrument for economic development, particularly
for financial transactions and social capital development (Emana, 2009). Moreover, Community
action partnership (2012) stated that credit unions are eligible to become community development
financial institutions. Improving one’s economic status requires the ability to earn income, to spend
it wisely, to save part of it for future benefit and to have access to credit in order to move into a
productive or income generating activity. Saving and credit cooperatives are central to this end in
doing so, increase personal and national capital resources by encouraging and eliminating usury and
waste fullness through the sound use of credit respectively. They serve as reliable and indigenous
tools in creating national income and employment (Emana, 2009, Kimberly & Robert, 1980).

However, in our country peoples’ saving habit as well as their ability is low. Because of limited
knowledge in financial planning and low level of real income that does not usually go beyond their
necessities. Due to these and other similar reasons, most people may accumulate a load of debt at
high interest rates that may take long time to repay off. Besides, Aredo (1993) talks about the absence
of adequate financial institutions may affect individual saving habits. However, even where there
are financial institutions, people may not use them.

Consequently, for a large proportion of the Population, there are no such facilities. The only choice
that they can go is individual money lenders who charge high interest rates. This leaves many
borrowers deeply indebted and always struggling to get out of debt but without success. Thus, the

4
cooperative sector has to use this unique opportunity to lay the foundation of sustainable delivery of
financial services to the low-income groups and rural poor in Ethiopia.

Therefore, the solutions to these problems are to encourage peoples’ saving and proposing
alternative means that can generate additional income. Towards this end, savings and credit
cooperatives can be taken as an option, among others, to solve the problem. This is because credit
union serves as an ideal instrument in developing the habit of thrift in its members and it gives the
opportunity to gain financial rewards in the form of interest.

Moreover, saving and credit cooperatives enable the small borrower to borrow at the ends and to
repay on the right dates.

Studies on ESCAs in Ethiopia are limited; especially there has been no sufficient literature about the
socio-economic effect of saving and credit associations in availing saving and credit services to their
members, their effect in provision of non-financial services and employment creation. The
researcher was also interested to know the state of affairs in urban areas as most of related studies
have been done in rural areas. In general, this study is intended to explore the Socio-economic roles
of saving and credit cooperatives. To do so, the Ethiopian Airlines employees saving and credit
association was selected.

1.2.Research question

This study was tried to answer the following questions.

1. What are socio-economic roles of accessing credit service on the association’s members?
2. What are socio-economic roles of availability of saving service on the association’s
members?
3. What are socio-economic roles of non-financial service provisions by the association on its
members?
4. What are creation of employment opportunity socio-economic role on the association’s
members?
1.3.Objective of the study

Formal financial institutions such as commercial banks alone cannot provide financial service
requirements of a country in general and the low income group in particular. Thus, it needs the

5
participation of saving and credit cooperatives for financial intermediation of the society at large. In
view of this fact, the general objective of the study was to assess the role of saving and credit
cooperatives on socio-economic development in the case of Ethiopian Air Lines employees saving
and credit cooperatives.

Within the context of achieving the general objective of the study, it tried to focus on the following
specific objectives.

 To assess the socio-economic role of accessing credit services on members.

 To analyze the socio-economic role of the availability of saving services on the
association’s members.
 To evaluate the socio-economic role of non-financial service provisions by the
association on its members.
 To assess the socio-economic role of the association in creating employment
opportunity.
1.4. Significance of the study

The study was important as it provide some reliable information about saving and credit cooperative.
The study also show what advantages the association has to its members and employees especially
in the socio-economic conditions. Thus, it was useful in generating valuable information for further
study. The finding and recommendations help the association to make improvements in its endeavor.

1.5. Scope and limitation of the study

1.5.1. Scope of the study

When we say saving and credit cooperatives, there are various type of saving and credit cooperatives.
However, it is difficult to deal with every aspect of saving and credit cooperatives due to time, cost
and other constraints. Thus, the study is concerned with the Socio-economic role of saving and credit
cooperatives in the case of Ethiopian Airlines employees saving and credit cooperatives
(EALESACCs).

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1.5.2. Limitation of the study

While compiling this study there were some problems that counter the researcher, it would have
been more useful to study the problem in a wider scope. However, due to time, finance and other
constraints, the study area is narrow. In addition to this, there are no as such organized materials and
reserved books about this issue and there are no enough previous studies on similar topic.

1.6.Organization of the research report

The general content of this research paper have five chapters. Chapter one entails the introduction
part, which contains, background of the study, statement of the problem and objectives of the study,
limitation of the study, scope and significance of the research paper. Chapter two also presented the
review of literature part of the study. Chapter three contains the research methodology part, which
contains, research design, data source and methods of data collection, target population, sample size
and sampling techniques and methods of data analysis and presentation. The research results and
discussion presented in chapter four. The final part of the study was chapter five which forward
conclusions and some recommendations.

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 CHAPTER TWO

LITERATURE REVIEW
2. 1 Concept of Microfinance

According to Tesfaye (2001), microfinances are organizations that plan to improve access to small
deposits and loans for poor households oversighted by banks. Therefore, they involve the supply of
financial services like savings, loans and insurance to the needy people living in both urban and rural
settings who are unable to obtain such services from the formal financial sector. When properly
harnessed, microfinance offers a spread of advantages to the African people. Foremost, microfinance
initiatives can effectively address material poverty, the physical deprivation of products, services,
and therefore the income to achieve them.

2.2.Concepts, characteristics and role of SACCOs

Cooperatives have played a big role towards achieving the expansion and poverty reduction strategy
by promoting income generating activities and improving access to close banking services to rural
and concrete households (Tesfamariam, 2015). SACCOs are user-owned financial institutions that
provide both savings and credit services to their members. Members of those financial institutions
are often both net savers and net borrowers. Depending on a country’s legal framework, SACCOs
may be authorized to mobilize member savings and non-members savings or member savings only.
SACCO Society is financial cooperative society established by voluntary people supported the
philosophy of building self-help society or “people helping people”. SACCO Society is owned,
managed, controlled by members. Members have the right to decide on its issues, members have the
right to benefit from its service. SACCO Society is formed initially for the poorer to provide financial
services such as safe place for savings and providing easy accessible loans to members. SACCO is
“not for profit or for charity society” but serve members at fair profit margins. In SACCO Society
member’s savings form a good pool of money, from which loans are made to members with fair
lending interest and the interest rate is decided by members. In SACCO Society once overhead and
other expenses are paid, reserve for cushion against any loss, and for expansion of services put aside,
the remaining income from loans is returned back to members in the form of dividend on savings,
share or both (Getachew, 2006).

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SACCO Society are financial institutions designed for people, to possess their own efficient financial
service giving institutions that empowers themselves in building asset by teaching thrift culture and
make themselves accessible to credit in sustainable way (Getachew, 2006).

According to Tadael (2017), Savings and Credit Cooperative (SACCO) is a type of cooperative
whose objective is to pool savings for the members and in turn provide them with credit facilities.
Ahmad (2005) also said that, Cooperatives are being considered useful mechanisms to manage risk
for members, help salary/wage earners but the longer term through a soft-felt monthly contribution
that is deducted from source, own what could be difficult for people to have by their efforts,
strengthen the communities during which they operate through job provision. Other objectives of
SACCOs are to encourage them on the proper management of money and proper investments
practices. Whereas in urban areas salary and wage earners have formed SACCOs, in rural areas,
farmers have formed Rural SACCOs. There are also traders, transport and community-based
SACCOs. It can be designated as semi-formal financial institutions. They are beyond the control of
the central authorities with respect to ownership of the assets and management. Savings and credit
co-operatives also are referred to as credit unions, thrift and credit co-operatives or savings and credit
associations. They are defined as follows:

Thrift (saving) and credit co-operative are associations, which can accept deposits from its members
as savings and also issue out loans to qualifying members of the SACCO (Henama, 2012)

Credit union is a financial co-operative organized from a group of people with a common bond. As
a co-operative, it is a democratic and non-profit organization. Members invest alittle amount (called
a "share") to hitch. This allows the members to be the owners of the credit union. It entitles them to
elect from among themselves a board of directors, which sets policy and may appoint a manager
(ILO, 2001). A credit union is part of a co-operative financial system and adheres to the operating
principles for credit unions as set forth by the world Council of Credit Unions (ACCOSA, 1990).
From these definitions it can be inferred that a SACCO, generally speaking, has three basic purposes:
to promote thrift, to provide a source of credit at a low interest rate, and to teach people the wise use
of their money and the efficient management of their limited pooled resources.

As discussed by ACCOSCA (1990) SACCO has several unique characteristics which promote the
self-help, member-owned and directed principles of co-operativism, service to members, social goals

9
and leadership potential of its members. One characteristic is a common bond; Individuals, who have
something in common, whether based upon working together, belonging to the same organization
or living together in the same geographical areas, know one another.

Thus, they need already established a standard bond which will be built upon to deal with economic
and social needs. The common bond is necessary to develop mutual confidence among the members
to help one another and to trust the decisions made on their behalf by their elected leaders. The
different types of common bond are: The different types of common bond are:

 Work –place/ employee common bond which is based upon individuals who have the same
employer
 Association common bond which is regarded as individuals who belong to a religious, social
or educational group;
 Residential common bond which is characterized by geographical or political sub–division
such as a sub-location, district, town or one or more villages.

What makes SACCOs different from other cooperatives and financial institutions is that SACCO's
operations are concentrated within their own membership and a person must be a member in order
to save, borrow or obtain other services from the SACCO. In developing SACCOs, working funds
are covered mostly of member shares; in mature SACCOs, working funds are largely deposits.
SACCOs’ make loans to members, emphasizing primarily the character and ability to repay.
SACCOs’ rely to a significant extent upon the volunteer efforts of the members; the key element in
the development of SACCOs’ is volunteerism. The difference between a SACCO and other forms
of co-operatives is that the SACCO can accept deposits from its members as savings and also issue
out loans to qualifying members of the SACCO (Henama, 2012).

2.3.Types of SACCOs

According to Bwana and Mwakujonga (2013), there are various kinds of SACCOs, depending on
the membership profile and services extended to the SACCO members differ accordingly. In
essence, there are three broad groups of SACCOs:

 Community-based SACCOs: These SACCOs are often found in urban areas or regional
towns, but are most often frequently encountered on village level. A variety of group and

10
 individual loans are often found, including women solidarity loans, business loans for
individual members, or loans for small and micro enterprises;
 Employee-based SACCOs. These represent SACCOs where all the members are obtained
from the same or one employer and these SACCOs are generally found in urban areas or
regional level. Specific salary-based loans are provided which are often guaranteed by the
employer.
 Agricultural SACCOs. To date these, represent basically small-scale cane growers in areas
such as the rural region. Both individual farmers and their associations can be clients of the
SACCO. Loans are extended for various dedications, including agricultural production loans.
2.4.Principles of SACCOs

As stated by NRECA (2016), cooperatives around the world operate according to the same set of
core principles and values, adopted by the International Co-operative Alliance. Cooperatives trace
the roots of those principles to the primary modern cooperative founded in Rochdale, England in
1844. A key reason for America’s electric cooperatives operate differently from other electric
utilities and putting the needs of their members first are these cooperatives principles.

Cooperative Principles

I. Open and Voluntary Membership

Membership during a cooperative is hospitable all persons who can reasonably use its services and
stand willing to simply accept the policies of membership, no matter race, religion, gender, or
economic conditions.

II. Democratic Member Control

Cooperatives are self-governing organizations controlled by their members, who vigorously
participate in setting policies and making decisions. Elected representatives (directors/trustees) are
elected from among the membership and are responsible to the membership. In primary
cooperatives, members have the same voting rights (one member, one vote); cooperatives at other
levels are prepared during a democratic manner.

III. Members’ Economic Participation

Members contribute equitably and control democratically the capital of their cooperative. At least a
part of that capital remains the common property of the cooperative. Members allocate remainders

11
for any or all of the subsequent purposes: developing the cooperative; fixing reserves; benefiting
members in proportion to their transactions with the cooperative; and supporting other activities
approved by the membership.

IV. Autonomy and Independence

Cooperatives are autonomous, self-help organizations managed by their members. If they enter into
agreements with other organizations or raise capital from external sources, they are doing so on
terms that ensure democratic control also as well as their unique identity.

V. Education, Training, and Information

Education and training for members, elected representatives (directors/trustees), CEOs, and
employees help them effectively contribute to the event of their cooperatives. Communications
about the character and benefits of cooperatives, particularly with the overall public and opinion
leaders, helps boost cooperative understanding.

VI. Cooperation among Cooperatives

By working along with through local, national, regional, and international structures, cooperatives
increase services, strengthen local economies, and deal more effectually with social and community
needs.

VII. Concern for Community

Cooperatives work for the viable development of their communities through policies sustained by
the membership.

2.5. Saving and credit cooperatives in Africa

2.5.1. Historical back ground
English speaking nations were the first to adopt SACCOs in Africa. The first entrants into SACCOs’
community includes Ghana, Uganda, Nigeria, Tanzania, and Kenya. Among all, the first SACCO
Society, in Africa, was introduced in Ghana in 1959. Most of the Non-English speaking countries in
Africa started SACCOs in 1960s, with major influx into SACCO community in 1970s
(Mwakajumilo, 2011).

According to Alila and Obado (1990), in Africa, the idea of savings and credit societies was first
discussed in 1955 in Jirapa, a small town in Ghana which was then the Gold Coast. The idea was

12
brought by a Roman Catholic priest, Father John McNulty from Ireland. He had studied in Canada
where he learnt about SACCOs’. Father McNulty decided to support the Jirapa villagers to form a
savings and credit Co-operative. The cooperative had a specific aim of supporting the members to
address their financial problems which they could barely do individually.

2.5.2. African SACCOs and their environment

The three system for offering savings and credit services

According to Mwakajumilo (2011) in most African countries, three systems for offering savings and
credit services rub shoulders, sometimes, in competition with one another, but most often without
their being a true competition among them to the extent that they offer different types of service or
service different clienteles as follows:

• Centralized Financial Systems: - This refers to commercial and/or business banks that operate
primarily in an urban environment and the financial institutions under more or less direct control of
the Government. They are subjected not only to general commercial laws, but also to specific
banking and central bank regulation. The institutions operating under this technique are sometimes
mentioned to as Formal Financial Institutions/system.

• Decentralized Financial Systems: - This denomination is used to designate institutions and

networks that were developed as alternatives to commercial banks and the informal structures for
offering financial services close to the people. It comprises, specially, the various networks of
SACCOs (rural cooperatives, mutual credit societies, people’s banks), but also different alternative
experiences introduced by NGOs. The institutions under this technique are registered, but are not
subjected to specific banking regulations and central bank supervision.

• Informal Financial Systems: - This refers to the range ROSCAs (Rotating Savings and Credit
Associations) of the tontine type and door-to-door bankers, in particular. Since these aren’t
registered nor are supervised by government machineries. Often loans are granted based on the
familiarity with the borrower.

Since they have appeared on the scene recently, SACCOs are still newcomers in the African
landscape of financial systems offering savings and credit services. They still only occupy a small

13
share of the market in comparison with the other two. They are sometimes midway between both
extremes.

In fact, the emergence and development of centralized financial systems (DFS) has resulted in part
from the failures and limitations of the other two systems.

2.5.3. EXPERIENCES OF FINANCIAL SYSTEMS IN AFRICA

The Tontine: - The tontine meets the needs of domestic economy where income is weak and
irregular. The system depends on extending contributions over time and on the following principle:
the group pays dues and the sums thus collected are paid out in turn to one of the dues-payers. The
dues are collected, as many times as there are dues-payers, so that each one receives the same capital.

The tontine in no case may be a means for accumulating capital for an economically profitable
investment. It makes it possible to meet primary and family needs and operates because each of the
dues-payers. Practically at equivalent time, wants to supply a particular response through a short-
term savings effort. The success of the tontine, therefore, relies on the principle of strict equality,
trust and non-hierarchical control.

Door-to- Door Bankers

Is what a person go every day to their clients to receive a preset sum of money on the agreed upon
due date (at the end of 31 or 62 days), the door-to- door banker returns the amounts collected with
the exception of one payment out of 31, which represents the interest or the price of safety service
provided to each saver.

Village Banks
Village savings and credit banks are true banks employed by villagers to form their savings safe and
productive by granting loans to individuals or groups who belonging to them. The villagers jointly
establish the operating rules of their bank by appointing one or several managers, while a credit
committee reviews and decides how to grant loans, provides monitoring and the assisted collection
of the manager. On the principle, the village bank organizes local savings ton recycle it into the
village economy.

14
Savings and Credit Cooperative Societies
Savings and credit cooperatives societies channel their members’ savings, essentially classifying
needs to grant loans oriented toward social needs, handcrafts and minor business. The members are
the only beneficiaries, sole savers and sole decision-makers.
Their association or proximity with other production- or consumer-based cooperatives makes them
integrated and effective tools for rural development (Mwakajumilo, 2011).

2.6. Cooperative movement in Ethiopia

Cooperation in Ethiopia has a long history, particularly in the form of traditional collective
organizations, such as rotating savings and credit associations (iqubs), work groups (jiges, wonfels,
debos), and burial societies (idirs). These cultural cooperatives exist still now especially in rural
Ethiopia.

Modern cooperatives in Ethiopia started in the 1960s. During this time, Ethiopia was under the ruling
era of Emperor Haile Selassie I (1932-1974). The main reason for the initiation of the modern
cooperative at this period was to solve unemployment problems, especially for retired workers
(Bernard, 2010). During this time, the first cooperative legislation was declared and it is known by
Decree number 44/1961. The main objective and purpose of this Decree was to promote the
economic interest of Ethiopia in general, and their members in particular, through effective and
efficient cultivation and development of land.

Accordingly, the first cooperatives’ proclamation known as proclamation number 241/1966 was put
in place. The main reason for this proclamation was to provide a proper basis for the formation of
cooperative societies to promote thrift, mutual help and self-help among persons sharing common
needs and desires. According to Mahmud (2008), based on this proclamation, 158 cooperatives were
established with 33, 400 members and 9.97 million Birr (around 0.04 million euro) total capital. But
the attempt was not effective to solve the problem of poor farmers because the focus was only on
potential areas for agricultural production in order to enhance the production of economically
important crops/cash crops for export and, as a result, land ownership was a basic criterion for
membership. The main objective was to maximize profit. During this period, in most parts of
Ethiopia, few landlords owned the land. Rich commercial farmers were encouraged to become
members of the cooperatives. Therefore, from the very beginning, it failed to meet the demands of
poor farmers (Ayalew, 2014).

15
According to Ayalew (2014), the establishment of savings and credit co-operative societies in
Ethiopia started in the mid-1960s. The first one was pioneered by the employees of Ethiopian
Airlines in 1964. From 1964 -1973, there were 28 savings and credit cooperative societies and these
societies formed their own national apex body known as Ethiopian Thrift and Co-operative Societies
Ltd (ENTACCS). At that time, the apex had 28 SACCO societies with 6, 247 members and 1.57
million Birr ($ 0.76 million), 752 members’ savings. The apex was a member of the African
Confederation of Co-operative Savings and Credit Association (ACCOSCA).

In 1974, the Military junta (Derg) had overthrown the Emperor Haile Selassie I government. The
Derg abolished all cooperatives except credit and saving cooperatives and established new
cooperatives based on a socialist ideology. In 1978, the Military junta proclaimed the cooperative
organization proclamation number 138/1978. This proclamation envisaged collective ownership of
production by way of mobilizing peasants. The main objectives of this proclamation were to develop
self-reliance and to promote the interest of their members and to participate in the building up of the
socialist economy.

During this era, cooperatives began to see change in fortunes as their roles in economic development
were understood better. Though tremendous efforts were made to promote cooperative societies,
members lacked tangible benefits and they had no role to play, hence the sense of ownership faded
and the cooperatives started to disintegrate and suffered a loss of credibility. According to Mahmud
(2008), during 1990 there were 10,524 different types of cooperatives with 4.53 million members
and capital of Birr 465.47 million (€ 33.70 million) throughout the country. Of these cooperatives,
80% were rural cooperatives.

Though the military government issued a proclamation to promote and support cooperatives, its
main target was to promote a socialist ideology throughout rural Ethiopia using cooperatives as a
means of attaining its objectives. Moreover, membership was not on a voluntary basis, which
contradicted the international cooperative principle. The government had control over cooperative
management, governance, and finance and property administration. Therefore, almost all of the
producers’ cooperatives and many other types of cooperatives were abolished or highly weakened
when the government issued a mixed economy policy which gave a chance for cooperative members
to decide on their cooperatives. The producers’ cooperatives were abolished within a very short time.

16
Following the overthrow of the military government (1991) with the adoption of economic reform
program helped the organization, promotion and development of cooperative societies within the
framework of the free market economy. The government provided a legal framework which is both
comprehensive in many respects (including its ability to accommodate coops in various sectors/sub-
sectors) and incorporates universally accepted principles of cooperatives including voluntary
membership (Proclamation No. 147/1998 and amendment 402/2004). As a result some
improvements have been seen in that cooperatives started to distribute inputs, provide loan to their
members, marketing their products in the domestic and foreign market, unions (secondary
cooperatives) were formed, dividend payments were made by the unions as well as primary
cooperatives (Kifle, 2014).

The proclamation defines cooperatives as organizations “formed by individuals on voluntary basis,”

and states that they “participate in the free market economic system.” This indicates the different
nature of the new cooperatives from the system of the previous regime. Proclamation No. 147/1998
outlines the layered organizational structure of the cooperatives, which was not permitted by the
previous regime. An organization can have four layers, i.e., primary cooperatives, unions,
federations, and cooperative leagues. According to FCA (2015) primary cooperatives, union levels,
and federation have been formed to date. Cooperative league has not been formed to date. Another
unique feature of the proclamation is that it defines the ratio of dividends between a cooperative
organization and its members. Article 33 of No. 148/1998 regulates that the cooperative “society
shall deduct 30% of the net profit” and “the remaining net profit shall be divided among members.”
Therefore, the unions provide 70% of their net profit to the primary cooperatives and the primary
cooperatives in turn provide 70% of their net profit, including the dividends from the union, to
cooperative members.

According to this proclamation No. 147/1998, a minimum of ten individuals can form a primary
cooperative society. Individuals are eligible for membership at age fourteen. A member is allowed
to hold a maximum of 10 percent of the total paid up share capital of the society. The Proclamation
stipulates that cooperative societies can borrow from members based on their bylaws and at rates
not exceeding the prevailing interest rate of the commercial banks. Cooperative lending is restricted
to members only. However, the law permits a cooperative to lend to another society. While lending,
cooperatives are not restricted with regard to the interest rate they charge.

17
In 2002, the Federal Cooperative Agency of Ethiopia was created to organize and promote
cooperatives at the national level. Its ambitious five-year development plan (2006–2010) aims to
provide cooperative services to 70 percent of the population through the presence of at least one
such organization in each kebele by 2010 (Feleke,2014).

According to Feleke (2014) SACCOs in Ethiopia are semi-formal financial institutions in the sense
that they are registered entities and subject to all general rules, but are not subject to the same
prudential standards applicable to formal financial institutions. Unlike the commercial banks and
MFIs, savings and credit cooperatives are not subjected to the rigorous supervision and regulatory
rule of the NBE. The cooperative proclamation allows SACCOs to operate as self-regulated entities
with a few restrictions such as the allocation of profits and the maximum shareholding to a single
member. Internal monitoring and controlling generally provides the checks and balances of the
operation of the cooperatives.

According to FCA, 2015, out of various types of primary cooperatives, as of July 2015, 17,765
(24.9% of total number of cooperatives) are primary SACCOs with membership of 2.8 million and
saving amount of 6.6 billion Birr. Currently, SACCOs constituting the second most common type
of cooperatives (next to multipurpose cooperatives) in the country in terms of both number,
membership and capital.

Though the performance trend of SACCOs in Ethiopia has shown increasing trends in terms of their
numbers, membership sizes and amount of contribution and saving, many experts on the areas
underscored that the performance in terms of penetration rate, average membership and saving ratio
is still very low as compared with Sub-Saharan African countries such as Kenya, Rwanda, Uganda,
etc. The information obtained from WOCCU database also revealed this fact. The penetration rate
of cooperatives in Ethiopia is found to be 2% which is below the average penetration rate of
cooperatives in Africa (7.7%). Hence, this figure implies that much work is needed in order to utilize
SACCOs as an opportunity to mobilize savings and address the saving-investment gaps in the
country (Tezeta & Deribe, 2012).

18
2.7. Overview of empirical literatures

The most important studies related with thesis are reviewed and summarized as follows:

Zikalala (2014) studied about the role of saving and credit cooperatives in promoting access to
financial services. The study was used both qualitative and quantitative approaches to analyze the
data collected from primary and secondary sources. The finding revealed that, saving and credit
cooperatives in Swaziland failed to meet international standards of financial stability set for
cooperatives. It also transpired from the results that the major challenges faced by financial
cooperatives in Swaziland included low levels of skill and competition from commercial banks. Low
level of skill is the result of unavailability of educational package.

Miriti (2014) discussed on factors influencing financial performance of saving and credit cooperative
societies. Descriptive research design was used in this study where information was collected
without changing the environment. One of the finding from this study was, interest rate charge on
loan to members has major challenge to financial performance of SACCOs. The researcher also
recommends that the SACCOs should diversify its product to be able to compete perfectly in the
market and to meet the demands of its members.

Kifle (2008) studied about the impact of rural saving and credit cooperatives on the business, income,
family living conditions and empowerment in the study Ofla Wereda, Tigray region. The study
employed various statistical tools like correlation and regression to analyze data. The regression
analysis revealed that, the variables education and seniority at SACCO have significant negative
relationship with the post-SACCO income. The researcher also recommend that diversity lending
system, training, member education, increasing the amount of credit, extending the repayment period
and relaxing the collateral security needs have been suggested to improve their income, business
living condition and empowerment (women) of the members. He also suggest that, the training has
to be accompanied by the career development schemes so as to inclease their motivation.

Other researchers also studied about micro-credit, micro-saving, non-financial services and creation
of employment opportunity under their different objectives. Some of researchers and their findings
upon micro finance services and socio economic effects evaluation tools are discussed below.

19
2.7.1. Evaluation of micro finance services and socio economic effects

According to Wakilo & Sakwa (2014) microfinance has become an important instrument for poverty
alleviation in developing countries through its provision of both the financial services and non-
financial services to the poor. Those services can be micro-credit, micro saving and non-financial
services.

Micro-credit services

Micro-credit refers to programs that are poverty focused which provide financial and business
services to needy for generation of self-employment and income. Credit is a powerful instrument to
fight poverty. The role of micro-credit in reducing poverty is now well recognized everywhere the
planet. Credit creates opportunities for self-employment instead of expecting employment to be
created. It liberates both poor and ladies from the clutches of poverty. It brings the poor into the
income stream. Given the access to credit under an suitable institutional structure and arrangement,
one can do whatever one does best and earn money for it. One can overcome poverty. One can
become the architect of one–s destiny and the agent of change not only for one–s family but also for
the society (Wakilo & Sakwa, 2014). According to Khandker (1998), the best way to reduce poverty
is developing human capital.

Microcredit programs are “the provision of small loans to individuals, usually within groups, as
capital investment to enable income generation through self-employment”. Chowdhury and Salleh
(2017) also said that microcredit believed to play in changing family’s economic condition towards
having better education, health and social life. Microcredit programs could benefit society overall
by overcoming the liquidity, consumption smoothing, and unemployment problems associated with
highly imperfect credit market (Khandker, 1998). Moreover, according to Hassan & Bhuiyan (2013),
microcredit program in general influences borrowers to operate business to generate income and
access to microcredit motivated the respondents to send their children for education and shows a
positive sign for improvement of livelihood. Wakilo & Sakwa (2014) also concluded that
microcredit services provided by microfinance institutions are very essential as it increases income
that helps to cater for health and education services as well as help to increase the output and stock
in the enterprise. However, for efficient realization of this positive effects then microcredit have to
be readily accessed and the rates should be very flexible to attract many since it's a great tool to

20
alleviate poverty. Credits are also claimed to create economic power that would generate into social
power, lifting the poor out of poverty. Moreover, it is also argued that microcredit enhances human
capital regardless of poverty level because expenditures on education and health care are increased,
which may then extend to poor individuals through intra-household and inter-generational effects.

Micro-saving services

While credit has been the traditional focus of microfinance institutions (MFIs) and donors, the
importance of micro-savings programs for the poor is gaining recognition within the microfinance
literature (Wakilo & Sakwa, 2014). EIB (2008) also depicts in its report the focus of microfinance
has been largely on credit on a particular focus on support for micro-enterprises. However, the
possibilities of providing other microfinance services are being debated and in some cases, regulators
are considering the transformation of MFIs to banking institutions. There are strong economic
arguments to support the view that savings products are complementary to credit, and in some ways
preferable to it, in meeting the needs of the poor. Clients have different needs; micro-credit is not
always the best product.

Defining micro saving for measuring stocks, flows, and effects/impact is challenging. There are
several possible approaches depending on whether one focuses on the people saving, the amounts
saved, or the institutions in which the saving takes place. Thus, micro-savings can be thought of as
savings made by low-income or poor people, or as small amounts of savings (the challenge here is
to provide a threshold for saving deposits or balances that might distinguish between micro and non-
micro savings), or as savings held at institutions that concentrate in micro-savings. However, from
the attitude of poorest savers, micro savings can an outsized sort of of informal, semi-formal and
formal practices and defined micro-savings as the mobilization of savings through deposit services
run by microfinance institutions (MFIs) (Hulme, Moore & Barrientos, 2009). There has been a
transition toward expanded microfinance, and savings services are seen as a means of securing
savings and of encouraging the poorest to save more and more systematically.

SEEP (2017) find in its study that the combination of saving groups and health interventions can
lead to a variety of positive effects on health knowledge and behavior; care givers behaviors; use
and financing of health services. Improve access to financial resources can help overcome economic
barriers to pay for health services while group cohesion encourages sharing of information, adoption

21
of good behaviors and seeking health care treatment. With savings, households can build up assets
to use as collateral, smooth seasonal consumption needs, self-insure against major shocks, and self-
finance investments. Nepal & Dhakal (2016) confirmed in their study that microfinance has
promoted the saving and credit habit of the people.

Addisu (2016) discussed about the impact of saving and credit program on socio-economic condition
of women in mida woremo wereda, north shoa Ethiopia. One of the research concerns has been “can
micro saving program savings reduce vulnerability and risks of the client?” and the findings reported
that clients have increased income that enables them to save and to buy property. The savings
enabled clients to affect sever crises and to cope up with the shocks and reduce vulnerability and
purchased property are often sold also to affect the crises; savings can be used to acquire another
microfinance cycle and also to start and expand the existing economic activities of the clients.

Ledgerwood (2000) under microfinance handbook said that effective savings services, since there
are rarely secure, liquid alternative forms of savings that offer a return for the operators of these
enterprises (they also help to smooth consumption).

Non-financial services

Another hope of microfinance is that of social services offered by some microfinance programs
would educate women, promoting the education of their children and enabling them to provide better
healthcare for themselves and their families. A survey by the United Population Fund (UNFPA)
found, “more than one quarter (29.5 percent) of the women in the survey dealt with microfinance
institutions that provided health education services” (Wakilo & Sakwa, 2014).

Biosca, Lentos & Mosley (2011) said that delivering in conjunction with microfinance products,
nonfinancial service programs are widely heterogeneous. A simplified categorization classifies them
in

 Social related services including, among others, health education, maternal and child
healthcare, literacy, language training, legal advice and different kinds of personal
mentoring
 Micro-entrepreneurial development services, involving financial, business and vocational
training and technical assistance.

22
They also concluded that renewed credit-plus schemes, progressively perceived by practitioners as
a comparative advantage in extremely competitive environment.

Flores & Serres (2009) write about non-financial services and its models. As per their description,
there are three main models of integration of non-financial services with microfinance, leading to
different results in terms of performance and management: the linked, the parallel and the unified
models. In the linked model, services are provided by two independent organizations. The MFI dose
not directly provides non-financial services but establish a partnership with another entity to do so.
This model also allows to know the exact cost of non-financial services and to decide how to better
handle it. However, one of its weaknesses is that the MFI has little control on the quality of its
partner’s services. The parallel model if often applied by multiservice organizations, as opposed to
fully-fledged MFIs. Here, financial and non-financial services are offered by the same organization
under different programs and are managed by separate, specialized personnel who share the same
brand. The unified model seeks complementarity between financial and non-financial services by
embedded them in a hybrid product to be provided by the same staff. In this scheme, unlike the two
other models, non-financial services are generally compulsory for the beneficiary of financial
services. If well integrated, this model can be cheaper for MFIs than the two others.

Dereje (2012) studied about the role of financial institutions in the growth of small and medium
Enterprises in Addis Ababa. He found that apart from financial services, MFIs also provided non-
financial services. The major non-financial services provided to clients were training, setting up
business plan and monitoring and supervisions, consulting services, and experience sharing forums.
Some MFIs provide enterprise development training in the area of marketing, bookkeeping, and
Social services. Social services such as health care, education and literacy training that improve the
ability of the low-income earners. Sometimes MFIs also provides third party asset management (act
as trustee), insurance and other transactional facilities.

Wakilo & Sakwa (2014) Microfinance can also reduce poverty through the improvement of
household risk management through microfinance institution training and the building up of social
networks. This improvement is said to stabilize village income, reducing the vulnerability of the
poorest.

23
Regarding non-financial services of MFI, Griffin & Husted (2015) propose that the construct of
harmonious social relations needs to be added in order to explain repayment rates and that high
repayment rates foster increased capital formation for micro-entrepreneurs.

Employment opportunity

The proximate determinants of poverty are unemployment and the low productivity of the poor.
When poverty results from unemployment, reducing poverty requires creating jobs. Consequently,
the best way of reducing poverty is to deal with increasing productivity by creating employment.
One way to increase the production of the poor is through broad-based economic growth. Such
growth insures more inclusive participation in development by providing widespread employment
opportunities (Khandker, 1998). Microfinance can also condense poverty through job creation
(Wakilo & Sakwa, 2014).

EDC (2018) reported that an estimated 45 percent of Ethiopian populations are under age 15 and 71
percent under age 30. Youth unemployment is high, estimated to be around 7 percent; with about 25
percent of youth ages 15 to 29 reports being underemployed. Unemployment is reported to be more
prevalent in urban areas. However, lack of employment opportunity for young people still drives
rural-to-urban migration and leads many to emigrate.

Shastri (2009) was studied about microfinance and poverty reduction in India and find that creating
self-employment opportunities is one way of attacking poverty and solving the problems of
unemployment.

Dahir (2015) under his study regarding the challenges facing microfinance institutions in poverty
eradication, revealed substantial evidence of the importance of microfinance in socio-economic
environments and play vital role in reducing poverty, provides diversified, dependable and timely
financial services to poor people and it creates employment opportunity.

2.8.Challenges for SACCOs

Saving and Credit Cooperatives (SACCOs) are the main financial solution of the people who have
low-income level. However, they have their own challenges that retard their financial solution to
their members and the economical contribution to a country. The major problems of cooperatives in
Africa are absence of experienced management, uneconomic base level units, lack of supporting

24
infrastructure like extension, training etc., poor member participation, insufficient supervision and
auditing of cooperatives, and too much political disturbance (Feleke, 2003).

SACCOs, like in other many business entities operated in Africa, are faced with challenges in their
quest towards survival and growth. These challenges can be categorized into internal and external
challenges. Internal challenges include deficiency in contemporary skills, leadership and governance
problems, inadequacy of resources, insufficient technological development, quality service demand,
HIV/AIDS pandemic, and ethics and integrity. External challenges are: competition (economic
liberalization and regulation of business, price decontrol, competition for scarce resources, and
competition from commercial banks), political government (changes in co-operative legislation,
changes in investment policies, and new lobbying systems/approaches), technological (need to keep
pace with information technology), social (changing employee values and expectations, and greater
cultural diversity among employees), global (increasing and complex market demands, and
sophistication in ways of doing business), economy (non-performance of the economy), common
bond (non-remittance of dues to the SACCOs, and restructuring and reorganization of firms in line
with global trends (Carilus, 2011).

Limited number of studies has been carried out which identifies the challenges of saving and credit
cooperatives in Ethiopia. Zerfeshewa (2010), Kifle (2011), Dejene (2011), Aregawi and Kifle
(2011), Kifle and Hailemichael (2012), Biruk (2012), Tezeta & Deribe (2012), Aregawi (2014),
Kifle (2014), and Ergetew (2014) found out on their research findings the problems of SACCOs in
Ethiopia could be listed as follows: Lack of awareness and poor saving culture, lack of infrastructure
like office buildings and equipments, weak governance, policy and regulatory environment, weak
institutional capacity, low capital base, inappropriate loan security requirements, lack of trained
manpower, lack of external funding for the SACCOs, Small size of membership, lack of members’
participation, Low population density of the rural members creates high transactions costs, limited
technological advancement, difficulties in assessing the creditworthiness of a member and the
limited possibility to ask for collateral add to the high transaction costs, the financial system in place
including accounting and audit works are very weak. Most of the primary SACCOs are not maintain
proper financial records and produce reports timely. Similarly, the accounts of the societies are not
timely audited with three to four years lag in the case of certain primary societies. Kifle (2014) and
Federal Cooperative Agency (2014) revealed that financial cooperatives (SACCOs) are promoted

25
 and guided by proclamation No. 147/98 that treats all types of cooperatives uniformly, but does not
address critical issues facing financial cooperatives such as the lack of clear policy and strategy,
lacks financial standards and benchmarks required to protect savings, and direct the development of
this financial cooperatives in the area of saving mobilization, establishment of insurance scheme to
depository members and borrowers, guide on prudential financial ratios, reporting requirements.

2.9. Conceptual framework

Access of credit services

 New business development

 Accessing health service
 Financial support

Availability of Provision of Non-

saving services financial services
Socio-economic role  Social
 Saving habit of SACCOs cohesion
 Loan  Education
repayment service
 Consumption  Training
needs

Creation of employment opportunity

 Employees for daily activity

 Expanding branch
 Employee benefits

Figure 2.1. Conceptual framework (developed by own)

Members participation in microfinance programs (SACCOs) and their ability to access services such
as; microcredit, micro savings and non-financial services from the micro finance have an effect on
their socio-economic conditions, which eventually influences their wellbeing. SACCOs as one of

26
micro finance institution, also have a significant role in providing an opportunity to reduce
unemployment rate of the nation. Microfinance programs are increasingly important in development
strategies and have become an essential component of strategies to reduce poverty or promote micro
and small enterprise development. However, knowledge about the effects and achievements of such
initiatives remains only partial and contested.

27
 CHAPTER THREE
3. RESEARCH METHODOLOGY

Introduction

In this study, the researcher was attempting to apply the following necessary methods, which are
suitable for successful accomplishment of the research. Topics of coverage in this chapter include
research design, target population and sampling technique, instrument of data collection, method of
data analysis and ethical consideration.

Research methodology is a method to systematically solve the research problem. It may be

understood as a science of studying how research is completed scientifically. In it, we study the
number of steps that are generally adopted by a researcher in studying his research problem along
with the logic behind them (Kothari, 2004).

3.1. Research design

The research was done through descriptive type of research emphasizing both quantitative and
qualitative data. According to Kothari (2004), Descriptive research includes surveys and fact-finding
enquiries of different kinds. The major purpose of descriptive research is description of the state of
affairs, because it exists at the present. In social science and business research, we very often use the
term Ex post facto research for descriptive research studies. The main characteristic of this method
is that the researcher has no control over the variables; he can only report what went on or what’s
happening. This kind of studies is also concerned with describing the characteristics of a particular
individual or of a group. To this fact, the researcher was collected large amount data from sizable
population and analyzes using descriptive statistics.

3.2.Target Population and Sampling Technique

Total population of the study was all employees of EALG-SACCOs and members of the
cooperatives from all business units and work divisions who use saving and credit services. There
are 15 employees including manager and 9167 active members as of MAY 2019 fiscal year. As those

28
9167 members are found in a different work location, work environment and workload, the
researcher highly believe that the target populations would have significant contribution for the
study.

The study applied two types of sampling techniques for the association’s employees and members.
Due to small number of employees (14 employees excluding manager) are there in the association,
a complete enumeration of all items in the population known as a census inquiry were applied.
Whereas for the members, simple random sampling technique was applied so as to provide equal
chance of being selected for every member of the population.

3.3. Sample size

As already stated above in sampling technique, the study was applied census for employees of the
association. Hence, sample size for employees was the same as total population.

Members of the association were sampled based on Yamane (1967) sample size determination
formula. From 9167 active members, the calculated sample size is 383, at 95 % confidence level and
0.05 precision levels.

𝑁
𝑛=
1+𝑁(𝑒 2 )

Where =𝒏 is the sample size

N= is the population size, and
e = is the level of precision or sampling error

9167
𝑛=
1+9167(0.052 )

= 383

3.4. Data Types and Sources

The study used both primary and secondary data sources. The primary data was gathered through
questionnaires administered to selected association’s employees and members. The interview parts

29
were through structured questions and researcher was interview board members and manager of the
association. The secondary data also gathered from manual of the association, e-sources, library
books, journal articles, thesis and dissertations, which will be relevant to prepare literature review.
The reality and validity of good research is based on quality data collected. Therefore, to get relevant
data or information all necessary questions were taken to ensure genuine information was obtained.

3.5. Instrument of Data Collection

In order to collect information needed for the research, the most known data collection tools
interview and questionnaires were used.

 Questionnaires

In this study, standardized questionnaires were employed for both employees and members of the
association. Moreover, the respondents were selected by random sampling technique from members
and census for employees of association.

 Interview

The interview part was made through structured questions and choose the interviewee on
respondent’s knowledge, duties and responsibilities on the association. Those respondents was
EALG-ESCCOs board members and manager.

3.6. Method of Data Analysis

The instruments used in the collection and gathering of data include questionnaires, personal
interviews and secondary data were utilized in the analysis. Moreover, tables, graphs and charts also
used. For the purpose of analysis, statistical packages namely Statistical Package for the Social
Science (SPSS) was employed.

Data gathered by questionnaires was analyzed by exporting information entered into excel to SPSS
package. The statistical reliability of items on the questionnaire also checked using Cronbach-alpha.
Interview part of the data was analyzed through descriptive method.

Statistical tools such as descriptive statistics will be used to describe the phenomenon that exist at
the time of the study in the form of frequency distribution, percentage, mean calculation, standard

30
deviation and graphical representation. Finally, the analysis and interpretation of the data have leads
to conclusions and recommendations.

3.7. Research ethical consideration

The researcher considered the ethics of research in preparation of this study. The data including
interview and written documents (questioners) was stored securely for the appropriate period
according to the requirements of the ethics. While the success of the study depends upon the
willingness of individuals to participate, if at any time such participation places an individual at risk
or causes undue stress, participation would not be pursued. Protecting the privacy of informants will
be a paramount concern, as non-exploitation of any informant. At all times, the provision of any
information collected and/or analyzed and communicated to informants is reasonably practicable
and especially prior to any publication of the study.

31
 CHAPTER FOUR
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION

This chapter provides data analysis and interpretation, which have been obtained from participants
through questionnaire and interview. All data gathered by questionnaire was analyzed using SPSS
version 21. The data collected from the sample respondents was first loaded to SPSS and software
and test the reliability, mean and standard deviation of major four subsections, namely, socio
economic role of accessing credit service, socio-economic role of accessing saving service, socio-
economic role of non-financial service provision by the association and socio-economic role of the
association in creating employment opportunity. Descriptive interpretation also given for each
statistical output. Interview part of the data also analyzed based on the response obtained from the
interviewee.

4.1. Analysis and interpretation of primary data

Primary data collected by questionnaire was made to employees of the association and non-
employee members of the association simultaneously. These two groups were chosen because,
employees of the association are members at the same time and non-employee members have
reliable data regarding the objective of the study. However, data for the fourth objective, the effect
of the association in creating employment opportunity, was collected merely from the employee of
the association, as it was more reliable than collecting from non-employee members. Interview was
made to board members and managers of the association. Its analysis also presented accordingly.

32
 4.1.1. Personal Background of Respondents
Personal profiles of respondents are analyzed as follows.

Figure 4.1: Gender of Respondents

Gender

47.53% male (173 respondents)

52.47% female (191 respondents)

Source: Survey data, 2019

As indicated in the above figure 4.1 about 47.53% of respondents were male while the remaining
52.47% of respondents were female. The ratio of the respondents is almost proportional. It means
that, both male and female have proportional level of participation in EALG-ESCCOs.

Table 4.1: Age

Frequency Percent Valid Percent Cumulative
Percent
18-25 131 34.2 36.0 36.0
26-35 198 51.7 54.4 90.4
Valid 36-45 29 7.6 8.0 98.4
46 and above 6 1.6 1.6 100.0
Total 364 95.0 100.0
Missing System 19 5.0
Total 383 100.0
Source: Survey data, 2019

As shown in the Table 4.1, 131 (36%) of respondents were between the age of 18-25 years, 198
(54.40%) of respondents were between the age of 26-35, 29 (8%) of respondents were between the
age of 36-45 and the remaining 6 (1.60%) of respondents were 46 & above years. Hence, the
researcher can interpret that, majority of the respondents were under the age of 26-35 years and the
association has young members.

33
Table 4.2: Education Level

Frequency Percent Valid Percent Cumulative

Percent
diploma 25 6.5 6.9 6.9
BA/BSC 310 80.9 85.2 92.0
Valid
MA/MSC 29 7.6 8.0 100.0
Total 364 95.0 100.0
Missing System 19 5.0
Total 383 100.0
Source: Survey data, 2019

Educational level of most respondents was BA/BSc holders. Which are 310 (80.90%) of the total
participants. It gives a high confidence that the respondents have good understanding of objectives
and questions incorporated within the questionnaire. Besides, the second highest participant’s level
of education was MA/MSc by 29 (7.60%) with slight difference from diploma holders 25 (6.50%).
Over all implication of the education level was most of members in EALG-ESCCOs are BA/BSc
holders and actively participate in all services given by the association.

Figure 4.3: Marital status

Marital status

24.70%
Married (90 participants)
Divorced (11 participants)
3%
Single (263 participants)
72.30%

Source: Survey data, 2019

The above figure 4.3 indicates that 263 (72.30%) of participants were single and hold the majority.
The second highest number of participants were married by 90 (24.70%) proportion and followed

34
by divorced with 11 (3%) participants. The overall implication of the above data is most members
of the association are single. These have significant impact on the reason of the needs for the service.

Table 4.3: year of participation

Frequency Percent Valid Percent Cumulative Percent

less than 2 years 96 25.1 26.4 26.4

2-5 years 200 52.2 54.9 81.3
Valid 6-10 years 31 8.1 8.5 89.8
above 10 years 37 9.7 10.2 100.0
Total 364 95.0 100.0
Missing System 19 5.0
Total 383 100.0
Source: Survey data, 2019
Table 4.4 shows that, 198 (51.70%) of participants has 2-5 years of participation, 96 (25.10%) has
less than 2 years and 37 (9.70%) has above 10 years participation followed by slight difference with
31 (8.10%) having 6-10 years of participation. It implies that, majority of the respondents have 2-5
years participation within the association.
4.1.2. Reliability Test

According to Livingston (2018), Reliability is the extent to which test scores are not affected by
chance factors—by the luck of the draw. It is also the extent that test scores are consistent over…

 different occasions of testing,

 different editions of the test, containing different questions or problems designed to measure
the same general skills or types of knowledge, and
 different scorings of the test takers’ responses, by different raters.

Cronbach’s alpha reliability is one of the most widely used measures of reliability in the social and
organizational sciences (Bonett & Wright, 2014). Reliability coefficients range from 0.00 to 1.00,
with higher coefficients indicating higher levels of reliability (Carole, Almut, Kimberlin &
Winterstein, 2008). From the table below Cronbach's Alpha of the variable were higher; indicating
that respondents tended to rate socio-economic role of Ethiopian airlines saving and credit
cooperatives consistently across the various questions on the instrument. Coefficient of alpha for the

35
variable of creating employment opportunity also computed separately as the number of samples is
small and the questions were designed only for employees of the association.

Table 4.4: Reliability test

No of items
Description
Cronbach's Alpha
Accessing credit 7
.738
service
Accessing saving 7
.745
service
Non-financial service 5
.778
provision
All the above items of 19
.873
the tool
Source: Survey data, 2019
Description Cronbach's Alpha No of items
Creating employment
.736 6
opportunity
Source: Survey data, 2019

4.1.3. Socio-economic role of saving and credit cooperatives

This section discusses the results of the survey in respect of the socio-economic role of accessing
credit service, socio-economic role of accessing saving service, socio-economic role of non-financial
service provisions and socio-economic role of the association in creating employment opportunity.
The results were interpreted by using the means and standard deviations of each assessment tools of
socio-economic role of the association. The mean value of 3.5 will be the threshold for all statements
having positive acceptance from respondents and to be keep going as per Likert scale mean value
determination. However, those results having less than mean value of 3.50 needs major
improvement.

36
Table 4.5: socio-economic role of accessing credit service
Variable description Std.
S.No. Mean Deviation N
1 Enabled members to start new business 3.46 .904 364

2 Enabled to increase wealth of members 3.23 1.155 364

3 Ensured members and their families to attend school 3.20 .888 364

or develop their profession

4 Led to ability to access better health service 3.39 .945 364

5 Assist members financially during their travel (both 3.52 1.079 364

in domestic and international air travels)

6 Enabled members to enjoy lower interest bank’s on 3.29 1.090 364

credit service
7 Members can get reasonable amount of credit per 3.16 1.224 364

their request
Source: Survey data, 2019

On accessing credit service, the respondents were provided seven statements and they were required
to choose the level of agreement from highest 5 to lowest 1 Likert Scale. The findings on mean and
standard deviation result were discussed and analyzed below:
As it is described in the above table 4.6 item number 5 (assist members financially during both in
domestic and international air travels) the mean score is 3.52 and SD 1.07. It infers that, the
association’s credit service highly utilized by the members for their domestic and international
travels as compared with other parameters. The second highest mean score is for the statement of
“enabled members to stars new business” by 3.46 and SD 0.90. It is also near to the expected mean
value of 3.50 and implies that, the credit service of the association have socio-economic impact by
enabling them to start new business. The association’s credit service also enabled members to access
better health service by the mean score of 3.39 and 0.94. That has some argument from respondents
upon the service. The other parameter used to identify the socio-economic role of accessing credit
service is, whether the credit enabled members to enjoy lower interest rate than bank’s or not. Its
mean score was 3.29 with SD 1.09 and implies that; interest rate of the credit is not as such lower
than the banks as per the data collected from the respondents. Parameter under item number 2,
enabled to increase wealth of members, has a mean score of 3.23 and SD of 1.5. This implies the

37
association has some drawbacks regarding its credit service to increase wealth of members. The
drawback also magnified when the parameter is “ensured members and their families to attend
school or develop their profession” with mean value of 3.20 and SD of 0.88. The last parameter with
the lowest mean value of 3.16 and the highest SD of 1.22 was “members can get reasonable amount
of credit per their request”. As compared with others parameters, participant’s response was lower
and need the association’s action to improve the status.

The finding on socio- economic role of accessing credit service has similarity with the previous
studies on the topic. Wakilo & Sakawa (2014) and Chodhury & Salleh (2017) concludes their study
by confirming that micro credit services provide better education and health services in line with
increasing income of the society. The same finding also observed from this study. Khandker (1998)
and Hassan & Bhuiyan (2013) also studied and concluded that credit services has significant impact
on smoothing consumption, operating business, generating income and enabling members and their
families to attend school and develop their profession.

Table 4.6: scale statistics of socio-economic role of accessing credit service

Mean Variance Std. Deviation N of Items
23.26 20.924 4.574 7

Source: Survey data, 2019

Finally, as shown in the above table, the overall mean value of the variable (accessing credit service)
is 23.26 and which is near to the expected mean value of the seven items i.e. 24.50. Therefore, it can
be interpreted that the socio-economic role of credit service provided by EALG-ESCCOs is
moderate. Member of the association agreed with the idea that states the association provides credit
services that have positive socio-economic role on members.

38
 Table 4.7: socio-economic role of accessing saving service

S.No. Variable description Mean Std. N

Deviation
1 Promote members saving habit 3.34 1.015 364
2 Provide competitive interest with other financial institutions 3.25 1.050 364

3 Provide education in finance management for its clients 2.83 1.086 364

4 To enable repayment of loan 3.50 .923 364

5 To smoothen irregular income 3.22 .869 364
6 To manage consumption needs 3.29 .812 364
7 To increase capital resource 3.46 1.018 364
Source: Survey data, 2019
Table 4.7 shows participants response for socio-economic role of accessing saving service based on
the given seven statements measured by Likert scale. The responses were analyzed based on the
mean and standard deviation of each statement.

As studied by Nepal & Dhakal (2016) ESCCOs promote members saving habit. It is also confirmed
from this study with the need of some improvement by scoring mean value of 3.34 and SD 1.01.
However, promoting saving habit also can be developed by providing competitive interest rate with
other financial institution. With regard to the interest rate participants response have mean value of
3.25 and SD of 1.05. It implies that the association’s saving interest rate is not competitive with other
financial institutions. The lowest mean value from all statements provided to test the socio-economic
role of accessing saving service is recorded by 2.83 with SD of 1.08. This is for item number three
or Provide education in finance management for its clients. It shows that the association provides
saving service but not educating members regarding how to manage it. The highest mean value also
recorded for the statement of “to enable repayment of loan” by 3.50 with SD of 0.92. It implies that
most of the association’s members utilize their saving for the repayment of their loan. Members also
use their saving to smoothen irregular income and the collected data scores mean value of 3.22 and
SD of 0.86. It is lower than the expected mean value of 3.50. The researcher also provides statement;
EALG-ESCCOs saving enabled them to manage consumption needs, and obtained responses from
participants having mean value of 3.29 with SD of 0.81. This is also lower than the expected mean

39
value of 3.50. Most of members use their saving for the repayment of loan rather than to manage
consumption needs. The last statement was saving enables members to increase capital resource. It
is also near to the expected mean value and score 3.46 with SD of 1.01. It implies that most of the
members agreed upon the benefit of the saving to increase capital resources.

To finalize the above discussions, a number of researchers put their findings on saving. Nepal &
Dhakal (2016) thought that microfinance has promoted the saving and credit habit of the people.
Zerfeshewa (2010), Kifle (2011), Kifle and Hailemichael (2012) and others said that the problem of
SACCOs in Ethiopia could be lack of awareness and poor saving culture. From the above data
analysis, saving in EALG-ESCCOs promotes members saving habit. Moreover, it has also the same
finding regarding members lack of awareness and the associations inability to provide education in
finance management. Ledgerwood (2000) also depicts in his book regarding the benefit of saving
and said that saving can help members to smooth consumption. The above analysis also shows there
are various benefits of saving in the association. This incorporates repayment of loan, increase
capital resource and smoothen irregular income in addition to managing consumption needs.

Table 4.8: scale statistics of socio-economic role of accessing saving service

Mean Variance Std. Deviation N of Items

22.89 18.305 4.278 7

Source: Survey data, 2019

Finally, as shown in the above table, the overall mean value of the variable (accessing saving service)
is 22.89 and which is near to the expected mean value of the seven items i.e. 24.50 but needs
improvement. Therefore, it can be interpreted that the socio-economic role of saving service
provided by EALG-ESCCOs is moderate with some improvement required. Member of the
association agreed with slight difference on the idea that states the association provides saving
services that have positive socio-economic role on members.

40
Table 4.9: socio-economic role of non-financial service provision

S.No. Variable description Mean Std. N

Deviation
1 Enabled to create social cohesion and 3.30 .849 364
acquaintances
2 Educating members to have better health care for 3.02 .996 364
themselves and their families
3 Provide education service for women 2.62 1.126 364
4 2.67 1.034 364
Provide business development training including
basic concepts of business, planning and
bookkeeping.
5 Stabilize members income 3.23 .867 364
Source: Survey data, 2019

The above table 4.9 shows the effect of non-financial service provision by the association based on
statements given for the participants. Participants with the mean value of 3.30 and SD of 0.84 has
replied that non-financial service provided by EALG-ESCCOs enabled them to create social
cohesion and acquaintances. This is lower than the expected mean value of 3.50 but indicates that
participants are agreed upon the existence of the provision non-financial services by the association.
Even if it needs some improvements, the above data has some similarity with Griffin & Husted
(2015) findings regarding social cohesion. “Educating members to have better health care for
themselves and their families” has mean value of 3.02 and SD of 0.99 as per participants response.
It is also lower than the expected mean value. This has also a little bit similarity with the findings of
Wakilo & Skawa (2014) and Biosca, Lentos & Mosley (2011) with the need of further improvement.
The lowest mean value was recorded for the statement of “provide education service for women” by
2.62 and SD of 1.12. It is also followed by mean value of 2.67 and SD 1.03 for provides business
development training including basic concepts of business, planning and bookkeeping. As per Dereje
(2012) study and finding, the major non-financial services provided to clients were training, setting
up business plan and monitoring and supervisions, consulting services, and experience sharing
forums. Some MFIs provide enterprise development training in the area of marketing, bookkeeping,
and Social services.

Hence, the above data shows that there is different result observed from EALG-ESCCOs regarding
those two non-financial services. Social services, stated by Dereje (2012), are health care, education
41
and literacy training that improve the ability of the low-income earners. However, from the above
result, stabilize members income, obtained mean value of 3.23 and SD of 0.86. It shows that still the
association needs to improve it more.

Table 4.10: scale statistics of socio-economic role of non-financial service provision

Mean Variance Std. N of

Deviation Items
14.84 12.728 3.568 5
Source: Survey data, 2019

Finally, as shown in the above table, the overall mean value of the variable (provision of non-
financial services) is 14.84 and which is lower than the expected mean value of the five items i.e.
17.50 and needs improvement. Therefore, it can be interpreted that the socio-economic role of non-
financial service provided by EALG-ESCCOs requires thorough improvement. Members of the
association also agreed with some statements and strongly disagreed on the idea that states the
association provides education service for women and business development training including basic
concepts of business, planning and bookkeeping.

Table 4.11: socio-economic role of the association in creating employment opportunity

S.No. Variable description Mean Std. N

Deviation
1 Involve significant number of employees in its 3.29 .726 14
day to day activity
2 It tries to hire new employees by expanding its 2.07 1.072 14
branch
3 Have both permanent and temporary 3.00 .961 14
employment opportunity
4 Have career development program to its 2.07 1.141 14
employees with attractive benefits
5 Follow widely acceptable employee retention 2.57 1.089 14
policy
6 Have attractive salary scale to all employees 2.29 .726 14
Source: Survey data, 2019

As already mentioned at the beginning of the analysis, socio-economic role of the association in
creating employment opportunity was analyzed using data collected from all employees of the

42
association. As the finding depicts the lowest mean value of each statement was scored for this
variable and also analyzed and interpreted as follows.

Employee’s response for the statement designed to assess the number of employees and the
association’s day-to-day activity has mean value of 3.29 and SD 0.72. This is the highest mean value
from the rest incorporated within the same variable. The result shows that the association has near
to the expected number of employees for its day-to-day activity. However, it needs further
improvement as the mean value is lower than the expected mean value of 3.50.
Most employees have argument on the statement that states the association tries to hire new
employees by expanding its branch. The mean and SD value of the statement was 2.07 and 1.07
respectively. Expanding its branch enables the association to have more employees, more members,
to serve customers more easily and expand its services. This is also one of the methods of creating
employment opportunity. However, the mean value shows that the association has no any attempt to
expand its branch per the employees response.

The other statement used to assess the association’s employment opportunity was testing about the
permanent and temporary employment opportunity. Lower result was also obtained from the
respondents with the mean value of 3.00 and SD of 0 .96. It implies that employees are with this
issue and the association needs to have employment opportunity for the needy one.

Having new employment opportunity by itself is not the solution for the high unemployment rate of
the nation. Rather it needs keeping the current employees with various methods. Regarding career
development program of the association for its employees, the mean value was 2.07 with SD of 1.14.
It clearly shows that the association needs to have career development program to develop
employee’s skill and knowledge. Besides, the mean and SD for the statement, the association follow
widely acceptable employee retention policy, was lower per respondent’s data. It was 2.57 and 1.08
respectively. It shows that the association has no widely acceptable employee retention policy and
consequently loses its employees.

As per employee’s response regarding having attractive salary scale to all employees, mean value
was 2.29 with SD 0.72. This implies that, the association has no attractive salary scale for its
employees.

43
Table 4.12: scale statistics of socio-economic role of the association in creating employment
opportunity
Mean Variance Std. Deviation N of Items

15.29 14.527 3.811 6

Source: Survey data, 2019
Finally, the overall mean value of the variable was 15.29 and too low from the expected value of
21.00. As show above, except item number one and three, all needs to be improved. As studied by
Khadker (1998), Wakilo & Dakwa (2014), Shastri (2009) and Dahir (2015), the association should
create employment opportunity under its working environment in addition to self-employment
opportunity.

4.1.4. Interview results

This section presents the results of the study in achieving the objectives aimed to address based on
the methodology discussed in chapter three above. This section emphasizes on all specific objectives
of the study under the socio-economic role of credit and saving association specifically on EALG-
ESCCOs. Interview covers the association’s manager and the representative of the board.

The interviewee informed that EALG-ESCCOs delivered two types of saving service to its members.
This includes block saving also known as shareholders saving and regular saving or current saving
services. Shareholders saving service is mandatory for all members to be a member and applied by
6% deduction from its monthly salary for six months or a total of 30% of salary should be saved as
block. The other type of saving service, current saving, is provided for any member based on the
interest of individuals. Besides, the credit service of the association also categorized into three basic
divisions. These are regular loan, ester loan and emergency loan. Regular loan service is provided
for all members based on their salary scale. However, the maximum loan limit is birr200,000 for all
members whose salary is birr11,500 and more. Ester loan is designed for ester holiday without
interest rate and will be settled within six months from salary. This is birr3000 for all interested
members. The remaining credit service, emergency loan, is provided for all members for any
emergency with valid justification.

As shown above, types of saving and credit services provided by EALG-ESCCOs are too limited in
number as compared with other similar associations.

44
The researcher also tried to know the socio-economic role of both credit and saving services of the
association and the interviewee informed that, the association’s credit service have more economical
effects than societal effects. It helps members economically by enabling them to fulfill household
needs like car & house and enable members to enjoy lower interest rate on credit than banks. Saving
service also have more economical effect just like credit service. It provides competitive interest rate
with other financial institutions, enable repayment of loan and increase capital resource. The overall
societal effects of both saving and credit services are easiness to access current account to withdraw
more than Birr10,000 and processing and providing of requested loan within a week.

It is clearly shows that, there are no more economic and societal effect of both saving and credit
services of the association other than all mentioned above.

As members need for saving and credit services are very dynamic with technological advancements,
the researcher request interviewee whether the association improve its services based on member’s
feedback to survive with very dynamic technological improvements. They replied that member’s
feedback collected through box prepared for this purpose and there is no other ways so far. Even the
system used to process both saving and credit services are outdated and have drawbacks. It makes
the association not to improve its services.

As discussed with the interviewee, EALG-ESCCOs has no non-financial services provided to

members. The interviewee also replied that the working environment of the airline by itself is
inconvenience for the non-financial services provision. However, there are some activities tried to
be included on the future.

The researcher was tried to know the promotional and awareness creation methods of the association,
as it is essential to have more members and provide the association’s services extensively. As replied
from the interviewee, there is committee organized by the board to facilitate the promotional and
awareness creation activities of the association even if it is not active and satisfactory. But till now
the only promotional method of the association is Ethiopian weekly portal page. It has a serious
impact on the service of the association.

As creating employment opportunity is one of the essential societal impacts of MFIs, expanding
branches played significant role in achieving this goal. So far EALG-ESCCOs has one branch
located at head office. However, there is wide opportunity to expand its branches to domestic

45
airports. But the interviewee replied that the association has no short term and long term plan for
expansion and will continue with the same number of employees for the coming years. It implies
that, there is no new employment opportunity creation by expanding branches.

As the researcher discussed with the interviewee, there is enough number of employees for the
current work demand even if employees of the association disagree with this issue. Currently the
association has 1 lawyer and 15 employees including manger. These employees have the
responsibility to serve more than 9,000 members. As already replied under the researcher request
regarding the associations experience on feedback collection from members, there is no strong
system, which can support the daily activity of the association. But they argued that the association
has enough number of employees for the job. It confirmed that the association has no plan to hire
new employees.

As discussed by a number of researchers under their studies, MFIs have wide benefit in creating
employment opportunity. EDC (2018) studied and reported that unemployment is reported to be
more prevalent in urban areas. Khandker (1998) suggests appropriate solution for this
unemployment problem and said that increase the productivity through broad based economic
growth will insures more inclusive participation in development by providing widespread
employment opportunity. The interviewee replied that the association creates employment
opportunity for 15 employees so far. But there is no progress to expand this opportunity and
addressing unemployed youth as much as possible. Besides, the loan service provided to members
might assist their families to have their own business and self-employed.

The researcher final request was regarding the overall plan of the association to improve its services
in line with the association. As replied by the interviewee, the basic plan of the association is to
increase the amount of loan granted to members and keeping other things constant. Even the
technological advancement of the association also did not get appropriate attention under the plan.

46
 CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
This research examined the socio-economic role of saving and credit cooperatives by taking the case
of Ethiopian airlines saving and credit association. It was studied by using four basic variables such
as, socio-economic role of accessing credit service, socio-economic role of accessing saving service,
socio-economic role of non-financial services and socio-economic role of the association in creating
employment opportunity. This chapter particularly concludes the main findings and
recommendation of the study based on the objectives and research questions.

5.1 Summary of Findings

This study tried to answer four basic research questions: (1) what are the socio-economic role of
accessing credit service on its members? (2) What are the socio-economic role of saving service
availability on its members? (3) What are the effects of non-financial service provisions by the
association on socio-economic conditions of members? and (4) How the association has socio-
economic role in creating employment opportunity? It was studied using descriptive type of study.
The total population of the study was 9167 members as of MAY 2019 fiscal year sampled by using
random sampling technique and 14 employees excluding the manager sampled by using census
inquiry. Primary data collected in the study using questionnaire was administered to selected
members and employees of the association. Besides, interview questions also designed and
administered to board members and manager of the association. Statistical tool such as descriptive
statistics was used to analyze collected data.

Based on the analysis made on the data collected from respondents, the following findings are
obtained;

 Reliability test was conducted by using the most widely used measure, Cronbach alpha, with
a score of 0.873 for all the first three variables and 0.736 for the last variable. Indicating that
respondents tended to rate the socio-economic role of the Ethiopian airlines saving and credit
cooperatives consistently across the various questions on the instrument.
 The general demographic profile of the respondents was 47.53% male and 52.47% female.
Age variation of respondents also implies that34.20% from 18-25 years, 51.70% from 26-35
years, 7.60% from 36-45 years and only 6% were 46 years and above. From these

47
 respondents 6.5% were diploma, 80.90% BA/BSc and 7.60% MA/MSc holders. The data
collected from respondents also revealed that 24.70% married, 3% divorced and 72.30%
single marital status. These members were participated in the association by the proportion
of 25.10% less than 2 years, 52.20% from 2-5 years, 8.10% 6-10 years and the remaining
9.70% above 10 years.
 The first independent variable, socio-economic role of accessing credit service, has group
mean value of 23.26 with standard deviation of 4.57 and it’s near to expected mean score of
24.50. This indicates that socio-economic role of credit service provided by EALG-ESCCOs
is moderate. Even if all questions have high mean score, three questions mean scores were
significantly higher than others. Most respondents feel that the credit service of the
association has socio-economic role by assisting them financially during their travel,
enabling them to start new business and led to access better health service by mean score of
3.52, 3.46 and 3.39 respectively. Respondents also feel that the association’s limit of credit
amount should be improved by the mean score of 3.16. Finding from interview also revealed
that the association has only three types of credit services and have economical than societal
effects. The interviewee also confirmed that the association agreed regarding the limit of
credit amount, which is too low, and tried to improve it per member’s request. Both members
response and interview data indicated that the association’s credit service has more of
economic role than social role on members.
 This study also found that the socio-economic role of accessing saving services has group
mean value of 22.89 and SD. 4.28. This is also near to the expected mean value of 24.50. It
infers that EALG-ESCCOs saving service is around average with some improvement
required. The saving service provided to members highly enables them to repay their loan
with a mean value of 3.50 and followed by increasing capital resource and promote members
saving habit by mean score of 3.46 and 3.34 respectively. Even though the overall mean
value is high, question, provide education finance management for its clients, score the
lowest mean value of 2.83. It implies that the association provide saving service but not
educating members regarding how to manage it.
Interview finding also shows that the association’s saving service provide competitive
interest rate with other financial institutions and enable repayment of loan in line with
increasing capital resource.

48
  The other low group mean value was scored by 14.84 with SD. 3.57 for the variable socio-
economic role of non-financial service provision. Respondents reply clearly shows that the
association needs thorough improvement on its non-financial service provision. Interview
findings also the same as questionnaire results. Both members and manager of the association
agreed on provision of education service for women and provision of business development
training including basic concepts of business, planning and bookkeeping are not well
performed by the association. Each question has mean value of 2.62 and 2.67 respectively.
During interview, the interviewee also confirmed that there are no non-financial services
provided by the association to members.
 The last and the fourth variable of the study, socio-economic role of the association in
creating employment opportunity, has group mean score of 15.29. This is the lowest group
mean value from other variables and also from the expected mean value of 21.00. The
association’s employment opportunity is too low and needs improvement. Except two
questions, involve significant number of employees in its day to day activity and have both
permanent and temporary employment opportunity, all others score mean value of below
3.00. Interview finding also highly related with member’s response. The association has no
short and long term plan to increase its employees and believe that the job burden and the
current man power are well fitted. But employees of the association strongly disagree with
this concern and it is shown by their response.

5.2 Conclusion
The objective of the study was to assess the role of saving and credit cooperatives on socio-economic
development in the case of Ethiopian airlines employees saving and credit cooperatives. In order to
achieve the planned objective, four specific objectives haves been developed such as socio-economic
role of accessing credit service on members, effect of the availability of saving services on the socio-
economic conditions of members, effect of non-financial service provisions by the association on
socio-economic conditions of members and socio-economic role of the association in creating
employment opportunity. Based on the findings of the study the researcher reaches on the following
conclusions.

The association’s credit service has more of economic role than social role on members. As agreed
by most of respondents, the credit services of the association assist members during their financial

49
need like air travels and new business development. The finding also revealed that types of credit
services provided by the association also few and the amounts of credit are small even if the
association has plan to increase it per members request for the future.

From the above findings saving services of EALG-ESCCOs promotes members saving habit, to
repay loan, increase capital resource and smoothen irregular income. But, members lack of
awareness and the association inability to provide education in finance management, can be raised
as drawbacks. Hence, the study can be concluded as saving service of the association has moderate
socio-economic role on members with requiring some improvement on its drawbacks.

Some of members were agreed that the association enables them to create social cohesion &
acquaintances and stabilize income. But during interview the interviewee confirmed that the
association has no non-financial service. From the overall finding of the data, it can be concluded as
the association has no ratified and practical experience on non-financial services. Members might
use saving and credit services of the association for educating themselves & their families and
accessing better health service. But the association has no such kind of service at all.

The association has no both short term and long term plan to expand its branch. It has a direct impact
on its ability to hire new employees besides creating self –employment on its members and their
families. It also doesn’t follow widely acceptable employee retention policy and career development
program with attractive benefits. Interview finding also shows that the association has no concern
regarding creation of employment opportunity. All these and other similar findings leads to conclude
that EALG-ESCCOs has no significant impact on minimization of unemployment rate of the nation.

5.3. Recommendations

Based on the above find and conclusion, the following recommendations are given:

 The association should consider societal role of saving and credit services just like economic
role of services on members.
 It is also better to decide to increase types of saving and credit services so as to address large
number of employees within the company.
 The study also recommends that the association should provide awareness creation service
regarding finance management to its members. It’s also to make the committee, organized

50
 by board of the association to facilitate promotional and awareness creation activity, more
active in order to have more members and provide the association’s services extensively.
 The association has to provide non-financial services as it is one of the objectives of MFIs.
It also advisable to apply one of the models (Linked, Parallel & Unified model) regarding
integration of non-financial services with microfinance, depending on the overall capacity of
the association to do so.
 The study also highly recommend that the association should give attention to unemployment
rate of the nation and provide its contribution to minimize it as much as possible not only by
creating self-employment opportunity to member’s families but also hiring individuals by
expanding its services.

5.4 Implications and recommendations for further studies

This study was focused on Ethiopian airlines saving and credit association’s members, manager and
board. Therefore, the result might have limitation with regard to generalization and therefore are not
a complete representation of the entire saving and credit associations. Considering this fact,
researches should be done to examine socio-economic role of saving and credit associations in other
public and private organizations.

It was also done by using descriptive type of study emphasizing both quantitative and qualitative
data. But it is also possible to conduct explanatory type of study which leads towards correlation
research.

Other researchers can also do their study by incorporating any other variables like socio-economic
impact of the association on women empowerment, its role in promoting education and accessing
micro-insurance services impact on socio-economic conditions of members.

51
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 Appendix

Addis Ababa University

College of Business and Economics

MBA Program

Dear respondent,

This questionnaire is designed to explore socio-economic role of saving and credit cooperatives in
Ethiopian airlines. This study is conducted in partial fulfillment of the requirements for the Master’s
degree in Business Administration at Addis Ababa University.

Your response is vital to the outcome of the study and you are kindly requested to completely and
objectively answer all questions. The research is going to be carried out based on your responses
and other relevant data that could support it. It forms a major part of the research and the information
you will enable the researcher to critically analyze social and economic role both on employees and
members of Ethiopian airlines saving and credit cooperatives.

Your cooperation to respond genuinely is very important to this study because it represents a number
of other members. Please answer all questions. Space is provided at the end of the questionnaire for
you to add further explanations or comments. I would promise that all information you provide
would be strictly confidential.

Instructions: -
The researcher uses this questionnaire for the genuine information is highly decisive to the success
of this study. Therefore,
 Not need of writing your name.
 Put the (X) mark in the box for your answer.
 With great excuse, possibly return back to timely.
For any problem and suggestion contact the researcher through the following addresses:
Email: [email protected]
Thank you in advance for your cooperation!!

Section One: Demographic Data

58
1. Gender ☐ Male ☐ Female

2. Age ☐18-25 ☐ 26-35 ☐ 36-45 ☐ 46 and above

3. Educational level

☐ Diploma ☐ BA/BSC ☐ MA/MSC ☐ Others

4. Marital status

☐ Married ☐ Divorced ☐ Single

5. How long you have participated in Ethiopian airlines employee saving and credit association?

☐ Less than 2 years ☐ 2-5 years ☐ 6-10 years ☐ above 10 years

Section Two: socio-economic role of saving and credit cooperatives

The main purpose of below listed assessment instrument is to find out basic socio-economic role of
SACCO in Ethiopian Airlines saving and credit cooperatives. To what extent do you agree with
the following statements about socio-economic role of saving and credit associations in ETAG,
ranging from strongly disagree to strongly agree? And put “X” mark for each rating. 1: Strongly
Disagree, 2: Disagree, 3: Neutral, 4: Agree and 5: Strongly Agree

No Item 1 2 3 4 5

Socio-economic role of accessing credit service

Enabled members to start new business

1 ☐ ☐ ☐ ☐ ☐
Enabled to increase wealth of members
2 ☐ ☐ ☐ ☐ ☐
Ensured members and their families to attend school or
3
develop their profession
☐ ☐ ☐ ☐ ☐

59
 Led to ability to access better health service
4 ☐ ☐ ☐ ☐ ☐
Assist members financially during their travel (both in
5
domestic and international air travels)
☐ ☐ ☐ ☐ ☐
Enabled members to enjoy lower interest bank’s on credit
6
service
☐ ☐ ☐ ☐ ☐
Members can get reasonable amount of credit per their
7
request
☐ ☐ ☐ ☐ ☐
Socio-economic role of accessing saving service

Promote members saving habit

1 ☐ ☐ ☐ ☐ ☐
Provide competitive interest with other financial institutions
2 ☐ ☐ ☐ ☐ ☐
Provide education in finance management for its clients
3 ☐ ☐ ☐ ☐ ☐
4 To enable repayment of loan ☐ ☐ ☐ ☐ ☐
To smoothen irregular income
5 ☐ ☐ ☐ ☐ ☐
To manage consumption needs
6 ☐ ☐ ☐ ☐ ☐
7 To increase capital resource ☐ ☐ ☐ ☐ ☐
Effects of non-financial service provisions by the association

Enabled to create social cohesion and acquaintances

1 ☐ ☐ ☐ ☐ ☐
Educating members to have better health care for
2
themselves and their families
☐ ☐ ☐ ☐ ☐
Provide education service for women
3 ☐ ☐ ☐ ☐ ☐

60
 Provide business development training including basic
4
concepts of business, planning and book keeping.
☐ ☐ ☐ ☐ ☐
Stabilize members income
5 ☐ ☐ ☐ ☐ ☐
Socio-economic role of the association in creating employment opportunity

(designed for employees of the association)

Involve significant number of employees in its day to day

1
activity
☐ ☐ ☐ ☐ ☐
It tries to hire new employees by expanding its branch
2 ☐ ☐ ☐ ☐ ☐
Have both permanent and temporary employment
3
opportunity
☐ ☐ ☐ ☐ ☐
Have career development program to its employees with
4
attractive benefits
☐ ☐ ☐ ☐ ☐
Follow widely acceptable employee retention policy
5 ☐ ☐ ☐ ☐ ☐
Have attractive salary scale to all employees
6 ☐ ☐ ☐ ☐ ☐

Thank you!!!

61
Interview questions for board members and manager

1. What type of saving and credit services are provided to members by EAESCCOs?
2. What are the socio-economic role of credit and saving services provided by the cooperation
on members?
3. Did the cooperation improve its saving and credit services based on members consecutive
feedback and the need to survive with very dynamic technological improvements
challenges?
4. Dose the cooperation has any type of non-financial services provided to members? What
are those services, if any? Or why not, if there is no?
5. What are the promotional and awareness creation methods dose the cooperation
implement?
6. How many branches do you have?
7. Do you think that the cooperation has enough number of employees to provide its service?
8. What are the socio-economic role of EAESCCOs with regard to creating employment
opportunity?
9. What are the cooperative’s overall plans to improve its services in line with the objective?

62