Micro Credit Fund through SACCOs: Analysis of Inclusion and Exclusion of the Poor in Kabarole District, Uganda

Micro Credit is a contentious product in the World Development as it is seen as one component for stimulating Investment. As evidence has always been in favour for borrowers of large sums of money for big investments and reaping high profits, it has not worked the same way for borrowers of small sums of money. Money borrowed in small sums by community members was met by already glittering and biting societal and individual demands and usually used for consumption or investment in non profit making ventures like paying school fees and purchasing fixed assets like land and housing. As the situation for the poor was already appalling as indicated by lack of income, lack of education and basic business skills, poor housing, health and nutrition and above all lack of information, the poor were and still are in the vulnerable position to successfully access and utilize credit under SACCOS. By design, the poor could be very lucky to find themselves in SACCOS and even those who find themselves in SACCOS accessing credit can not be guaranteed. Those who access credit find challenges to repay and in the end the little assets owned would be sold to repay a loan or resort to money lenders who appear to be exploitative in nature that worsens their situation. The services in SACCOS are subjected to forces of demand and supply yet it is clear that the poor cannot compete favourably for a product that is also attractive to the non poor. There were no special considerations for the poor to encourage and mentor them through a process of income generation to ensure sustained savings, the assumption that individuals would join SACCOS because they wanted loans and would be able to repay helped those who were already established in their businesses. In the poverty strategy, there has to be vigorous efforts to bring the poor on board, its very clear the forces of demand and supply increases the divide between the have and the have nots and those with capacity benefit more after entering the market while those with less capacity are left at the periphery. The SACCO clients are not wealthy but they are also not poor, they are basically above the poverty line because they earn income, have got education, afford three meals a day, have business skills and they can get security for loans. The proponents of micro credit argue that credit reduces poverty by preventing individuals who are well off from falling into poverty but they don’t answer the question why they don’t work with the poor themselves. They tend to argue that credit to poor people is not sustainable and this raises concerns about the motivation of targeting well-off1 category in society. The answer lies with Adam Smith’s argument about the invisible hand of capitalism where he argued that selfish interest would benefit the entire public yet there was no guarantee for this. This ´myth´ is evident in credit schemes where credit to 1 The non poor can afford to borrow, have security, have alternative sources of income and can afford to pay back the loan even though the conditions are bad. well-off and successful entrepreneurs is presumed to benefit others in the trickle down effect.