Prior to 2007, Uganda pursued a centralized strategy for economic growth and poverty reduction that placed greater emphasis on agricultural development as a means for empowering citizens in the rural sector where 80% of the population lives and derives livelihood through various forms of subsistence farming. The rural sector accounted for 94% of people who live below the poverty line, and subsistence agricultural farming employed 73% of the population, contributing 20% of the GDP. (1) Since coming to power in 1986, the National Resistance Movement (NRM) Government has pursued various policies such as the Poverty Eradication Action Plan (PEAP), the Plan for Modernization of Agriculture (PMA), and the Rural Development Strategy (RDS) to increase rural people's productive capacity, generate additional value, and provide market access for farmers and small business entrepreneurs. (2) In the same period, microfinance institutions burgeoned. Credit and savings facilities were more accessible to rural farmers through various institutions and people had choices to select between formal financial institutions, semi-formal institutions, and informal credit and savings institutions. (3) Overall, it is estimated that 5% of all Ugandan households receive some form of credit or microfinance service. Empirical evidence regarding the effectiveness of rural microfinance in poverty reduction is mixed. (4) However, on the whole, there is a consistent agreement among scholars and development practitioners that credit and savings services that are extended to rural farmers outside state-regulated frameworks have the potential of building community social capital, and empowering especially women, to make important decisions about food security and their household reproductive roles. (5)
The move by the government from a centralized to a decentralized development approach in 2007 marked a dramatic shift in Uganda's poverty reduction strategy. In particular, the Uganda Government shifted the focus of its rural credit development scheme to a politically-driven Savings and Credit Cooperatives (SACCOs) approach under the Prosperity for All (PFA) program (a.k.a. Bona Bagaggawale in Luganda or 'let all be rich'). These SACCOs were created to replace microfinance as the latter was considered to be rather difficult for the political elite to control or influence. In contrast to microfinance with well-established 'best practices' (that the government had supported and funded in the late 1990s and mid 2000s), SACCOs were considered to be a potent strategy or vehicle for transforming the country into a middle-income nation by the year 2020. Hence, under the PFA program, SACCOs were not only expected to replace microfinance, but were seen as potentially moving all rural Ugandans from poverty to prosperity--an ambitious undertaking by the government.
In this article, we critically analyze the PFA program and highlight the challenges that subsistence farmers face as rural credit resources become increasingly state-controlled through SACCOs. We argue that instead of enriching all Ugandans, the PFA program has benefited few individuals who are politically well-connected to the ruling elite. Based on a historical comparative analysis of impact studies of MFIs and SACCOs in Uganda, we are inclined to further argue that the program has failed to stimulate economic development and reduce chronic poverty because its activities and operations have excluded the rural people who need them the most. Unlike traditional SACCOs that are owned and controlled by their members and rely on member savings and share capital, political SACCOs rely almost entirely on government loans channeled through the Microfinance Support Center (MSC) and Uganda Post Bank. Political SACCOs are not only permitted by government to accept savings or deposits of their members without being required to be licensed or supervised by the Bank of Uganda, but also receive wholesale government loans at below market rates to distribute to their members. In exchange, the political elite use the government loans as leverage to exercise control and influence over such SACCOs and the political process in rural areas.
The Ugandan Context
Since the 1990s to the present, Uganda's rate of economic growth has been impressive. Between 1992 and 2004, it doubled its gross national product (GNP). More recently, the World Bank reported Uganda's rate of economic performance to still be impressive, averaging 7% per annum. (6) However, the GDP growth of 3.4% is being out paced by population growth currently estimated at 3.2% per annum--one of the highest in the world. Hickey (2011) suggests that "despite maintaining impressive growth figures over the past decade, Uganda's high level of population growth plays a strong mediating role ..., with nominal growth of over six percent bringing increases of only 1.3 percent in actual incomes." (7) More importantly, more than half of Uganda's population estimated at 34 million is under age 15, and life expectancy has declined to 50.4 years. (8) Furthermore, four out of five households in Uganda, or 80% of the population, live in rural areas and earn their livelihoods through subsistence farming making it difficult for most families to rise above poverty.
Despite the high rates of economic growth enjoyed by Uganda over the past two decades, poverty and income inequality have persisted or increased. (9) For example, a major study by Deininger and Okidi (2003) indicates that between 1999 and 2000 poverty and inequality increased in all rural areas in Uganda and in the northern part of the country that experienced a prolonged insurgency. (10) Rural poverty measures remain at 68%, especially in the areas impacted by war and conflict such as parts of northern and eastern Uganda. In particular, income inequality as measured by the Gini Coefficient increased dramatically from 0.365 in 1993 to 0.426 in 2010. (11) It is important to understand that high levels of income inequality tend to exacerbate the problems of poverty experienced in the rural areas of the country. This shows that Uganda's high rates of growth over the past two decades fueled by huge infusions of external aid have not reduced poverty or laid the ground for sustainable development. Instead, Uganda can accurately be characterized as a pseudo-democratic nation (12) experiencing "growth without development"--a situation in which growth cannot translate into concrete improvements in the well-being of the rural poor.
It is now clear that the neoliberal policies pushed by both the World Bank and the IMF have contributed to the concentration of wealth in the Global South and worsened income inequality and poverty in most SubSaharan African countries, including Uganda. Indeed, income inequality is now considered a major global problem and a potential road block to Africa's development progress. Extreme inequality tends to undermine economic growth and may deny the poor and marginalized peoples worldwide vital services, such as education and healthcare. And it may make it almost impossible to end poverty in Sub-Saharan African countries, including Uganda.
The earliest rural credit schemes in Uganda were intended to increase household incomes, while the more recent ones, such as Entandikwa/"Seed Money" and SACCOs, have been designed to eliminate rural poverty. However, as we discuss below, neither of these recent credit schemes have been effective or sufficiently targeted rural women. On the other hand, microfinance not only targets women, but relies heavily on trust and the social capital approach, which uses joint liability to reduce financial risks and ensure high repayment rates. In contrast, politically-driven SACCOs considered in this article are devoid of such joint liability requirements, causing them to experience high delinquency rates and overall poor performance.
In terms of methodology, this article draws heavily on multiple primary and secondary sources of data, including government reports and publications, reported speeches/interviews by government officials dealing with microfinance and SACCOs, a review of performance and impact studies of microfinance and SACCOs in Uganda as well as relevant newspaper articles from the mid-1990s to the present. The number, growth and performance trends of government supported SACCOs between 2005 and 2012 are analyzed in order to discuss areas of progress made and assess where challenges still exist for future policy action. While performance is concerned with improving the delivery of services to customers, impact deals with demonstrating or proving how well customers receiving the services are doing in their livelihoods. Sadly, reliable data on the impact of SACCOs was unavailable for our analysis. The section below considers the political context of rural credit schemes, including SACCOs.
The Politics of Rural Credit Schemes and Poverty Eradication
From the 1960s to the present, Uganda has had a varied but largely disastrous legacy of rural credit schemes initiated or supported by the central Government. A list of such failed credit schemes is a long one and includes: the Savings and Credit Bank Scheme, the Cooperative Credit Scheme, the Group Farm Scheme, the Rural Farmers Scheme, the Youth Entrepreneurial Scheme and Entandikwa/'Seed Money.' The earliest rural credit schemes were meant to boost rural household incomes, while the most recent ones including SACCOs have been designed to eradicate rural poverty. However, neither of these recent government-directed credit schemes have been effective or targeted women clients. The Entandikwa Credit/Seed Money scheme established in the 1990s and political SACCOs created in the late 2000s were both linked to rural poverty eradication. Also, they served as examples of the broader rural financial services strategy undertaken (unsuccessfully so far) by the NRM Government. It appears that the NRM...