ARBA MINCH UNIVERSTY

SAWLA CAMPUS

COLLEGE OF COMMERCE AND BUSINESS ADMINSTRATION

DEPARTMENT OF COOPERATIVE ACCOUNTING AND AUDITING

RESEARCH METHOD PROPOSAL

TITLE; CHALLENGES FACING SAVINGS AND CREDIT
COOPERATIVES SOCIETIES IN ADDIS ABABA

PREPARED BY DAWIT SHAMBEL

ID NO ; 632/12
ADVISOR: TESFAYE MEGISO (MSc.)

SAWLA, ETHIOPIA

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Table of Contents
ABSTRACT....................................................................................................................................................4
CHAPTER ONE..............................................................................................................................................5
1. INTRODUCTION...............................................................................................................................5

1.1. Background of the study..............................................................................................................5

1.2. Statement of the problem...........................................................................................................7

1.3. Basic Research Question............................................................................................................10

1.4. Objective of the Study...............................................................................................................10

1.4.1. General Objective..............................................................................................................10

1.4.2. Specific objectives..............................................................................................................10

1.5. Delimitation of the study...........................................................................................................10

1.6. Significance of the study............................................................................................................11

CHAPTER TWO...........................................................................................................................................12
2. REVIEW OF RELATED LITERATURE.................................................................................................12

2.1. Introduction...............................................................................................................................12

2.2. Theoretical review.....................................................................................................................12

2.2.1. The meaning and role of Cooperative Society...................................................................12

2.2.2. Financial Cooperatives (SACCOs).......................................................................................13

2.2.2.1. Historical Background of SACCOs...................................................................................14

2.2.2.2. Brief History of SACCOs in Ethiopia................................................................................15

2.2.2.3. Types of SACCOs............................................................................................................16

2.3. Description of the study area.....................................................................................................16

2.3.1. SACCOs in Addis Ababa......................................................................................................18

CHAPTER THREE........................................................................................................................................19
3. RESEARCH DESIGN AND METHODOLOGY......................................................................................19

3.1. Introduction...............................................................................................................................19

3.2. Research design.........................................................................................................................19

3.3. Sampling....................................................................................................................................20

3.4. Unit of analysis..........................................................................................................................20

3.5. Data collection method.............................................................................................................20

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 3.6. Data analysis..............................................................................................................................21

ABSTRACT

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The main purpose of this study was to identify the challenges of Savings and credit
cooperatives (SACCOs) in Addis Ababa. The study followed qualitative research
approach and exploratory research design. Purposive quota sampling methods were
employed to select the sample respondents. Primary and secondary sources of data
were used. A review of relevant documents, interview schedule and focus group
discussion were prepared and administered with purposely selected SACCO
members, various committee members and cooperative officials and auditors at Addis
Ababa city, sub-city and federal level. The collected data were analyzed by content
analysis. Poor governance and leadership, lack of skilled manpower, lack of office and
materials, poor educational status of committees and poor members’ participation,
lack of audit service, lack of appropriate support from cooperative promoters and
NGOs, regulatory limitation and non awareness of the existing opportunities by the
members are the main findings. Based on the above findings, the following
recommendations were proposed: SACCOs should provide member driven services,
diversified financial product, hire qualified manpower in the right position,
strengthening the governance and internal control system. Cooperative promotion
and development sector at city and federal level, donors and other stakeholders
should assist SACCOs to undertake awareness creation program, training, education,
and information about SACCOs’ operations, credit, shares and investment, providing
regular audit and inspection service, technical and material assistance. In addition,
the government should revise the current cooperative promotion and development
structure, restructuring and producing appropriate regulatory environment for
SACCOs. Finally, Universities should undertake research studies on financial
cooperative are the possible recommendations.

Key words: challenges, savings, credit, and cooperatives, Addis Ababa.

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 CHAPTER ONE

1. INTRODUCTION

This is the first chapter of the paper that intends to give the general clue about the study by providing
general background for the study. This chapter consisted of background of the study, statements of the
problem, basic research question, objective of the study, delimitation of the study, significance of the
study, and organization of the study are dealt in detail. It begins with more general issues and tries to
get the point.

1.1. Background of the study

Access to finance by poor households in Ethiopia is primarily through informal systems,
including money lenders, traders, friends, relatives, Edirs and Ekubs (informal, group based
savings and credit associations). Poor households have almost no access to formal commercial
banking institutions or savings and credit cooperatives (Endalew, Endrias and Jema, 2010).
Financial cooperatives have a dual capacity in that they provide platforms for social interaction
and are economic vehicles for communities, groups and individuals. Latest development
resulting from the financial crisis have shown that financial cooperatives are one of the fastest
growing financial institutions in some locations due to their ability to adopt to any condition
(Alexopoulos & Goglio, 2011). Financial cooperatives are often loosely organized entities which
have some formal and informal characteristics. They are typically started informally when a
group of people with a common bond (e.g work place, religion, location, community, profession)
decide to save their money together for a commonly agreed purpose (Adekunle, 2011). The pool
of saving is then used to provide financing to the members according to how much each member
has saved; the amount to be borrowed is often a multiple of the members’ current savings. The
members of cooperatives determine the policies of the cooperative such as the amount to be
saved monthly, the interest to be charged on borrowings and the dividend sharing formula
(Kibuuka, 2007). The operational policies may or may not be documented, and the cooperative
relies heavily on the social ties that create trust among members (Morrow, Hansen, & Pearson,
2004). Financial cooperatives are common throughout the world, with 101 countries which have
active financial cooperatives (WOCCU, 2014). It is also widely recognized that economic
progress relies largely on access to financial services such as savings, insurance, and credit.
Where formal financial institutions fail to serve the large majority of the poor population, there is
evidence to support the proposition that credit unions can fill some of the gap (Hussain et al.,

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2002). The emergence of member based financial institutions such as saving and credit
cooperatives (SACCOs) has also been recognized for the provision of banking services in
Ethiopia. SACCOs, which were only 495 in 1992, (Kifle and Hailemichael, 2012) their number
has increased from 5,437 in 2006 to 14,453 in May 2014 showing a compound growth rate of
28% per year. The aggregate number of membership during the same period increased from 0.38
million to 1.7 million and their capital increased from one billion birr to 5.2 billion birr showing
a compound growth rate of 28% per year (Kifle, 2015) and currently, as of July 2015, the
number of SACCOs reached to 17,765 with aggregate member of 12,799,500 and their saving
amount more than 6.6 billion Birr (Federal Cooperative Agency, 2015). SACCOs constitute the
highest type of cooperatives in the country in terms of number and the second highest
membership next to multi-purpose cooperatives.
Cooperatives in Ethiopia are governed by the comprehensive and multi-sectoral cooperatives
societies’ proclamation No. 147/1998. This Proclamation was based on internationally accepted
cooperative principles. It laid the ground for the development of all kinds of cooperative
societies at different levels, and is comprehensive in its coverage. As per the proclamation No.
147/1998, SACCOs were expected to play active role in bringing about broad-based
development and poverty alleviation as they were permitted to take deposit from and grant loan
to members. However, this proclamation failed to recognize SACCOs as formal financial
institutions even though they were allowed to accept deposits and grant loans. As a matter of this
fact, SACCOs are not subjected to the regulation and supervision by National Banks of Ethiopia
(NBE) that other formal financial intermediaries are subjected to. 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
(Zerfeshewa, 2010). Under the study area, Addis Ababa city, there are 10 sub-cities and 116
woreda (AABoFED, 2013). Cooperative promotion and development sector (CPDS) existed in
city administration level, sub-city and woreda/district level under trade bureau. CPDS are
responsible government body to promote, organize, capacity building, licensing, inspection,
audit and legal services cooperatives under the city (AACPDS, 2015). Employee-based SACCOs
take the initial point in establishing SACCOs in Addis Ababa. The first SACCOs established in
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the mid of 1960 by employee of Ethiopian Air Lines. At the same time, the employee of

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Ethiopian road authority and Ethiopian Telecommunication established SACCO. SACCOs
operated in Addis Ababa city were strong in capital and saving amount compared to other region.
According to Addis Ababa cooperative promotion and development sector (CPDS) report, 2015
indicated that SACCOs in Addis Ababa were 1,016 with total number of membership of 175,072
(89,804 male (51.29%) and 85,268 male (48.71%)). They have highest capital with 1.1 billion
Birr (which accounted 51.9% of the total capital of SACCOs in Ethiopia) and saving amount of
4.55 billion Birr (69% of the total saving accumulated by SACCOs in Ethiopia). SACCOs are
the largest both in membership and capital with compare to other kind of cooperatives existed in
the city. The types of SACCOs existed in the city were employee-based and Community-based.
The members are a collection of private and government employees, small scale business traders,
artisan, women, different professionals, etc.
The financial cooperatives (SACCOs) presence still have encouraging effect to its members and
the financial activity as a whole, but as compared with its long establishment year they are not
fully benefited from the financial market due to various factors which
limits its operation. Like other business organization, SACCOs faced in different challenges
which hinder their development. Therefore to assist poverty eradication program of the country,
to assure national development at macro level, and to mobilize more savings through strengthen
the city’s financial cooperatives, it is necessary to give much attention for Savings and Credit
Cooperatives’ expansion at a grass root level. Thus, the study aims to identify the challenge
facing SACCOs in Addis Ababa.

1.2. Statement of the problem

Saving and Credit Cooperatives (SACCOs) are likely to be the most viable and sustainable
institutions to provide accessible and affordable financial services to the vast majority of urban
poor (Aregawi, 2014). They are the main financial solution of the people who have low income
level. The SACCOs are considered as semi-formal financial institutions, which are not regulated
and supervised by NBE. The informal financial system includes Equib, Eddir, and others, which
are not regulated (NBE annual report, 2009).
SACCOs Societies or Credit Unions have been developed to meet the fundamental human need
to find a way of saving and borrowing methods without taking risks and without handing over
too much power to a moneylender (Getachew, 2006). SACCOs’ core business is mobilizing
savings from members, and then providing them with credit at affordable interest rates. (Alecia,

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Elizabeth, Gideo & Dancan, 2012). Despite the ups and downs experienced, SACCOs are now
expanding (in terms of number as well as membership) in both rural and urban areas. Many have
formed unions (which have reached about 110) and some urban employee-based SACCOs even
have taken the initiation to form cooperative banks. The number of founders that took the
responsibility of organizing Addis cooperative bank was 21 and out of this 67% came from
AASCCU. Addis International bank (AIB) formerly known as Addis cooperative bank an
estimated 63.34% of bank’s paid up capital was owned by cooperatives and their members,
includes Ethiopian Air Lines SACCO, Ethiopian Road Authority SACCO, Ethiopian
Telecommunication Corporation SACCO, Ethiopian Electric power Authority SACCO, Addis
Ababa University SACCO, etc. At present, the contribution of cooperatives in the bank’s capital
reduced (according to AASCCU manager). In addition to that, urban community-based SACCOs
in Addis Ababa (example: Rased/WISE SACCO Union, Awach SACCO, etc) plays a major role
for urban poor especially low-income women, small scale traders, weavers, etc. through enabling
to initiate or expand their preferred lines of micro-enterprises operation through mobilizing
savings and distributing loans to members. They create employment opportunity, developed
transformational women leader, ensured to achieve self-reliance, improve the quality of their
lives through the provision of a range of services both financial and non-financial to their
members.
Like in other business organization, financial cooperatives are currently facing a number of
challenges. These challenges comes from the internally and external to the organization. In
Africa, they have faced the challenge of growing Savings and Credit Cooperatives (SACCOs) as
a strong tool to meet our financial needs. SACCOs in Ethiopia have their own challenges that
retard their financial solution to their members and the economical contribution to a country.
Limited number of studies has been carried out in SACCOs in Ethiopia especially in Rural
Savings and Credit Cooperatives (RuSACCOs). The researcher tries to indicate the main
challenges of RuSACCOs in their study. Govindaran Veerakumaran (2007), Yared (2008), Dr.
Sambasivan & Biruk (2009), Zerfeshewa (2010), Kifle (2011), Dejene (2011), Aregawi and
Kifle (2011), Kifle and Hailemichael (2012), Biruk (2012), Aregawi (2014), Kifle (2014), and
Ergetew (2014) found out the problems of SACCOs in Ethiopia on their research findings 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

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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 Fedaral Cooperative Agency (2014) revealed
that financial cooperatives (SACCOs) are promoted 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 etc. Moreover, there is no
separate regulatory policy framework for Financial Cooperatives (Cooperative banks,
Cooperative based insurance companies, and SACCO). As a result the initiative to establish
Addis Ababa Cooperative Bank ended up in establishing conventional commercial bank.
According to Spielman (2008) and UN (2011) the challenges that SACCOs face in their
development are immense such as tension exists between the growing roles & amp;
responsibilities of cooperatives in Ethiopia’s economy, weak exploitation of the existing human
resource, general changes in Ethiopia’s wider socio-economic conditions, the efforts to promote
cooperatives as an inclusive solution to realizing financial opportunities, and the limits on
inclusiveness posed by the actual design and function of cooperatives. Internally, SACCOs face
poor members’ participation and the severe shortage of capital misuse by selected committees,
misappropriation by leaders, poor administrative skills, and irresponsible lending to members,
and limited access to banking services too long periods between audits.
The data compiled from FCA, 2015 indicate that at present there are 17,765 SACCOs active in
the country with the total membership of 2,794,624 and a saving amount of 6.6 Billion Birr.
However, according to Kifle, 2012 the sector provides less than one percent of the country’s total
financing, and many struggle with low-capacity management and governance. This in turn,

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requires investigation of the status and challenges of these financial institutions for appropriate
intervention.
Based on the above research findings, the extent and the specification internal and external
challenges of urban SACCOs and rural SACCOs are not identified. Most of the above
researchers listed out the challenges of SACCOs in general (country level) and most of them
were focus in the case of Rural SACCOs. Basically the challenge existed in rural areas could be
different from urban areas. Most of urban SACCOs like operated in Addis Ababa city are strong
in capital and saving amount against rural SACCOs, but there are challenges faced SACCOs
existed in the city. Most researchers were not identified challenges of urban SACCOs.
However, there is little understanding of what the contemporary challenges of SACCOs in Addis
Ababa; whatever the SACCOs do should be analyzed in terms of its contribution on the socio-
economic development. The driving force for initiating this study is that very little is known
about the current status and challenges of SACCOs for its growth and sustainability in Addis
Ababa city Administration.
Therefore, assessing the existing research gap, I have motivated to identify the internal and
external challenges of saving and credit cooperatives in Addis Ababa.

1.3. Basic Research Question

1. What are the challenges of Savings and Credit Cooperatives (SACCOs) in Addis Ababa?

2. What are the reasons behind those challenges of SACCOs in Addis Ababa?

1.4. Objective of the Study

1.4.1. General Objective
The overall objective of this study is to investigate the challenges that faced Savings and Credit
Cooperatives in Addis Ababa.

1.4.2. Specific objectives

1. To understand the factors that determinant the challenges of SACCOs and in Addis
Ababa,
2. To recommend possible solutions for the challenges of SACCOs in Addis Ababa.

1.5. Delimitation of the study

This study is geographically limited to specific SACCOs that are fourteen saving and credit
cooperative societies in Addis Ababa and also only covers saving and credit cooperatives

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challenging factors to become operationally effective and their future prospects for development.
Because our study limited to sample selected SACCOs in the city, this area specific study may
not be a guarantee to generalize beyond this study area. Moreover, getting reliable data were
been difficult due to unavailability of well documented and organized secondary data.

1.6. Significance of the study

SACCOs are identified as one of the vehicle that is important in mobilizing savings and
consequently an important source of affordable credit for majority of low income earners and
micro as well as small entrepreneurs in Addis Ababa. Therefore any study which seeks to
understand the challenge of SACCOs is welcome as it will aid the stakeholders within and
without the SACCOs arena.
This study has a supreme importance through providing adequate information for policy makers,
for saving and credit cooperative societies, cooperative promoters’, development workers and
other stakeholders about the challenge of SACCOs in Addis Ababa city. This enables them to
design appropriate policies and programs on SACCOs’ successful establishment and
strengthening to have speedy economic contribution in poverty elimination and encouraging
investment at micro business level.
Moreover, this study will furnish a current information regarding challenges faced by SACCOs
in Addis Ababa which enables the St. Mary’s University students and researcher to go further
study in the area of SACCOs.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. Introduction
This chapter presents what other researchers and writers have written about Savings and Credit
Cooperatives (SACCOs) and their challenges. The detail descriptions about the financial
cooperatives (SACCOs) and their challenges, and other related concepts reviews were the
concern on this chapter.

2.2. Theoretical review

2.2.1. The meaning and role of Cooperative Society
The International Cooperative Alliance (ICA), which is the apex organization founded in 1895 to
coordinate the cooperative movement worldwide defines a cooperative as ‘an autonomous
associations of persons united voluntarily to meet their common economic, social and cultural
needs and aspiration through a jointly owned and democratically controlled enterprises’ (ICA,
2014). Cooperatives have the advantages of identifying economic opportunities for the poor;
empowering the disadvantaged to defend their interests; and providing security to the poor by
allowing them to convert individual risks into collective risks (Wanyama, 2008). By integrating
the poor and the relatively well-off in the same income generating opportunities, cooperatives are
also contributing to the reduction of exclusion and inequality (Birchall, 2004; 2003; ILO/ICA,
2003). The cooperative form of organizing a business enterprise assures any group of individuals
an effective means to combine their resources and permits a larger resource mobilization than
that within the capacity of most individuals and small enterprises. It is a catalyst for local
entrepreneurial growth; cooperatives retain within the communities in which they operate the
capital that they mobilize there, as well as surplus derived from outside transactions, both
accumulating for further entrepreneurial development (UN, 1996). Accordingly, cooperative
societies are practical vehicles for cooperation and collective action as well as build and
reinforce community, which are crucial to sustainable development. Uma (1981) wrote that
traditionally cooperatives were expected to serve a broad set of socio-political and economic
objectives ranging from self-help and grassroots participation to welfare and distribution‘.
Cooperatives are based on the values of self-help, self- responsibility, democracy, equality,

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equity and solidarity (UN, 2011). Cooperatives have been successful in not only increasing
social participation of women but also in developing drives, initiatives and leadership qualities
(USAID, 2005). Women Associations at the Grass root level have facilitated access for the urban
poor, particularly women, to available services and inputs for business development. Moreover,
as ICA (1997), state the role of cooperative is to provide greater benefit to the members such as:
increasing individual income or enhancing a member’s way of living by providing important
needed services. The cooperative may be a vehicle to obtain improved market or providing
source of supply or other services, otherwise unavailable if members act alone.

2.2.2. Financial Cooperatives (SACCOs)

A SACCO is an acronym for Savings and Credit Co-operative Societies. This is an autonomous
association of persons united voluntarily to meet their common economic and social needs
through a jointly owned democratically controlled enterprise or business. Savings and Credit
Cooperatives are member owned financial institutions with the core objective of mobilizing
savings for on lending to members. They are quasi-social institutions aimed at improving the
welfare of its members through access to affordable credit facilities. Members of these financial
institutions can be both net savers and net borrowers (Johnson and Nino-Zarazua, 2011).
WOCCU (2004) defines saving and credit cooperatives as: " ... user-owned microfinance
institutions that offer savings and credit services to their members ... Saving and credit co-
operatives are financial institutions that are owned, controlled and capitalized by their members.
Membership in a credit union is based on a common bond, a linkage shared by savers and
borrowers that can be based on a community, organizational, religious or employee affiliation.
SACCOs perform a critical function in financial intermediation. They offer savings and credit
services to their members.
SACCOs are forms of cooperative societies whose core business is to encourage thrift and easy
access to credit to their members. Savings and Credit Co-operatives play an important role in the
socioeconomic development of the people, they provide avenues for members to save regularly
and then borrow for productive and welfare purposes. Like any other cooperative organizations
are guided by the practices, philosophy, fundamental principles and values of the cooperative
movement world over.
SACCOS can be formed by any group of people who either has common bond (like in the case
of one employer), or people with similar objectives. Examples of such people are Government

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employees, employees of government parastatals, teachers, nurses, doctors, traders, mall
workers, municipal workers, tax workers, employees of private commercial companies,
parliamentarians, hawkers and domestic workers. A SACCO is one of a cooperative society
whose business is to provide financial services to its members. SACCOs are legal institutions
registered under the cooperative proclamation 147/98 and cooperative regulations. SACCOs are
owned by their members through payment of share capital and membership fees to the
institution. It is also a democratic, unique member driven, self-help, not for profit financial
cooperative. It is owned and governed by members who have the same common bond. A
SACCO membership is open to all that belong to a group, regardless of race, religion, color,
creed, and gender or job status. These members agree to save their money together in the
SACCO and to make loans to one another at reasonable rates of interest.
In general SACCO Society are financial institutions designed for people, to have 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). The key role of financial cooperatives in building better communities by enhancing
financial inclusion, broadening and cementing a culture of saving, financial literacy and smart
loans/excessive lending/credit (Auma, 2010).
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 receive other services from the SACCO. In developing
SACCOS, working funds are comprised mostly of member shares; in mature SACCOs, working
funds are mainly 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.

2.2.2.1. Historical Background of SACCOs

SACCOs have existed for more than a century and it is providing services to more than hundred
and twenty million members throughout the world. The following is a brief history of how the
concept originated in some of the countries around the world: Germany was the first country in
the world to apply the principle of cooperation in the field of saving and credit. The cooperative

14
 th
saving and credit movement was started in Germany in the middle of the 19 century. At that
time, the economic condition of German was extremely deplorable and peasant and artisans felt
crushed under the heavy weight of indebtedness. Jews rule over the market and the poor laborers
and farmers had no way out to buy articles of their requirement from them and sell their product
to them. Hence, German laborers and peasants were passing such bad time. Fredrick Wilhelm
Raiffeisen, a city mayor of Heddesdorf, tries to reduce the suffering of the people who are living
in rural areas.

2.2.2.2. Brief History of SACCOs in Ethiopia

Cooperation is the way of life of Ethiopians and has a long year of experience as a tradition. This
cooperation may be facilitated by cultural or religious organizations that make the population
bring together. For example, Eddir/focuses on funeral celebration/, Ekuib /which helps for saving
money and self-help to the members/, and Debo /which is focused on the cooperation on labor
peak times like in the time of harvest, wedding , etc. which were the basis of modern
cooperatives. Although these cultural co-operatives still exist now, new forms are emerging in
the country. The newly introduced Saving & Credit Co-operative is one of them, complementing
the already existing associations in a community.
The development and promotion of modern savings and credit cooperatives (SACCOs) in
Ethiopia is not different from that of general cooperative promotion and development in the
country. It was in 1964 for the first time in Ethiopia, during the imperial regime. the first savings
and credit co-operative in Ethiopia was established in 1964 by employees of Ethiopian Airlines.
During the same period, saving and credit co-operatives were established by employees of the
Ethiopian Road Authority and the Telecommunication Agency
The SACCO which was under the National Bank of Ethiopia during the Dergue regime unlike
the other type of cooperative were not very much affected but continued to mushroom except the
national apex ENTACCS which was abolished. By 1990/91 when the Dergue regime was
abolished there were 495 SACCO in the country with the total membership of 119,799 and total
savings amounting to 79 million birr, assets totaling of 102 million birr, and outstanding loans of
80 million birr.

15
 2.2.2.3. Types of SACCOs
According to Bwana and Mwakujonga (2013), various types of SACCOs exist, depending on the
membership profile and the products extended to the SACCO members differ accordingly. In
essence, there are three broad categories of SACCOs:
1. Community-based SACCOs: These SACCOs can be found in urban areas or regional
towns, but are most frequently encountered on village level. A variety of group and
individual loans can be found, including women solidarity loans, business loans for
individual members, or loans for small and micro enterprises;
2. Employee-based SACCOs. These represent SACCOs where all the members are drawn
from one employer and these SACCOs are generally located in urban areas or regional
level. Specific salary-based loans are extended which are often guaranteed by the
employer.
3. Agricultural SACCOs. To date these represent primarily small-scale cane growers in
areas such as the rural region. Both individual farmers and farmers’ associations can be
clients of the SACCO. Loans are extended for various purposes, including agricultural
production loans.
SACCOs also classified in to two based on the area of operation/location as urban SACCOs and
Rural SACCOs (RuSACCOs) (FCA, 2013). Urban SACCOs’ operational location is in urban
area or city and sub-city, whereas RuSACCOs located in the rural areas.

2.3. Description of the study area

Addis Ababa, the capital city of Ethiopia, was founded in 1886 by Menelik II. The city is only
130 years old. Addis Ababa is the largest as well as the dominant political, economic, cultural
and historical city of the country. It has the status of both a city and a state. Addis Ababa is
located almost in the center of Ethiopia and it is in an altitude of about 2,400 meters above sea
level. It had a built up area of 290 square km in 2004 and has an estimated population of 4
million. The live expectancy is at 62.8 for males and at 66.5 for females (UN-Habitat, 2007). It is
the capital of federal government and a chartered city. It is where the African Union and its
predecessor, the OAU are based. It also hosts the headquarters of the United Nations Economic
Commission for Africa (UNECA) and numerous other continental and international
organizations. It is the largest city in Ethiopia.

16
The city is divided in to ten sub-cities which are the second administrative units next to city
administration. In terms of area coverage Bole is the largest sub-city followed by Akakikality
and Yeka. Addis ketema is the smallest and followed by Lideta and Arada Sub- cities. The sub-
cities are also divided in to woreda, which are the smallest administrative unit in the city. There
are 116 weredas in the city administration. The number of weredas varies based on their size
(ibid, 2013).
According to CSA (2012) the total population of Addis Ababa was estimated to 3,048,631 of
whom 1,595,968 were females and the rest 1,452,663 were males. This is 3.71 percent of
Ethiopian population of 84.3 million and 22.42 percent of urban population (14 million). The
population size of sub-cities varies in space. As a result Kolfe Keranyo (15.66%), Yeka
(12.65%), Nefas Silk (11.55%) and Bole (11.28%) have the largest share of population of the
city respectively. On the other hand, Lideta (7.36) Sub-city has the smallest share of the city’s
population. When we compare unemployment status at country level which was 24.1, in Addis
Ababa the situation was more serious. This implies that in Addis Ababa, compared to the country
total, unemployment rate was very high. The rate of unemployment of females was much greater
than males.
Addis Ababa is the main economic financial and communication centre and gate way to external
market. In Addis Ababa City administration there is a wide sex and wealth gap disparities in
economic activity. According to the 2007 census, men were found to be more economically
active than women (71.9% against 55.9%). The economic base of early 20th century Addis
Ababa was typical of a consumer city, i.e., one where taxes, tributes and tithes were the principal
source of income. Addis Ababa today has a diversified economy, being the main centre of public
administration, commerce, manufacturing, finance, real estate and insurance (AABoFED, 2013).
However, most residents are still very poor or on moderate incomes. A 2002 study by the
Association of Ethiopian Microfinance Institutions shows that the informal sector employs about
51 percent of the economically active labor force. As the 1994 census of the Central of Statistical
Agency affirms, unemployment is a big problem in the city (34.7%) and it is even worse than in
other urban areas of the country (22%). And overall, the poverty in Addis Ababa is still one of
the major problems and it seems to have been increasing in the last years. Some authors claim
that today, about 70 to 80% of the Addis Ababa population is living at or below subsistence level
(UN-Habitat, 2007).

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 2.3.1. SACCOs in Addis Ababa
The history of cooperatives in Addis Ababa started in the mid of 1960. Employee based
SACCOs have laid the foundation in the development of SACCOs in Addis Ababa. According to
Desalew (2009), the first savings and credit co-operative in Addis Ababa was established in 1964
by employees of Ethiopian Airlines. During the same period, saving and credit co-operatives
were established by employees of the Ethiopian Road Authority and the Telecommunication
Agency. SACCOs have shown a noticeable increase in number size diversity of membership post
the over through of the command economy. Currently there are 1,106 SACCOs registered and
operated in the city. The membership has increased from 110,929 during establishment period to
175,072 at present. The growth rate of membership is 36.64 percent which is slow. Only 5.35%
of the total population in Addis Ababa was registered as a member of SACCO from the vast
population size (near to 3.3 million). The average membership per SACCO was 158 at the end of
June 2015. Women share of membership was 46.1 percent. The types of SACCOs operated were
employee-based and community-based. Community-based SACCOs have rapidly expanded in
their type of membership base to include poor population such as: small traders and women
traders working in the city.

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 CHAPTER THREE
3. RESEARCH DESIGN AND METHODOLOGY

3.1. Introduction
It is believed that the research methodology is the philosophy of general principles which guide
the entire research. In this section of the paper, the researcher would like to provide a brief
description of the methodology adopted to carry out the research.

3.2. Research design

To achieve the objective of the study a qualitative exploratory approach was followed. A
qualitative exploratory approach appropriate to understand the perspectives of participants; or
explore the meaning they give to phenomena; or observe a process in depth. This type of
research usually includes gathering of qualitative data through the search of literature and
interviewing experts in the field (Saunders & Lewis, 2012). As reality has multiple views,
through the qualitative exploratory approach, the researcher got an opportunity to interact with
different experts in the financial cooperatives field and understood the multiple views in the field
(Robbins and Judge, 2013). They did not only provide the researcher with valuable new
information but also enhanced the critical skills in scientific research which require that the
researcher be open minded. Both primary and secondary data were collected. Primary data was
collected from the chosen population sample. This approach is particularly appropriate because
the aims of the study seek to get new insights on the key phenomena that derive the financial
cooperatives challenges in Addis Ababa. On the other hand, to collect secondary data, a review
of relevant policy and regulatory documents, SACCOs record, financial and audit reports, data
from federal cooperative agency and cooperative promotion and development sector of Addis
Ababa city administration as well as other reliable resource were gathered in order to examine
the challenges, current status of SACCOs in Addis Ababa, with specific emphasis to sampled
saving and credit cooperatives were undertaken.

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 3.3. Sampling
Since the natures and type of products SACCOs in Addis Ababa provided to their members are
homogeneous, we believed that the sample size represents the target population. Homogeneity in
a population means that the members of the population are similar on the characteristic under
study. For qualitative research method, the sample size may not be larger as quantitative
research. The researcher believed that our sample represent the population of the study.
A purposive quota sample was taken from the population. This sampling method is preferred for
this study because it provided for the researcher to make a personal judgment on the most
appropriate sample composition to meet the needs of the research question. Since this study is a
qualitative study, where the researcher have aimed to understand the challenges of SACCOs
from the participants’ point of view, it is therefore important to purposively select a sample
where the most learning could be found.
39 management and committee members (3 committee from each SACCO: 1 manager, 1 credit
committee & 1 control committee) chosen from the already identified 13 SACCOs. Five
cooperative promotion official and Five cooperative auditors were selected from 5 sub-city
(Kolfe-keraniyo, Kirkos, Arada, Yeka and Nifas silk-lafto,) cooperative promotion and
development sector. This sub-cities were selected based on the highest number of SACCOs
located under their area. One cooperative coordinator and one cooperatives audit and inspection
coordinator from Addis Ababa city trade bureau, cooperative promotion and development
department were also chosen to form part of the sample. One financial cooperatives expert from
the federal cooperative agency also chosen as part of the sample.
The total purposive sample size was 120 respondents from the structural hierarchy of SACCOs
in Addis Ababa were selected with varying roles with in the SACCOs movement.

3.4. Unit of analysis

The unit of analysis is the opinion of each representative of the five different stakeholder groups
that have been chosen in the sample of research.

3.5. Data collection method

The primary data collection consisted of face-to-face interviews and focus-group discussion
(FGD). In all instances, structured interviews were used to collect the data. This is the preferred
method of data collection because it ensures consistency in the data collection as all participants
are asked the same questions in a similar format and the respondents’ body language were

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observed to gain a deeper understanding of the issues and gain better insight. Each interviews
lasted for a one hour, discussion made within one and half hour and observation was made in not
more than in ten minutes. Discussion was conducted with SACCOs’ management committees.
That is why open-ended questions work best in studies with smaller populations. Both Interview
schedule and FGD checklist are prepared both in Amharic and English language for 120 sample
respondents in order to make more easy and understandable for all levels of interviewee.

3.6. Data analysis

Qualitative research has three main sources of data: interviews, observation and documents (ibid,
2012). The data that collected during the interview process were systematically analyzed to
uncover emerging themes. The manuscripts from the participants’ interview were systematically
analyzed using a replicable valid method for making acceptable inferences.
The process of analysis that is used is content analysis, which is a research method that uses a set
of techniques to assist researcher to make valid inferences from text, by counting and sequencing
particular words and phrases. Content analysis of the data conducted simultaneously as the data
collected, which allowed gathering, enrich subsequent interviews. Unit of data in the form of key
words or phrases were identified and coded as the content is analyzed. This allowed for the data
to be broken down in to relevant themes.
Each response to the question in the interview guideline were recorded and transcribed.
Interview responses that are driven from similar interview guidelines were analyzed together.
Each manuscript is codifying in to the different themes that emerge per question. Similar phrases
identified and grouped together in the codification process, to identify key constructs. The
frequency of each construct is then counted and a rank ordered table was developed for each
similar question, with the construct appearing in descending order of frequency. Each content
analysis process took an average of two hours and a half interview transcript.

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