- “From Prosperity for All (PFA) to Prosperity for Few (PFF):Political SACCOS and Their Impact on Rural Development in Uganda”
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 [End Page 99] 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 [End Page 100] 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...