Mpanga Tea Growers Savings Survey 2011

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Mpanga Tea Growers Savings Survey Report

Table of contents

Executive summary .............................................................................................................................3

1. Background .................................................................................................................................4

1.1. The importance of savings ...................................................................................................4

1.2. Mpanga Tea Growers ..........................................................................................................4

2. Research findings and recommendations ....................................................................................5

2.1. Survey population and sample size ......................................................................................5

2.2. Saving practices ...................................................................................................................7

3. Way Forward ................................................................................................................................ 11

4. References .................................................................................................................................... 11

5. Appendix....................................................................................................................................... 12

Corresponding research coordinator and author:

Felix Meier zu Selhausen (felix.meierzuselhausen@giz.de)

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Executive summary

MMU Microfinance and Banking Department conducted the field research in July in joint

collaboration with Mpanga Tea Growers. In general, the study finds a relatively low savings culture

among Mpanga’s tea growers. Also a low variety of savings products at Mpanga SACCO and a long

distance from tea-centre to factory (or high costs of cash) for tea growers can be attributed to this

development. Small-scale tea growers save to protect themselves from unpredictable emergencies

(e.g. sickness, natural disasters, burials, etc.) or to plan for future and acquire assets (e.g. roof, boda-

boda, farm inputs). Savings are higher during yield per acre “peak-seasons”. On this basis the report

recommendations are four-fold (grey shaded boxes in this report):

1. Establish savings groups along tea-centre social structures.

2. Commitment savings accounts to channel peak seasons higher savings into future lump-

sums for school fees, assets and farm inputs.

3. The SACCO and Mpanga’s accounting office need to be merged in order to create

synergies for the company and reduce small-scale tea-farmers.

4. Mobile Money has the potential to reduce costs of cash associated with large distances

and long waiting periods. Simultaneously this would encourage savings since farmers send

their savings from non-tea income to SACCO to store it safely and earn interest

MMU Microfinance and Banking Department’s research results and recommendations were

presented to the Board of Directors of Mpanga SACCO in early September 2011. In November 2012,

the management of factory and SACCO were advised on venturing into Mobile Money by CGAP

(World Bank) and the Grameen Foundation – Kampala, organized by MMU.

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1. Background

1.1. The importance of savings

A prominent view is that poor people are “too poor to save”. However, in the past decade the focus

of microcredit shifted to the more appropriate terminology of microfinance, acknowledging the

capacity and willingness of the poor to save. In other words, poor people need to save not despite

they are poor but because they are poor. Their complex lives make them more vulnerable to

emergency expenses, natural disasters (i.e. drought or flood) and opportunity spending, thus

representing an immediate need for saving.

With savings, not only can households accumulate assets to use as collateral for a loan, but they can

meet emergency needs, such as medical expenses, smooth seasonal consumption needs, finance life-

cycle events such as school fees and funerals, self-insure against major shocks, and self-finance

business investments. However, not only that they have small incomes but also lack reliable and

effective ways to store the money they have (Collines, Morduch, Rutherford et al., 2010). Informal

self-help savings groups (i.e. ROSCAs and ASCAs) and savings and credit cooperatives (SACCOs) are

offering financial services (loans and savings products) for this segment of the formal financially

excluded.

Poor people get by on incomes that are small and irregular. But they often need sums of

money larger than they have immediately to hand, to pay for life-cycle events such as birth,

education, marriage, and death, for emergencies, and seize opportunities to invest in assets

or businesses. The only reliable and sustainable way to obtain these sums is to build them,

somehow or other, from savings. Poor people have to save: and financial services for the

poor are there to help them find ways to do so.

-Rutherford and Arora (2011)-

1.2. Mpanga Tea Growers

Mpanga Tea Growers was founded in 1995 and is one out of four tea factories owned by smallholder

tea-farmers in Uganda (the other 3 include Igara, Mabale and Kayonza). Mpanga is located 14km east

of Fort Portal on the Fort Portal-Kampala highway. Mpanga’s tea plantations stretch from Kyenjojo

District into Kabarole District and cover 400m2. Farmers themselves or their sub-contract casual

workers pick the green leaf of their plantations and drop it at the 16 tea centers along the main-road

to Kampala. From there the tea is picked-up by trucks which transport the green leaf to the factory to

be processed into “made tea”. Then the tea is transported and sold on behalf of smallholder tea

growers through the Mombasa Auction, held every Monday. March to May and October to

December represent the so called “peak-seasons” when yields per acre are considerably higher than

during other months of the year.

In May 2011, Mpanga counted 785 associated tea growers with an average of 1.6 hectares,

producing 917kg of ‘green leaf’ per month translating into a 330,000 UGX monthly income from tea.

Mpanga is fairtrade listed since 2001 and reinvests its premiums into its community health services

(clinic) and shallow water wells and pumps for example. In 2008, Mpanga SACCO was founded in

order to ease financial access for its tea-farmers – almost all tea farmers are members and some of

Mpanga’s staff members. Per May 2011 the SACCO had 754 registered fully paid-up members of

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which 150 are female. The SACCO is a male-dominated institution given that the majority of tea

farmers are men. Per 31st April 2011, the SACCO reported 654 individual savers and 554 active

individual borrowers. The SACCO had neither savings nor credit-groups. The SACCO offers its

members five loan products (business, school fees, agriculture, individual, and emergency loan) with

very competitive interest rates of 2% p.a., except for the emergency loan which has an interest rate

of 10% per month. On savings products the SACCO provides only one product – voluntary savings.

Mpanga Tea won a grant from the German Development Cooperation GIZ PPP Program. Part of the

activities to increase savings, included an academic field research in order to assess the saving

practices of Mpanga’s smallholder tea farmers. To conduct the field research and analysis Mpanga

contracted Mountains of the Moon University. The two institutions are close community partners

and worked together on another research project in the past. Other activities included a savings

workshop for tea-centre head-farmers, Mpanga’s extension workers and SACCO staff.

Mpanga SACCO was basically interested in three questions:

1. Is there a low savings culture among Mpanga’s small-scale tea farmers? If so, what are the

reasons for it?

2. What kinds of products and operational processes have the potential to increase member’s

savings?

3. How to improve the efficiency of factory cash handling?

In order to collect the data and translate it into information MMU used ten trained students as

enumerators under supervision of the Business School’s Research Coordinator, Felix Meier zu

Selhausen and Head of Department Banking and Microfinance, Geoffrey Muzigiti. Dr. Oliver Schmidt

supported the team for data analysis and presentation of findings. Field research took place in the

period July – August 2011.

2. Research findings and recommendations

2.1. Survey population and sample size

The sample interviewed is composed by about 13% of female and about 87% male respondents.

Figure 1 shows the sex-disaggregated profile of the 139 respondents. 108 are members at Mpanga

SACCO – 94 male and 14 female, which corresponds to about 14% of the survey population. Data was

collected from 7 tea centers equally spread out over Mpanga’s tea small-scale farmers` tea

plantations in order to cover tea farmers representatively and not only from one particular area.

Table 1 reports household and acre sizes of respondents, as well as the average distance from the

tea-growers affiliated tea-centre to the factory. Surprisingly, tea farmers on average grew tea on

about 30% of their total land, reflecting income diversification in order to spread the risk in case of a

bad harvest. Secondly, larger acre size would also result into additional wage labour on the

plantations, since the “family labour” may not be sufficient. Acre size and household size are

statistically significant correlated (Figure 2), meaning when household size increases by one, acre size

increases by 0.3 acres. More tea acres require more family labour. Average distance from tea-centre

to factory equals 13.6 km. Average household size was 7.1 people, captured as “how many people

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take regular meals together within the household”. The questionnaire used for field research is

attached to the Appendix (Section 5).

Figure 1: Survey respondents by sexes

Table 1: Overview of respondent’s household data

Average

Age (years) 44 Household size 7.1 No. of total acres 6.3 No. of acres of tea 1.8 Distance from tea-centre to factory (km) 13.6

Figure 2: Relationship between acres of tea and household size

121

82

34

5

18

17

1

No. of respondents

Tea growers

Tea pickers

Field supervisors

Male Female

0

2

4

6

8

10

12

14

0 5 10 15 20

acre

s o

f te

a

household size

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2.2. Saving practices

Out of the sample of 139 individuals, 108 are SACCO members at Mpanga. Among the out-growers

that save in Mpanga SACCO, 31 reported to save at the same time in another place (Table 2).

Thirteen reported to save with another SACCO; 10 saved with a commercial bank, 11 stated to save

with savings groups, like ROSCAs and ASCAs. The majority of them reported to save once per month

at Mpanga SACCO, presumably when picking-up their cash from tea-leaf. The farmers that have an

additional commercial bank account own almost triple the size of acres for tea as the average tea

small-scale farmer and therefore potentially can afford a commercial bank account. The small-scale

farmers that are also members of a SACCO or other MFI are on average further located from the

Mpanga factory by 2.5 km. Thus distance to Mpanga factory and therefore access and storage of

savings is bridged via being a multiple member of formal and informal savings institutions.

Twenty-two individuals reported to save exclusively in places other than Mpanga SACCO. Among the

22 non-Mpanga SACCO members 6 stated to save within their house, 6 in savings groups, 4 in

commercial banks, 4 in another SACCO and one with friends/relatives.

Table 2: Savings locations (n=139)

Other place No. Average Savings (UGX)

Other SACCO (monthly) 17 9,200 Savings group (weekly) 17 9,000 Commercial Bank (monthly) 14 97,000 In the house (monthly) 8 18,500 Total 56

Table 3: Monthly income and savings

Average

Monthly income from tea UGX 175,000 Income from other sources UGX 165,000 Total income UGX 340,000 Monthly savings at Mpanga SACCO (108) UGX 21,000 % of income 6% Monthly savings at other places (56) UGX 24,000 % of income 7%

On average Mpanga SACCO members stated to save UGX 21,000 per month. The sum is broken down

into ranges of savings below in Table 4.

The majority of respondents that are members of Mpanga SACCO (108), 60% (65) save within a range

of UGX 500 to UGX 10,000 per month. However, average savings per person translate into 6% of

member’s monthly income or UGX 21,000. For non-members and some multiple members that (also)

save in other places (51) 53% (27) are saving monthly below the UGX 10,000 threshold. For this group

average savings per person come to UGX 24,000 or 7% of their monthly income.

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Table 4: Distribution of monthly savings (n=139)

UGX Mpanga SACCO

Other places

500-5,000 36 19 5,001-10,000 29 8

10,001-15,000 4 1 15,001-20,000 9 4 20,001-30,000 9 5

30,001-40,000 2 3 40,001-50,000 7 3 50,001-70,000 2 -

70,001-120,000 1 3 >120,000 2 5

no response 7 5 Total 108 51

From Table 2 and 3 we can draw the following conclusions:

1. On average members and non-members save less than UGX 10,000 per month or 7% of their

monthly income. Still a low savings culture. Why is that? Perhaps because of a lack of savings

options (products) offered by Mpanga SACCO.

2. Distance represents a problem – savings deposits at Mpanga SACCO are low and members

save in local groups as well as in other SACCOs.

3. How can saving with Mpanga be attractive for larger growers that have a commercial bank

account?

4. How can “in-house”-savings be channelled to Mpanga SACCO?

Product recommendation:

Organise farmers around tea-centres into saving-groups. Take advantage of their social and

commercial bond. Farmer groups to receive tutorials by Mpanga’s extension staff (that has

undergone the training of trainers workshop in October 2011) on savings practices and group

formation. One group member to be chosen to deliver group savings to SACCO in order to save

multiple transport costs.

Product recommendation: Mpanga SACCO needs to advertise its voluntary savings product more

effectively. The current interest rate of 0.5% per month (approx. 6% per annum) is a very competitive

rate and can also compete with commercial banks.

The principle barrier to saving is “lack of money”, according to the respondents:

1. “Don’t have enough money” (28%)

2. “Earn too little to save” (26%)

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However, 57% (63 respondents) of the out-growers stated that they would save more during a peak-

season. The majority of farmers responded they would save for emergencies and opportunities

(Table 5). For opportunities the greater part of farmers emphasized the need to save for future

investments, like farm inputs (i.e. fertilizer, seeds, tools, etc.). Table 5 illustrates that the majority of

respondents save in order to protect them from emergencies (i.e. sickness, natural disaster etc.).

More than 1 out of 3 responses to ‘why savings’ was about preparing/planning for the future or

acquiring an asset. Farmers want to plan for the future and invest into assets. However, farmers

require a product that channels their seasonal peak-incomes (March-May and October-December)

into future lump-sums. Saving for life-cycle events (i.e. school fees, ceremonies etc.) receives less

importance than the other first mentioned motives.

Product recommendation:

Commitment saving accounts (contractual savings), saving for an asset (i.e. fertilizer, boda-boda,

school fees, etc.) money-bound or time-bound to be offered just before peak-season to channel

biannual peak-incomes into savings and reduce temptation of immediate spending. Field experiment

in Malawi: Commitment accounts for small-scale tobacco farmers yielded positive outcomes on the

amount of planting for the next season, sales from the next harvest, and consumption after harvest

(Brune et al., 2011).

Table 5: Respondent’s motives for saving

Total

Life-cycle events School fees Family

8 6

14

Emergencies Emergency Safety

56 16

72

Opportunities Accumulation Future investment Loan acquisition Purchase asset Home development

6 39 6 5 8

64

Table 6: Costs of cash and mobile money

Distance to factory (km) 13.6 Travel costs to factory from tea-centre (UGX) 8,400 Own a mobile phone (%) 61 Distance to closest Mobile Money agent (km) 6.1 Use Mobile Money (%) 17

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Figure 3: Relationship between distance to tea-factory and monthly savings

Figure 3 illustrates the negative relationship between distance to factory and farmer’s savings.

However, ordinary regression analysis (OLS) proves the relationship to be insignificant (p-values are

above the 0.15 significance level). Still, certainly distance to Mpanga SACCO does not encourage

savings since it ultimately increases the costs associated to access/store savings when needed.

Distance to Mpanga factory from the respondent’s tea-centers is on average 13.6 km translating into

UGX 8,400 for a return ticket (Table 6). This represents high financial and time costs for small-scale

tea farmers when collecting their monthly payment for tea.

Product recommendation:

1. The SACCO and Mpanga’s accounting office need to be merged in order to create synergies for

the company and its small-scale tea-farmers. The SACCO could then immediate channel a pre-

agreed amount of the monthly payment channel into savings products, reducing a possible

endowment effect on the farmer’s side.

2. Spread payment days over month in order to avoid a “run on the SACCO/accounting office”. This

will result into less waiting time for farmers and create a more efficient process for the SACCO.

3. Mobile Money has the potential to reduce costs of cash associated with large distances and

waiting periods significantly. Simultaneously it would encourage savings since farmers can send

their savings from non-tea income (see Table 2) to the SACCO to store it safely and earn interest.

The SACCO is encouraged to take steps to become a MTN Mobile Money agent after having

investigated the network coverage of MTN in its areas of operation. Furthermore, since the

factory is a busy commercial place Mobile Money and airtime sales are likely to increase Mpanga

SACCO’s income. Satellite Mobile Money payment centres could be considered to reach out to

the farmer and thus reduce her/his costs of cash.

0

20.000

40.000

60.000

80.000

100.000

120.000

0 5 10 15 20 25 30 35 40

Savi

ngs

(UG

X)

Distance to factory (km)

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3. Way Forward

MMU would be happy to support the development of commitment savings accounts at Mpanga

SACCO, as well as together with the Grameen Foundation and MTN explore the various roles that

MFIs can play in m-banking and, as well as explore the potential benefits MFIs and their customers

expect to gain from pursuing m-banking. The first step into this direction means to become a Mobile

Money agent and fuse the accounting office and SACCO farmer accounts. These steps will lay the

foundation of a cost-efficient and tea farmer-friendly business environment.

4. References

Brune, L., X. Giné, J. Goldberg and D. Yanga (2011): Commitments to Save: A Field Experiments in

Rural Malawi, World Bank Policy Research Working Paper No. 5748.

Collins, D., J. Morduch, S. Rutherford and O. Ruthven (2010): Portfolios of the Poor: How the World's

Poor Live on $2 a Day, Princeton University Press, Princeton.

Rutherford, S. and S. Aroroa (2011): The Poor and Their Money: Microfinance from a Twenty-First

Century Consumer's Perspective, Practical Action, London.

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5. Appendix

Table 1: Applied questionnaire

MPANGA small-scale tea farmers Questionnaire (19th July – 10th August 2011)

A. Basic Information 1. Work activity: O Tea-plucker O Tea-outgrower O Employed by Mpanga

2. Tea Centre name and number:

3. Distance to Mpanga Tea Factory from housing (in km)

km

4. Gender: O male O female

5. Age: years

6. Household size (number of adults and children taking regular meals together):

B. Ownership

7. How many acres of land do you have? acres

8. (a) How much of this land do you use for planting tea (in acres)?

(b) In case not all the land is used for planting tea, what is the remaining land used for? (Give details.)

9. (a) Do you own the tea fields or do you rent? (tick only one)

O Own land O Rented land

O any other

…………………………………..

(b) If you “rent” how high is the rent

per ……………… (fill: either per month, 6 month or year) in UGX?

UGX

10. (a) Do you own the house where you live in?

O yes O no

(b) If “no” how high is the rent per month in UGX?

UGX

C. Sources of income

11. (a) Name your

sources of income (more

than one can be ticked):

O Tea O Others (give details e.g. business, trade, agricultural activity etc.)

…………………………………………………………………………

…………………………………………………………………………

…………………………………………………………………………

(b) How much

do you earn from “Tea” in UGX per month?

(c) How much

do you earn

from “Others” sources of income? (Give

details in relation to question 10(a)

12. On agricultural

activities, name your 4

O ……………………

O Own consumption only

O Both own

consumption and commercial

O Commercial only

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most important

crops and how you use them:

O …………………….

O Own consumption only

O Both own

consumption and commercial

O Commercial only

O ……………………

O Own consumption only

O Both own consumption and commercial

O Commercial only

O ……………………..

O Own consumption only

O Both own consumption and commercial

O Commercial only

13. How much income do you

earn from “Tea” and “Other” income

generating sources (given in Question

11) spread over the yearly seasons in

terms of production (in kg or UGX?

Peak season “rain season”

Mid season

Drought season

Tea

………………………….

…………………………..

…………………………..

D. Expenditures – What are your monthly expenditures on:

14. Tea gardens (E.g. fertilizer, seeds,

pluckier´s salaries, transport of green leaf to factory, rent of fields, etc.)

15. Household (e.g. food, clothes, paraffin, rent, etc.)

16. Health care:

17. Education (school fees, books etc.):

18. Community (e.g. weddings, burials, parties etc.):

19. Any other (name)…………………………………:

E. Savings

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20. Why do you save? For what purpose?

21. (a) Where do you save? O Mpanga SACCO O Other places

(b) If ticked “Mpanga SACCO” in

20(a), how often you save there (daily, weekly, monthly)?

(c) If ticked “Mpanga SACCO” in 20(a), how much money do you save in the SACCO per month (in UGX)?

UGX

(d) If ticked “Other places” in 20(a), where do you save, please specify. (more than one answer is possible)

O In the house O Commercial bank

O Friends/Relatives O Saving groups

O Other SACCO (give details)

……………………………………

O Other places (give details)

…………………………………………………….

(e) If ticked “Other places” in 20(a), how often (daily, weekly, monthly) do

you save according to each of the ticked “other places”, given under 20(a)?

(f) If ticked “Other places” in 20(a),

how much money do you save in each of these “other places”, given in 20(a)?

22. Do you save more during a peak-season?

O Yes O No

23. If “Yes”, how much more?

24. In your opinion, what are the strengths and weaknesses in your OWN savings behavior (give details)?

Strengths (+) Weaknesses (-)

25. How often do you collect your cash at Mpanga Tea Factory per month?

26. How high are the transport costs to travel to Mpanga tea factory for you?

UGX

27. Do you have a mobile phone? O Yes O No

28. What’s the distance to the closest Mobile Money Agent from where you live (in meters or km)?

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29. (a) Do you use Mobile Money? O Yes O No

(b) If “yes” which company?

30. How can Mpanga SACCO improve

your savings (in terms of savings products and services)?