research paper the influence of leadership, corporate

Management and Administrative Sciences Review www.absronline.org/journals e-ISSN: 2308-1368, p-ISSN: 2310-872X Volume: 3, Issue: 2, Pages: 262-281 (March 2014) © Academy of Business & Scientific Research

*Corresponding author: Joseph John Magali, Accounting School, Dongbei University of Finance and Economics, 116025, Dalian, China and The Open University of Tanzania, P. O. Box 23409, Dar es salaam, Tanzania.

E-Mail: [email protected]

262

Research Paper

The Influence of Leadership, Corporate Governance and Regulations on Credit Risk Management: The Study of Rural SACCOS from Tanzania

Joseph John Magali

Accounting School, Dongbei University of Finance and Economics, 116025, Dalian, China and The

Open University of Tanzania, P. O. Box 23409, Dar es salaam, Tanzania

This paper uses data from 37 rural SACCOS in Morogoro, Dodoma and Kilimanjaro regions in Tanzania obtained from the survey conducted between February and May 2013. The study investigated quantatively and descriptively the influence of leadership, corporate governance and regulations on credit risk management in rural SACCOS. This study finds that good leadership, corporate governance and regulations are essential for effective credit risk management in rural SACCOS. The study further revealed that 65%, 54%, 46%, 38% and 98% of rural SACCOS affirmed the presence of good re-elected leaders, effectiveness in loans collection, presence of creativity and innovating among leaders, annually audited reports and the presence but not printed and distributed to members of their by-laws respectively. This paper recommends that the rural SACCOS should practice the good leadership, governance and should abide by their by-laws in order to have the effective credit risks management. Also the government should regulate the rural SACCOS very stringently and the political interference should be avoided.

Keywords: Leadership, Corporate governance, Regulations, Rural SACCOS, Credits risk

management, Tanzania

INTRODUCTION

Tanzania consists of about 44 million people where about 80% of her population lives in rural areas (NBS 2013). Tanzania gained its independence in 1961 and since 1980s the financial reforms were implemented to accommodate the market liberalization policies. The adoption of free market economy policies has rigorously promoted the Savings and Credits Cooperatives Societies (SACCOS) in Tanzania than any other forms of cooperatives. Wangwe (2004) confirms that

SACCOS are the semiformal financial institutions which provide the financial services to most of rural populations since 2000s. Hence SACCOS remain the important contributor of economic growth in Tanzania (Bwana and Mwakujonga 2013; Qin and Ndiege 2013). MOFT (2012; 2013) asserted that the government of Tanzania registered 5346 SACCOS with 970665 members in March 2013 and 2011 correspondingly.

Manag. Adm. Sci. Rev. e-ISSN: 2308-1368, p-ISSN: 2310-872X Volume: 3, Issue: 2, Pages: 262-281

Joseph John Magali

The literatures show that leadership, corporate governance and regulatory framework influence the operations of cooperatives and SACCOS in Tanzania. Maghimbi (2010) stated that the cooperative reformation in Tanzania started in 1982 and in 1991 cooperative law was established. In 2000 the government appointed the cooperatives advisory committee which investigated the flaws of the cooperatives laws and submitted their recommendations to the government and this helped the formulation of the cooperative societies’ act 2003 which came into effect on 1st August 2004 and it focuses on the integrity of the cooperative leadership and the employment of competent executive staff. The new law demands the cooperative staff to declare their personal property to the board and members, training of leaders on business skills and good governance. Also the law stresses the importance of the audits and inspections of cooperatives to curb embezzlement and thefts and prosecution of all staff charged with embezzlement and theft timely. All of these practices are likely to promote the effective credit risks management in rural SACCOS.

Triodos (2011) reported that the regulatory and supervisory framework for financial institutions and SACCOS in Tanzania includes the banking and financial institutions act (2006), the bank of Tanzania act (2006) and the companies’ ordinance (cap 212) of 2002. The regulations which are relevant for microfinance activities include the microfinance companies and microcredit activities regulations (2005), the banking and financial institutions regulations (1997), the capital adequacy regulations (2001), mortgage finance (special provisions) act no. 17 of 2008 which strengthens the ability of creditors to enforce collaterals and unit titles act of 2008 which reformed the titling process. All of these regulations are related with management of risk assets, internal control and audit. For banks these regulations are enforced by the Bank of Tanzania (BOT) while the business registration and licensing agency (BRELA) has authority to register banks and non-bank financial institutions under the companies act 2002 and ministry of agriculture, food security and cooperatives is responsible for the registration of the SACCOS under the cooperative societies act 2003 and the cooperatives

audit and supervision corporation (COASCO) is mandated to conduct an annual external audit for all SACCOS in Tanzania.

Agumba (2008) asserted that the meaning of governance is exercising direction and control of human resources. GARP (2012) defines corporate governance as the processes and structures by which the business and affairs of an institution are directed and managed and stresses that good corporate governance fosters accountability for interest of all stakeholders. Agumba (2008) asserted that in SACCOS the governance is concerned with allocation of power and authority between the clients, the board, committee and management. The governance in SACCOS focuses on four areas which are leadership, stewardship, monitoring and reporting where the six governance models which are democratic or association perspective, agency theory (a compliance model), stewardship theory (a partnership model), resource dependency theory (a co-optation model), stakeholder theory (a stakeholder model) and managerial hegemony theory (a rubber stamp) models are applied. Application of these theories and models in SACCOS are related with good credits risks management practices and fosters the SACCOS’ performance. For examples if SACCOS’ management acts as leaders and stewards, they will make sure loans are issued according to regulations and are collected and repaid according to contracts and by doing so they promote the effective credit risks management in the SACCOS.

PROBLEM STATEMENT AND JUSTIFICATION

The literatures reveal that many cooperatives and SACCOS in Tanzania suffer from the problem of Non Performing Loans (NPL) which is caused by poor management and lack of commitment on loans recovery (Hakikazi 2006; Bibby 2006; Maghimbi 2010; Mwakajumilo 2011; Karumuna and Akyoo 2011; Magali 2013b). Also various scholars found out that regulations, corporate governance and leadership influence loan delinquency and default for MFIs (Steinwand 2000; Niu 2004; Mustafa et al 2011; Odera 2012; Warue 2012; Raj and Sindhu 2013). Moreover, Magali (2013b) and Magali and Qiong (2014) associated

The Influence of Leadership, Corporate Governance and Regulations Research Paper

264

the loan default or accumulation of NPL in rural SACCOS with poor credit risks management. However, there is no empirical study done to assess how regulations, corporate governance and leadership influence the credit risks management for rural SACCOS in Tanzania. Therefore this paper investigated the relationship between regulations, corporate governance and leadership and credit risks management for rural SACCOS in Tanzania.

LITERATURE REVIEW

The Influence of Leadership and Management on Credits Risk Management of MFIs

Online business dictionary (2014) asserts that leadership is the act of inspiring subordinates to perform and engage in achieving a goal and it may be learned and enhanced through coaching or mentoring. It further asserts that the good leaders usually coordinate and balance their conflicting interests of all members and stakeholders. For successfully operations of MFIs and SACCOS in Tanzania, the good leadership should be complemented with good management skills and competences. The literatures depict that leadership have a lot to do with performance of MFIs. Hence effective leaders are those who are trained and hence are competent to apply their skills to improve the MFIs performance. Thus the effective leaders or management team are likely to promote the effective credits risks management practices in a MFI. The following literatures describe the importance of training and good leadership in fostering effective credits risk management in a MFI. Besson-Levine and Young (n.d) asserted that the board is responsible for determining the credit policy of a MFI. In this case also the board of MFI also is responsible for determining the requirements of effective credits risks management practices and hence reduce the amounts of loans defaulted. Steinwand (2000) argued that for effective performance, the MFI’s leadership (the directors, CEO and senior managers) have to communicate the importance of risk management and introduce a risk management culture at all levels of the MFI. The management also needs to employ the qualified and experienced staffs and prepare and maintains the good succession plans

for staffs in order to enhance the MFI’s continuity. Hartarska (2005) found that in MFIs larger boards and boards with higher proportion of insiders have worse financial results. However, the presence of women on the board improved the depth and breadth of outreach as well as sustainability and this might imply that women clients improve the credit risks management.

Friends Consult Ltd (n.d) reported that failure of the SACCOS’ board of directors to establish a proper loan policy, inefficient loan committees review and approval, poor organizational policies and strategy, inability of the staff to discharge their duties and roles as per the institutional rules and policies, poor sensitization by the field staff and failure of the clients to understand the institution’s policies were some of reasons which have led to loans delinquency for Umurenge SACCO in Uganda. The listed factors are related with poor management, poor corporate governance and lack of skills. Hence these factors also might influence negatively the credits risk management practices of the SACCOS. The study further recommended that financial and non- financial incentives such as involvement and recognition of the top performers staff by the SACCOS’ management is vital for reducing delinquency and hence can improve the credits risks management by the SACCOS staff.

Acquah and Addo (2011) revealed that in urban Ghana groups with good leadership and training and those which experienced working in groups had the highest probability of repaying the loans, indicating that training and group cohesion acted as a credit risk mitigation techniques for the group. Also training and good supervision of loans also have lead to 100% repayment rates for women borrowers from the UNDP micro credit project in Inner Mongolia and Chifeng in China (Bunning 2004). FunHo and Yusoff (2009) revealed that training and development of staff was one of the practices used by the Malaysian financial institutions to mitigate the credit risks. The findings signify that training of SACCOS staff improves credit risks management. Raj and Sindhu (2013) revealed that lack of training inhibited the effectiveness of credits risk management for some of public banks staffs in India. Haque et al (2011) revealed that timely repayment of loan for community based organization (CBO) clients in


Joseph John Magali

Bangladesh was enhanced by self-consciousness and proper supervision by the CBO staff and Concern Worldwide field workers. Likewise, Cull et al (2009) found out that supervision is negatively associated with MFIs profitability meaning that as the costs of staffing increases profitability of MFI decreases. It implies that supervision increased the costs of operations. However, the study didn’t expose clearly the relationship between supervision and credits risks management because usually in banks regulations are associated with good credits risks management and high profitability.

Warue (2012) revealed that the causes of loan delinquency (loan default risk) for self help groups (SHGs) in Kenya were lateness in meetings, poor leadership, group conflicts, refusal to participate in group activities and poor record keeping. The study asserted that weak group leadership contributes to loan delinquency because the group officials will not be willing to make loans follow-up. Also the leaders’ conflict have lead to weak poor cohesion and hence loan default. The study further argued that abiding by constitution’s rules and practicing democracy enhance groups’ solidarity and this has positive impacts on good loans repayment performance. Norell (n.d) confirmed that in order to reduce arrears for MFIs for group loans, regular visits to the home of clients by the group’s chairperson is important. The study argued that misuse of money by chairperson or other leaders sometimes occurs. The study also suggested that any MFI-initiated court action should target the confiscation of chairperson’s assets first. Mensah (2013) found out that moral hazard, over-borrowing by customers and inability of loan officers to visit borrowers regularly were among the factors influenced loan default among customers for MFIs in Ghana. By delaying or failing to repay the loans, implies that borrowers were not considering sustainability of MFIs. Also the MFIs staffs contributed to the higher default risk by not visiting the borrowers and reminding them to pay their loans on time. Since some borrowers repay loans by reminding them regularly, it is the responsibility of MFIs staff to remind the clients to repay the loans. However, the staff might fail to visit the borrowers due to high costs of loans follow-up.

Hall (2005) found that in Indonesia 1000 cooperatives in East Java were being forced to close because they operated at loss due to reliance on the government support, lack of effective credits management and unprofessional management. The study asserted that poor enforcement on repayment of the loans for savings and credits cooperatives (SCC) have led to late repayments and created loans default risk (debt problems) for the SSC and hence caused the operational difficulties. The study further asserted that the cooperative sector in Indonesia had experienced the corruption problems and this is an indication of poor credit risks management. Gyamfi (2012) asserted that investment of MFIs in quality manpower is very essential since only the qualified manpower that could assess their clients efficiently and this could improve the management of clients’ credits risks and hence maintains the good portfolio. It implies that some credits risks management techniques/practices can’t be implemented by a mere person but skilled personnel. This challenges the MFIs to employ the qualified staff who could handle the credit risks management functions. However, the qualified staffs require high remuneration and hence MFIs and SACCOS need to have good financial performance in order to employ the qualified staffs. Moreover, employment of qualified staff by SACCOS should not be compromised by outreach focus. Issa (2012) affirmed that dysfunction, negligence and mismanagement by department of energy’s officials in USA created risks for more than $14.5 million approved for 27 projects because staff responsible for loans ignored lending standards and eligibility requirements for borrowers. Likewise ministry of cooperative development and marketing in Kenya (2008) cited by Lari (2009) argued that mismanagement and corruption were two significant challenges facing the cooperatives in Kenya today.

The Influence of Corporate Governance on Credit Risks Management of MFIs

Many authors usually relate MFIs corporate governance and leadership or other MFIs variables. Mustafa et al (2011) asserted that risks that are associated with poor leadership and corporate governance are called administrative risks. These risks specifically occurs when a bank


266

(applies also to SACCOS or other MFIs) lacks qualified and dedicated staffs, there is weak management control, business oversight and slowness in taking the necessary administrative measures at the right time, poor or absence initiative, innovation and business focus spirit, overworked staff and bribery and disloyalty of the administrative staff. Odera (2012) noted that that poor corporate governance was associated with high credit default risk for Kenyan SACCOS. Chibanda (2009) revealed that the performance of the selected smallholder cooperatives in Kwazulu-Natal, South Africa were influenced by institutional and governance problems which have led to low levels of equity and investment and loss of members. Governance problems were linked to lack of credits, production, business and management training which ultimately have led to weak marketing arrangements and returns to members indicating that financial risks in the cooperatives occurred due to inadequate financial risks management caused by inadequate skills of the cooperatives management teams.

Literatures assert that politicians sometimes distort the good governance of MFIs and increase the loans default risks. Fiorillo (2006) argued that the change in a SACCOS’ savings rate depends more on the quality of management and governance than on anything else. It is clear that, if the management of the SACCOS might influence the quality of governance and induce the changing of the operational decisions, they can also facilitate the institution of the best credits risks management practices which might reduce the loans default risks and hence improving the SACCOS’ performance. The study also revealed that many SACCOS’ members were having high delinquency rate because politicians who facilitated the availability of the government grants influenced the members negatively. It implies that the politicians posed high default risks for the loans and negatively affected the credits risks management practices for SACCOS in Uganda. Simtowe and Zeller (2006) noted that in Malawi field assistants included friends and relatives in the credit groups which have led to group default. This is an indication of violation of good governance of credit group rules since practically the field assistants were supposed to perform their

roles without favouritism and this could help to reduce the loans default risks. The study also revealed that politicians negatively influenced the smallholder agricultural credit administration since they were accused of sending conflicting messages to the borrowers during the political campaigns telling them that loans were donations from government and most borrowers believed their lies and this was the reason for defaulting their loans.

Makori et al (2013) noted that among other variables, political interference and inadequate managerial competencies influenced negatively the profitability of SACCOS while Olando et al (2013) revealed that poor allocation of incomes and expenses for SACCOS was attribute to inadequately compliance with by-laws and Onsase et al (n.d) revealed that inadequate skills have led to poor governance to SACCOS’ commercial manager in Kenya. Piprek (2007) argued that the government of Tanzania forced some SACCOS to grant credit only in specific geographical locations or for specific purposes and this might bring confusion in ownership and distort institutional development of SACCOS. In this scenario loans default risks could occur if the decisions were made with political focus, without considering the viabilities of business and management capabilities borrowers. Also if borrowers were not educated enough they might not repay the loans, since they might consider loans as grants provided by the government. Mago et al (2013) reveled that untrained managers and lack of political will were some of the reasons for the poor capacity in operational risk management for MFIs in Zimbabwe. Contrary, Malhotra et al (2006) asserted that one large bank in Mongolia i.e Ag Bank succeed in controlling credit risk and it had less than 2% loan arrears rate because it had zero tolerance for politicians who tried to influence the bank’s lending decisions. Similarly, Ayayi (2011) revealed that MFIs with good governance practices had low credit risk in Vietnam and hence have low the loans write-off ratio and high portfolio quality. The study showed that Portfolio at risk for 30 days (PAR30) for one MFI called Binh Minh was constantly equal to zero indicating that it had a good managerial recovery policy.


Joseph John Magali

Regulations and Credits Risk Management in MFIs

Effective regulations are also essential for improving performance and sustainability of MFIs. Various authors assert that regulations foster effective credit risk management for MFIs. Niu (2004) reported that in the US the financial regulations and laws are designed for protection of the economy against systemic risk. It implies that sections of the laws also covers the of credit risks management for banks and other MFIs, since both banks and MFIs contributes to the growth of overall country economy. Haq et al (2008) compared the regulatory framework of the MFIs in Asia. The study found that formal MFIs were generally regulated under the banking legislation and supervised by central banks while semiformal institutions like NGO‐MFIs were regulated by either an apex organisation or other government body. The study noted that the formal MFIs regulations seemed to be effective but the internal control, governance and ownership structure were disappointing for NGO‐MFIs. The study argued that regulators should focus the protection of depositors and encourage MFI to improve their outreach and sustainability. The study further asserted that good regulatory and supervisory practices for MFIs are essential for improving the credit risk management for MFIs. They proposed a modified regulatory practice for MFIs as in the banking sector while they discouraged over regulations.

Steel and Andah (2003) asserted that in Ghana small unit rural and community banks (RCBs), savings and loan companies and credit unions are accommodated in the banking act, non-bank financial institutions (NBFIs) law and a new law being prepared to recognize their dual nature as cooperatives and financial institutions respectively. The study argued that despite of their potential impacts to the economy, the supervision of a large number of RMFIs is costly. However, the study asserted that raising the reserve requirement for RCBs at 62% and permitting self-regulation of credit unions by their apex body by the Bank of Ghana (BOG) were some of strategies for enhancing effective regulations of RCBs and NBFIs. Moreover, BOG has exercised regulatory patience in allowing the credit unions to establish

a self-regulating system while awaiting passage of a new law. However, BOG strategies still restricted the rural poor MFIs to be regulated properly because of the high costs involved in regulatory process. Minggao and Enjiang (2004) revealed that the territorial restrictions on the uses of Rural Chinese Cooperatives (RCCs)’ funds distorted the rural financial markets and hence have contributed to higher risk of operations in terms of both the geographic and industrial risks and this have led to high proportion of non-performing loans. The study perceived the lower transaction costs and credit risks for the large scale enterprises in the developed areas of China. Mwau (2013) found that poor leadership and outdated cooperative laws were some of the factors contributed to financial mismatch for SACCOS while Ondieki et al (n.d) noticed that financing and investment policies influenced the financial performance of the SACCOS and Otieno et al (2013) revealed that government financial regulations influenced the financial performance of SACCOS in Kenya.

Jenkins (n.d) asserted that according to the regulations in Senegal do not allow MFIs to adjust their rates to the levels that will give them enough earnings to cover their losses. This scenario applies to most MFIs in Africa including those in Tanzania. The study argued that the regulators should consider formulating and revising their laws so as to favour the growth and performance of MFIs. Steinwand (2000) argued that usually regulators apply a risk management approach to regulate and supervise the financial institutions such as banks, which their capital and operational model differ from MFIs. Hence regulators should adjust their policies so that risk management practices fit the MFIs. For instance in instead of calculating the risk of weighted assets for mitigation of credit risk, regulators might use the effectiveness of collateral and monitoring the portfolio’s performance. Similarly, Nadiya et al (2012) asserted that the loan loss expenses are usually recorded to comply with some of regulations imposed by MFIs or regulators on overdue loans. They argued that write-offs are loans that are recorded after a fixed period to confirm the failure in collection of the overdue loans in India. Olando et al (2013) revealed that lack of adequate loan loss provision policy in a SACCO leads to inflated asset value and reporting


268

of fabricated earnings in Kenya. The study recommended the prospered SACCO to have adequate provision for nonperforming loans. The provision policy is one of regulatory practices introduces by banks of various countries for effective credits risks management practices.

Malhotra et al (2006) argued that despite the credit guarantees offered by government encouraged lending to riskier SME clients by sharing the default risk with banks it can lead to moral hazard on the part of both borrowers and lenders by making borrowers less willing to repay and banks less attentive to credit risk and to monitor borrowers and this might result the high default rates and threat the sustainability of the schemes. They further argued that if lenders perceive the higher the risks of lending to SMEs, they will charge higher interest rates or refrain from lending to them. Also lenders perceive the SMEs have high risk of default, if they lack knowledge or information about them. Chen et al (2010) admitted that the credit bureau is essential for deducing the loans default risks. They asserted that some of India’s largest MFIs have recently formed an association that aims to invest in a credit bureau and enforce the law so that it can help MFIs to curb the credit risks. They further argued that credit bureau will help the MFIs to lend individuals and empowering MFI managers, investors and regulators with useful information and hence will help to reduce the loans default risks. Schmieder and Schmieder (2011) by focusing on corporate credit investigated the relationship between bankruptcy and security legislation and potential credit losses faced by banks based in United States, the United Kingdom and Germany. Their study revealed that legislation produced the highest credit risks in the US and Germany while it helped the UK banks to reduce the loans default risks. However, Hartarska and Nadolnyak (2007) found that regulations did not directly affect the financial performance or outreach of MFIs.

Kithinji (2010) asserted that poor credits risks management for commercial banks in Kenya was associated with poor leadership, poor corporate governance and inadequate supervision by the government. The study listed the limited institutional capacity, inappropriate credit policies, poor management, inappropriate laws, poor loan

underwriting, government interference and inadequate supervision by the central bank as the main sources of credits risks for Kenyan commercial banks. Most of these factors also have lead to higher credits risks for other MFIs in East Africa. Sebhatu (2011) revealed that weak organizational arrangement and governance problems, policy and regulatory environment, weak institutional capacity, affected the growth and outreach of SACCOS in Ethiopia. It is possibly that SACCOS with arrangement, governance problems and institution capacity couldn’t enforce the effective credits management practices. Therefore the factors which curtailed the outreach of SACCOS also could contribute to poor credits risks management.

The Influence of Leadership, Regulations and Corporate Governance on Performance of Cooperatives MFIs in Tanzania

The literatures contend that leadership, regulations and corporate governance also affect the performance of cooperatives and MFIs in Tanzania. Bibi (2006) asserted that the cooperatives reform and modernisation program admitted that cooperatives in Tanzania have suffered from poor leadership and bad management where leaders were associated with lack of accountability to members, were deceitful and corrupted. Deceits and corruption are related with poor credit risks management since corrupted leader and staff might issue loans contrary to the SACCOS’ regulations. TFC (2006) asserted that in the past many cooperative societies in Tanzania were badly managed because some leaders stayed in their positions for too long, there were no clear rules to force leaders to perform well and for the members’ interest, politicians interfered so much cooperative affairs, there was poor record keeping, audited accounts were not presented regularly at annual general meetings (AGMs) and some cooperatives made decisions without involving members at AGMs. These malpractices might act a source of credit default risks for cooperative societies and SACCOS in particular.

Randhawa and Gallardo (2003) argued the absence of credit bureau or loan default registry system and lack of integration of SACCOs and NGOs into the emerging MFIs regulatory framework justifies


Joseph John Magali

that there is no effective regulatory framework for MFIs in Tanzania. However, they argued that regulations when in place will demand qualified manpower with financial skills which is a major impediment for development of sustainable microfinance in Tanzania. Nyambo (2012) reported that because of misuse of loans and poor management only 4% among 114 farmers’ SACCOS in Mbeya region in Southern Highlands of Tanzania were active. Karumuna and Akyoo (2011) revealed that Kibaigwa financial services and credit cooperative society (KIFISACCO) in Dodoma Tanzania had outstanding loans of Tshs 762.5 million (equivalent to $610,000) due to management compassion and leniency in follow-up and recovering of overdue loans. Possession of large amount of is an indication of poor credit risks management practices by KIFISACCO. Kushoka (2013) recommended that for sustainable running of worker based SACCOS in Tanzania the SACCOS management team should promote transparency, encourage members’ participation and promotes members’ sense of ownership.

The organizations and institutions which promote the SACCOS have responsibilities of fostering the credit risks management. Bibi (2006) reported that some SACCOS in Tanzania have accessed through the Savings and Credit Cooperative Union League of Tanzania (SCCULT) a risk management programme which provides the cover against member loan default in the event of death. However, death insurance only is not sufficient because it has a narrow coverage. The study asserted that the application of corporate governance rules is essential for mitigation of loans default risks. The study stated that Kilimanjaro Cooperative Bank in the northern Tanzania suffered from loan default problems before it applied good corporate governance strategies as one of credit risk mitigation techniques. Kyessi and Furaha (2010) admitted that one group which received loans from WAT SACCOS in Dar es Salaam, Tanzania, Mkuhana housing group had a default rate of 1.4% due to unavoidable circumstances like sickness because the housing finance officer and staffs from WAT SACCOS visited at the borrowers’ project sites regularly and the loan activity was closely supervised and this motivated the borrowers to repay their loans on time. Moreover, Magali

(2013a) noted that fraud and lack of repayment of overdue loans by the rural SACCOS management discouraged members from rural 10 SACCOS in Morogoro rural and Mvomero districts in Morogoro region Tanzania to stop repaying their loans.

MOFT (2012; 2013) asserted that the government of Tanzania continued implementing the cooperative reforms programme in order to strengthen and empower cooperatives to expand financial services and outreach particularly in rural areas. Similarly, URT (2013) reported that the parliament of the Tanzania approved the cooperatives bill and if the bill will be endorsed by the president to become a law will foster good governance, leadership and hence improve performance of the cooperatives in Tanzania. The Bill introduced the better procedures for establishing and operating funds for education and training for cooperatives leaders. Also the bill introduced the best procedure for appointing cooperative management and hiring the qualified employees and it stresses the good supervision of cooperative societies. Furthermore the bill hastens the persecutions of staffs and board members charged with embezzlement cases from the cooperative societies. In this case the bill considers having a special prosecutor for cooperatives cases. It is assumed that enforcement of the new law will help SACCOS and cooperative societies to manage credit risks for loan portfolio. MFI Transparency (2011) cited from BOT (2010) asserted that in October 2010 Bank of Tanzania invited the world council of credit unions (WOCCU) to develop a stronger regulatory framework for the credit union sector. However, since BOT is not directly regulating the rural MFIs, the study argued that the rural MFIs will not be benefited from the proposed regulatory framework. The study emphasized the establishment of regulatory procedures which will promote the sustainability of the SACCOS since they increased over 50% only in three years. The report recommended the centralization of financial information of all financial institutions including SACCOS which might also foster the effective credits risks management for all MFIs and SACCOS in particular.


270

Maghimbi (2010) asserted that the savings and credit cooperative union league of Tanzania limited (SCCULT) is the national association for registered SACCOs. However, SACCOS are free to decide whether to register on SCCULT or not because joining SCCULT is not listed in the cooperative act (2003) as a mandatory procedure. The study confirmed that by December 2006 only 12.4% (560 over 4524 in 2007) of SACCOS in Tanzania joined the SCCULT signifying the low number of SACCOS joined the union. However, the SACCOS joined SCCULT enjoyed the benefits of accessing loans from SCCULT which had the credit risk management coverage. Moreover, the SCCULT loans programme guaranteed the SACCOS’ members reasonable rates of premium, prompted the settlement of claims and payment of rebate, writing off outstanding loans and payment of funeral expenses.

METHODOLOGY

This paper uses data from 37 rural SACCOS from Morogoro, Dodoma and Kilimanjaro regions, in Tanzania obtained from the survey conducted between February and May 2013. The research design for this paper is of qualitative nature with little descriptive information when deemed to be appropriate. The paper used the data obtained from interview and observations to describe the influence of regulations, corporate governance and leadership on credit risks management for rural SACCOS in Tanzania.

RESULTS AND DISCUSSIONS

Rural SACCOS’ Leadership and Credit Risk Management

Good leadership and quality management team are essential for enhancing performance and sustainability of the rural SACCOS, since the management teams are the ones who perform the planning, leading, controlling, organizing and decision making functions for the SACCOS. The findings from Table 1 present the effectiveness of rural SACCOS’ leadership. The findings show that 65% of rural SACCOS’ affirmed the presence of good leadership and management for their SACCOS. However, it was noted that most of new leaders in Morogoro and Dodoma regions were re-

elected after recognizing the poor performance of the previous leaders. The study also noted that the rural SACCOS members were prompted to change the leadership after the previous leaders to be charged with fraud cases, authoring high amount of loan which gave rise to nonpayment and failing to collect the overdue loans from members. Therefore it was revealed that the rural SACCOS which changed their management also accumulated the high amount of NPL. This signifies that the poor leaders failed to institute the effective credit risks management practices for their SACCOS. The study registered the minimum, maximum and mean of 1.48%, 99.54% and 32.38% of NPL respectively which signifies poor management and lack of competence and accountability of staffs and SACCOS’ leaders involved with loans processing, approval and follow-up (Magali 2013b). The findings of this study are also consistent with several scholars who revealed the link between poor leadership and credit risks on banks, MFIs or SACCOS’ performance. Karumuna and Akyoo (2011) revealed that management compassion by KIFISACCO in Dodoma region Tanzania have led to the accumulation of large number of NPL. Kithinji (2010) revealed that poor leadership was one of the reasons for poor credits risks management for commercial banks in Kenya. Similarly, Warue (2012) revealed that weak group leadership contributes to loan delinquency and ultimately to loan default for MFIs in Kenya while Acquah and Addo (2011) revealed groups with good leadership had high probability of repaying the loans in urban Ghana.

The findings from Table 1 also show that only 46% of the rural SACCOS were creative and innovative. The creative and innovative behaviour of SACCOS’ leaders induced them to devise various ways to increase the SACCOS’ income. The study revealed that apart from issuing loans creative and innovative SACCOS offered warehouse receipts (crop storage), hall renting, oil seed processing, maize shelling, tractorization and M-Pesa financial services for increasing of their income. Diversity of income for rural SACCOS reduced the risk of closure of business if NPL might not be recovered. The study noted that creative and innovative leaders were keen in credit risks management than


Joseph John Magali

non creative and innovative leaders. The study also noted that the creative SACCOS considered the use of best business strategies compared to non creative and innovative ones. The findings from this study are in tandem with Mosongo et al (2013) who proved the contribution of institutional, product and process innovations on the high financial performance for the SACCOS in Kenya. Similarly, Olando et al (2013) noted that effectiveness in loans management, institutional strengths and innovativeness of products enhanced the wealth growth of Kenyan SACCOS. Correspondingly, Auka and Mwangi (2013) revealed that SACCOS in Kenya were not competitive in providing financial products and customer relations compared to banks and other MFIs, which signifies that they lacked creativity and innovation. Moreover, Mustafa et al (2011) asserted that poor initiative, innovation and business were the sources of administrative risks for agriculture bank in Near East and North Africa region. Usually there is an association between credit and administrative risks because poor administration reduces the effectiveness in credit risks management.

Moreover, the findings from Table 1 show about 54% of the rural SACCOS were effective in loans’ collection. It is evident that effectiveness in loan follow-up and collection reduces the loans default and the vice versa is true. Thus 46% of the SACCOS leaders who were not effective in loans collection accumulated the large amount of NPL. The literatures stress that effective management committee will devise the loans collection policy which will enhance the high repayment rates and in this case reduces the risks of loans default. Moreover, the MFIs management and loans staff should sensitize borrowers to pay their loans in time through visiting them. Mustafa et al (2011) asserted that the credit institution must have a policy of encouraging borrowers to make regular repayments of their loans and Moti et al (2012) asserted that collection policy is needed because some in MFIs consist of slow payers and non-payers clients. Evers et al (2000) asserts that successful credit institutions monitor their portfolio every day and this reduces the loans default risks. Similarly, Norell (n.d) asserted that in order to reduce arrears for group loans in MFIs, regular visits to the home of clients’ by the group’s

chairperson is essential. Likewise, Mensah (2013) found that loan default MFIs clients in Ghana occurred because the MFIs loan officers were unable to visit borrowers regularly and they didn’t remind the defaulter to pay the loan immediately after noticing the signs of default. Similarly, Evers et al (2000) proposed the loan officers to visit clients if they are in the neighborhood in order to promote the on time repayment of credits for MFIs in Europe.

Insert Table 1: Leadership variables

Auditing of Rural SACCOS and Credits Risk Management

The auditing of the MFIs and rural SACCOS reduces the fraud risk since it exposes the misuse of funds. Therefore proper auditing of rural SACCOS as per regulation is related with good governance and effective credit risk management. The study noted that about 95% of the rural SACCOS were audited by the cooperatives audit and supervision corporation (COASCO) which is mandated to conduct an annual external audit for all SACCOS in Tanzania. However, the regulations allow SACCOS to appoint independent auditing firms apart from COASCO. The findings from Table 2 show that 18.9% of the rural SACCOS were not audited since their establishment. The findings revealed that most of unaudited SACCOS accumulated large amount of NPL. The study also noted that only 38% of the SACCOS were audited every year. Since auditing were associated with some costs to pay the auditing firm, the study found that only SACCOS with good governance and financial performance complied to conduct audit every year. The findings from Table 2 also show that majority of SACCOS (43.2%) audited their SACCOS after 2 years and more. The study also revealed that most of the SACCOS complained that they submitted their reports to COASCO for auditing but they didn’t receive the audited reports. However, the study revealed that there was a little follow-up to COASCO by the SACCOS management to know the reasons for the auditing delay.

Moreover, the study found that most of audited reports had queries related with misuse of funds and improper recording. In most of reports the auditor commented… “In our auditing we have


272

noted that the SACCOS’ management didn’t prepare the loans aging analysis. This could help the auditor to judge if loans are recorded according to the compliance of section no. 99 of cooperatives act 2003. The regulation also requires the management to calculate the loan loss provision. Hence absence of loan loss provisioning makes us to distrust the loan figures recorded in the balance sheet.” other flaws pointed by auditor for SACCOS’ audited reports include lack of submission of bank’s reconciliation and the board’s reports as an attachment of audited report and mismatch between figures in the ledgers and cash books. The study found that all SACCOS under the study did not have loan loss provisioning policy. The poor audited reports signify that the rural SACCOS have poor credit risks management practices. However, the study confirmed that the auditing procedures were conducted to comply with cooperatives act 2003.

Furthermore, the study noted that at least all rural SACCOS conducted the internal auditing which was done by the committee appointed by the SACCOS. However, the study noted that members involved with the internal audit lacked skills which could help them to perform their roles effectively. For instance some auditing members confessed that they did not have knowledge on interpreting some of the financial reports. Moreover, poor record keeping also worsened the internal auditing since most SACCOS used hard file to store their information instead of using computers. The study revealed that the district cooperative officers were entitled to conduct the formal internal audit for the rural SACCOS. However, the study noted that some rural SACCOS’ management didn’t request the district cooperative officers to conduct the formal internal auditing either because they lacked the facilitation costs or they feared to lose their posts and being prosecuted because they practiced frauds and thefts in their SACCOS. The findings of this study are consistent with those of Maghimbi (2010) who asserted that the Tanzania cooperatives law (2003) recognizes the importance of the audits and inspections of cooperatives in order to control embezzlement and thefts. Similarly, Tanzania Federation of Cooperatives (2006) declared that in the past audited accounts for cooperatives were

not presented regularly at annual general meetings (AGMs) and this signifies that probably were not genuinely prepared. The banks reports prepared under the Basel two guidelines affirm that auditing is related with proper credit risks management. For example, The Bank of Ethiopia (2010) asserted that MFIs internal audit function should ensure that the risk management function is effectively implemented. It further asserted that external auditors should perform an assessment of operational risk to ensure the reliable management of risks in MFIs.

Insert Table 2: External auditing frequency

Corporate Governance and Credit Risks Management

The study noted that due to lack of effective credit risks management some rural SACCOS’ members were not paid their savings and deposits after accumulation of large amount of NPL, indicating the denial of members (clients) rights and this is a sign of poor governance. The study also noted that some SACCOS did not hold the annual general meetings (AGMs). The AGMs for the rural SACCOS is important for authorizing of important decisions, providing information about the SACCOS’ performance and electing or firing non-performing management leaders. Therefore lack of AGMs for rural SACCOS increases the loan default risks. The study revealed that some rural SACCOS’ management made decisions without involving members. For instance leaders in one SACCOS in Dodoma region borrowed 9 million secretly from another SACCOS without informing members. The re-elected leaders stated that the SACCOS owing money want to sell the SACCOS’ premise to recover their loans but re-elected leaders did not recognize such kind of loan because it was not recorded in SACCOS’ documents. This result is consistent with TFC (2006) who noted that some of cooperatives audited accounts were not presented regularly at annual general meetings (AGMs) and some cooperatives made decisions without involving members at AGMs.

The study further revealed that some SACCOS issued loans without conforming to their regulations. For instance it was noted in one SACCOS in Mvomero district, the management


Joseph John Magali

authorized loans without involving the loan committee. Moreover, the loan was not recorded in the loan control book. As the result the loan was defaulted because the amount disbursed was higher beyond the management capacity of the borrower. Some SACCOS’ members in Morogoro and Dodoma regions also complained that there was favouritism in approving loans where the relatives and friends of the management team and loan committee staff were favoured compared to other members, indicating that loans were issued under corrupted way. Likewise in Dodoma region members from one SACCOS affirmed that the wealthier members were given the first preference in approving loans. The finding of this study is in line with Simtowe and Zeller (2006) who noted that favouritism behaviour of the field Assistants increases the loans default for groups in Malawi.

The study also revealed that at least every SACCOS had by-laws but in 98% of SACCOS these by-laws were not printed and distributed to members except for some few SACCOS in Kilimanjaro region which prepared the by-laws in a simple printed form and the SACCOS’ management approved a section which forces the members to buy the printed by-laws and also having by-laws was one of the conditions for accepting new members. The study found that the rural SACCOS which didn’t abide by their regulations posed high risk of their loans. Poor allocation of income and loans also might be related with poor credit risk management. Olando et al (2013) revealed inadequately compliance with by-laws was the one of the reasons for that poor allocation of income by SACCOS in Kenya. They recommended that in loan evaluation the loan supervisory committee must ensure that the loan application complies with the SACCOS bylaws’ (rules and regulations) in order to be approved or contrary has to be rejected. Similarly, as noted by Karumuna and AKyoo (2011), this study also finds that some members were having capacity to repay their defaulted loans but the management didn’t stringently enforce their by-laws to ensure that they repay their overdue amounts. However, the study found out that 20 members who defaulted high amount of loans in Kongwa district sold their houses and fled far away, indicating that they hesitated to be persecuted. Sebhatu (2011) found that lack of financial norms and discipline was a

major problem within the SACCOS as opposed to other MFIs which were having regulatory requirements in Ethiopia. Also the study noted that penalties against default were more severe in other MFIs than in SACCOS. Also Ndiege et al (2013) asserted that SACCOS with have qualified and dedicated management with good governance can operate successfully without depending on external funds. Moreover, this study finds that some rural SACCOS’ members disclosed that the court is not effective to enforce the repayment of overdue loans for SACCOS and they perceived that the court delayed the cases regarding embezzlement of funds and loans default.

Supervisions from the Government and Credit Risks Management

The study noted that despite the rural SACCOS conducted their business under the cooperatives act 2003, there were less intensive supervision. Under the government structure the rural SACCOS are supervised by the district cooperative officer. The study noted that the supervision was not good because the cooperatives and SACCOS were scattered all over the district and the district had limited budget to enable the cooperative officer to supervise all the SACCOS and cooperatives in the district. The study further revealed that the supervision was good when the capacity building projects financed by donors were operating (from 1990s-2010s). However, after phasing out of the donor projects which supported the rural SACCOS in form of training, subsidized capital and paying honorarium to the district cooperative officers, the performance of most of rural SACCOS shrunk. The study found out that some of the SACCOS were not issuing new loans and some were not trained in specific skills. However, the study noted that donors’ projects in another way induced the dependent syndrome for rural SACCOS. The study noted large number of overdue loans and non operating rural SACCOS were found in Morogoro and Dodoma regions because of inadequate supervision by the district cooperative officers and lack of continuous training for SACCOS. Hence the SACCOS management made decisions which required experts’ consultation and hence posed higher risks of the loans issued and indeed most loans were defaulted. The findings from this study are in line


274

with various scholars who recognized the importance of training and good supervision of loans in enhancing good repayment performance and hence reducing the loans default risk where they confirmed that that good supervision and training were among the effective credit risk mitigation techniques in India, China, Malaysia and Bangladesh respectively (Raj and Sindhu 2013; Bunning 2004; FunHo and Yusoff 2009; Hague et al 2011).

Regulations and Credit Risk Management

The study noted that the financial regulatory framework provided the intensive regulations for the banks as opposed to rural SACCOS. For example banks have to comply with risk management guidelines provided by the bank of Tanzania in order to protect the depositors’ funds but the SACCOS were not regulated by the Bank of Tanzania (Magali and Qiong 2014). Hence the study revealed the ineffectiveness of regulatory system for the rural SACCOS. For instance in the rural SACCOS, the registration of SACCOS is done by the ministry of agriculture, food security and cooperatives while the internal auditing was done by the district cooperative officer but it seemed that the cooperative officer was not mandated to enforce the rural SACCOS to implement his decisions as opposed to banks where the Bank of Tanzania has the mandate to restrict the operations of the bank if confirms that it conducts the business contrary to the regulations. For example, if the bank does not comply with risks management guidelines, BOT will force it to stop operating. The study revealed that some rural SACCOS issued up to 800 million Tanzanian shillings per year, suggesting that the regulatory framework for credit risks management is important also for the rural SACCOS. Triodos (2011) revealed that supervision by the ministry of cooperatives through the registrar of cooperatives is weak because the political alignment restricts the register of cooperatives to take action against SACCOS that do not abide by the laws. This study witnessed that the absence of effective and mandatory regulations was the reasons for higher accumulation of NPL for most rural SACCOS. The findings from this study are in line with many scholars have revealed that despite good

regulatory practices might improve the credit risk management for MFIs as in banks and they argued that there is still no effective and mandatory regulatory framework for MFIs in Asia, Ghana and China respectively (Haq et al 2008; Steel and Andah 2003; Minggao and Enjiang 2004; Steinwand 2000). Similary, Randhawa and Gallardo (2003) and MFI Transparency (2011) cited by BOT (2010) argued that for MFIs in Tanzania still lack effective and mandatory regulatory framework. Contrary, Castilho et al (2009) revealed that the credit cooperatives were highly regulated by the Central Bank of Brazil. Another interesting aspect is the participation of the Cooperative Credit System in Brazil (SICOOB) provided the information system to the credit cooperatives, prepared manuals on various practices, such as manual of credit risk, manual of liquidity risk, code of ethics and others. For this case SICCOB promoted the effective credit risks management for credit cooperatives. Moreover, Hartarska and Nadolnyak (2007) found that regulations did not directly affect the financial performance of MFIs, implies that it might not also affect the MFIs credit risk management.

The Influence of Politics in Corporate Governance and Loans Default Risk

The study revealed the influence of politics on the corporate governance and loans default risk. The study revealed that most of SACCOS’ committee members in one SACCOS in Dodoma region were ward councilors. The study found that in the same SACCOS, previous chairperson was the ward councilor and was charged with fraud case. The study further revealed that because of the influence of politics most SACCOS in Kongwa district in Dodoma region stopped to issue new loans between 2006 and 2013. It implies that political interference acted as a barrier towards effective credit risk management. Moreover, the study found that some SACCOS in Morogoro and Dodoma regions were established because of the political will. The study noted that all SACCOS established because of political influence, their members defaulted their loans and the SACCOS stopped to operate. Furthermore the study revealed that politicians influenced also the district cooperative officers in performing their roles in


Joseph John Magali

supervising the rural SACCOS, because there was a case where a district cooperatives officer approved the registration of SACCOS before the fulfillment of all requirements fearing the political threat from the ward chancellors. The results from this study confirmed the study done by Mago et al (2013) who revealed the influence of politicians on operational risk management for MFIs in Zimbabwe. Similarly Makori et al (2013) noted the political interference for SACCOS’ operations in Kenya and Piprek (2007) and Triodos (2011) noted the interference the government in SACCOS’ operations in Tanzania. However, Malhotra et al (2006) asserted that Ag Bank in Mongolia had zero tolerance for politicians who tried to influence the bank’s lending decisions and for this case it attained 98% of loans repayment rate.

CONCLUSION AND RECOMMENDATIONS

This study finds that good leadership, corporate governance and regulatory framework are keys for effective credit risk management in rural SACCOS. The study finds that poor credit risks management in rural SACCOS is caused by incompetent staffs, lack of auditing, failure to comply with SACCOS by-laws, poor corporate governance and political interferences. The findings show that that 65% of rural SACCOS affirmed the presence of good leadership for their SACCOS. However, these leaders were re-elected after the previous leaders to be charged by fraud cases, authoring high amount of loan without abiding by regulations which gave rise to nonpayment after failing to collect the overdue loans from members. The study noted that only 54% of the rural SACCOS were effective in loans collection and only 46% of the rural SACCOS were creative and innovative. Also the study noted that only 38% of the SACCOS were audited every year. Interestingly the study noticed that every SACCOS had by-laws but in about 98% of SACCOS these by-laws were not printed and distributed to members and SACCOS fail to enforce the by-laws. This paper recommends that the rural SACCOS should practice the good leadership, corporate governance and should abide by their by-laws in order to have the effective credit risks management. Also the government should regulate the rural SACCOS

very stringently and the political interference should be avoided.

REFERENCES

Aacquah, H.D. and J. Addo, J. (2011). Determinants of Loan Repayment Performance of Fishermen: Empirical Evidence from Ghana: Cercetări Agronomice în Moldova Vol. XLIV , No. 4 (148) / 2011.

Agumba, N.(2008). Effectiveness of the SACCO Governance Model. Presented By KUSCCO Limited, Nairobi-Kenya at AFRACA Microfinance Conference –Benin, 2008.

Auka, D. O. and Mwangi, J. K. (2013). Factors Influencing Sacco Members to Seek Services of Other Financial Service Providers in Kenya. International Review of Management and Business Research Vol. 2 Issue 2.

Ayayi, A.G. (2011). Credit risk assessment in the microfinance industry: An application to a selected group of Vietnamese microfinance institutions and an extension to East Asian and Pacific microfinance institutions. Economics of Transition Volume 20(1) 2012, 37–72 DOI: 10.1111/j.1468-0351.2011.00429.x.

Bank of Tanzania (BOT- 2010). From: http://www.bot-tz.org/mfi/Default.asp?Menu=SCCULT

Besson-Levine, A. and Young, R. (n.d). (n.d). Improving cash flow using credit management: The outline case. Chartered Institute of Management Accountant, London, United Kingdom.

Bibi, A. (2006). Tanzania’s Cooperatives Look to the Future. Retrieved from, http://www.andrewbibby.com/pdf/Tanzania.pdf, Site visited on 29/01/2014.

Bunning, A. (2004). A microcredit success story: Women make the difference. Development Bulletin, no. 64, pp. 63-66.


276

Bwana, K.M. and Mwakujonga, J. (2013). Issues in SACCOS Development in Kenya and Tanzania: The Historical and Development Perspectives. Developing Country Studies.Vol.3, No.5, 2013.

Castilho, V. M., Passador, J. L. and Passador, C. S. (2009). Best Practices in Rural Credit Cooperatives: Study of Cooperatives In The Vicinity Of Ribeirão Preto,VII International PENSA Conference, November, 26-28th, 2009 - Sao Paulo, Brazil.

Chahayo, S. A., Bureti,F., Juma, Maende, C. M., Douglas, M. and Aketch R. A. (2013). Analysis of Financial Mismatch in Co-Operative Societies: A Case of Kakamega County, Kenya”. International Journal for Management Science and Technology, Vol. 1; Issue 5.

Chen, G., Rasmussen, S. and Reille, X. (2010). Growth and Vulnerabilities in Microfinance. Focus Note, No. 61, February 2010, CGAP.

Chibanda, M. (2009). Institutional and Governance Factors Influencing the Performance of Selected Smallholder Agricultural Cooperatives in Kwazulu-Natal, South Africa. Unpublished MSc. Thesis, University of KwaZulu-Natal.

Cull, R., Demirgüç-Kunt, A. and Morduch, J. (2009). Does Regulatory Supervision Curtail Microfinance Profitability and Outreach? The World Bank Development Research Group Finance and Private Sector Team, Policy Research Working Paper 4748.

Evers, J., Jack, S., Loeff, A. and Siewertsen, H. (2000). Reducing Cost and Managing Risk in Lending to Micro Enterprises. Handbook for Micro-Lending in Europe. produced by FACET, Zeist, The Netherlands and IFF- Institurt fur

Finanzdienstleistungen e.V., Hamburg, Germany.

Fiorillo, A. (2006).The Effects of Wholesale Lending to SACCOs in Uganda. Financial Sector Deepening Project.

Friends Consult Ltd (n.d). Module Five: Financial and Delinquency Management for the Umurenge SACCOS. Rwanda Cooperatives Agency (RCA), Kampala, Uganda.

FunHo, S.K. and Yusoff, N.T (2005). Preliminary Study of Credit Risk Management in Malaysia, Jurnal Pengurusan 28 (2009) 45-65.

GARP (2012). Corporate Governance and Risk Management. Retrieved on 30/01/2014 from: http://www.garp.org/media/991488/theroleofriskgovernanceineffectiveriskmanagement_tunji_adesida_071312.pdf.

Gyamfi,G.D. (2012). Assessing the Effectiveness of Credit Risk Management Techniques of Microfinance Firms in Accra. Journal of Science and Technology, Vol. 32, No. 1 (2012), pp 96-103.

Hall, N. (2005). Savings and Credit Cooperatives as Microfinance Institutions. Two Case Studies: Koperasi Citra Lestari & Koperasi Mawar Putih in East Java. (Unpublished Bachelor Thesis in Indonesian Studies). University of New South Wales.

Haq, M., Hoque, M. and Pathan, S. (2008). Regulation of Microfinance Institutions in Asia: A Comparative Analysis. International Review of Business Research Papers, Vol.4 No.4, Aug-Sept 2008, pp. 421-450.

Haque1, M. S., Akter, R., and Laoubi, K. (2011). Effectiveness of Community Based Organization (CBO) Microcredit Programme of Concern Worldwide: A Case Study of Bangladesh: African Journal


Joseph John Magali

of Business Management Vol. 5(24), pp. 10101-10107.

Hartarska, V. (2005). Governance and Performance of Microfinance Institutions in Central and Eastern Europe and the Newly Independent States. Paper prepared for presentation at the XIth Congress of the European Association of Agricultural Economists: 'The Future of Rural Europe in the Global Agri-Food System”, Copenhagen, Denmark, August 24-27, 2005.

Hartarska, V. and Nadolnyak, D. (2007). Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence. Applied Economics, 39:10, 1207-1222.

Issa D. (2012). The Department of Energy’s Disastrous Management of Loan Guarantee Programs: Committee on Oversight and Government Reform Staff Report of U.S. House of Representatives. 112th Congress March 20, 2012.

Jenkins, H. P.(n.d).The Impact of Regulation of MFIs On Microlending In Senegal.

Karumuna, L. and Akyoo, A. (2011). Rural Finance Challenges in Tanzania-the case of Kibaigwa Financial Services and Credit Cooperative Society (KIFISACCOS) in Kongwa District. Business Minds Africa, Case series, number 2 June 2011.

Kithinji, A. M. (2010). Credit risk management and profitability of SACCOS. School of Business University of Nairobi, Nairobi – Kenya.

Kushoka, I. (2013). Sustainability of an Employee Based Savings and Credit Co-Operative Society: A Case of Dar Es Salaam City Council SACCOS Tanzania. American Based Research Journal, Volume 2, Issue 7:88-94.

Kyessi, A. and Furaha, G. (2010). Access to housing finance by the urban poor: The case of WAT-SACCOS in Dar es Salaam,

Tanzania. International Journal of Housing Markets and Analysis, Vol. 3 No. 3, 2010, pp. 182-202.

Lari, L.R. (2009). The Power of Financial Ratios in Detecting Fraudulent Financial Reporting SACCOS in Kenya. Unpublished Master of Commerce-Thesis, Strathmore University.

Magali (2013a). Factors Affecting Credit Default Risks For Rural Savings and Credits Cooperative Societies (SACCOS) in Tanzania. European Journal of Business and Management, Vol.5, No.32:60-73.

Magali, J.J. (2013b). The Impacts of Credits Risk Management on Profitability of Rural Savings and Credits Cooperative Societies (SACCOS): The Case Study of Tanzania. International Journal of Management Sciences and Business Research, Vol-2, Issue 12:62-77.

Magali,J.J. and Qiong, Y. (2014). Commercial Banks Vs Rural SACCOS Credits Risk Management Practices in Tanzania. Journal of Economics and Sustainable Development, Vol.5, No.2:33-45.

Maghimbi, S. (2010). Cooperatives in Tanzania mainland: Revival and growth CoopAFRICA Working Paper No.14. Series on the status of cooperative development in Africa. International Labour Organization Office in Dar es Salaam, Tanzania.

Mago, S., Hofisi, C. and Mago, S. (2013). Microfinance Institutions and Operational Risk Management in Zimbabwe: Insights from Masvingo Urban. Mediterranean Journal of Social Sciences. Vol 4 No 3, September 2013.

Makori, J., Munene, C. and Muturi, W. (2013). The Challenges Facing Deposit-Taking Savings and Credit Cooperative Societies’ Regulatory Compliance in Kenya. A Case of the Gusii Region. Interdisciplinary Journal of Contemporary Research In Business, April 2013 Vol 4, No 12.


278

Malhotra, M., Chen, Y., Criscuolo, A., Fan, Q., Hamel, I. I. and Savchenko, Y. (2006). Expanding Access to Finance: Good Practices and Policies for Micro, Small, and Medium Enterprises. World Bank,Washington, DC.

Mensah, C. (2013).The Relationship between Loan Default and Repayment Schedule in Microfinance Institutions in Ghana: A Case Study of Sinapi Aba Trust. Research Journal of Finance and Accounting, Vol.4, No.19, 165-175.

MFI Transparency (2011). Microfinance in Tanzania. Retrieved on 01/02/2014, from: http://www.mftransparency.org/wp-content/uploads/2012/05/MFT-RPT-106-EN-Country-Survey-Tanzania.pdf

Minggao, S. and Enjiang, C. (2004). Restructuring China’s Rural Financial System: Existing Approaches, Challenges and The Future of Microfinance. A Background Paper, German Agency for Technical Cooperation (GTZ).

Ministry of Cooperative Development and Marketing Kenya (MOCDM-2008). Marketing Home page-achievements, frequently asked questions (FAQS):http://www.cooperatives.go.ke, accessed on 6th March 2008.

Ministry of Finance, Tanzania (MOF 2012; 2013). Speech by the Minister for Finance Hon. Dr. William Augustao Mgimwa (Mp). Introducing to the National Assembly, the Estimates of Government Revenue and Expenditure for the Fiscal Year 2012/2013 and 2013/2014.

Mosongo, E., Gichana, I., Ithai, J. and Nguta,M. (2013). Financial Innovation and Financial Performance: A Case of SACCOS in Nairobi County. International Journal of Research in Management, Issue 3, Vol.5 (September2013).

Moti, H,O., Masinde, J.S. and Mugenda, N. G.(2012). Effectiveness of Credit

Management System on Loan Performance: Empirical Evidence from Micro Finance Sector in Kenya. International Journal of Business, Humanities and Technology Vol. 2 No. 6; October 2012.

Mustafa, M.R., Ali, M.A.S., Awaideh, M. and Miller, C. (2011). Study on risk management in rural and agricultural finance in the Near East and North Africa (NENA) Region, Food and Agriculture Organization of the United Nations Rome, Italy.

Mwakajumilo, S.L.I (2011). The Role of Informal Microfinance Institutions in Saving Mobilization, Investment and Poverty Reduction. A Case of Savings and Credit Cooperative Societies (SACCOS) in Tanzania from 1961-2008. Unpublished Doctoral Thesis, St. Clements University.

Nadiya, M., Polanco, F. O., and Ramanan, T. R. (2012) Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs)-An Exploration into Indian Microfinance Crisis‖ Asian Economic and Financial Review Vol. 2, No. 3, pp. 448-462.

National Bank of Ethiopia (2010). Risk Management Guidelines for Microfinance Institutions. Retrieved on 31/01/2014 from:http://www.bu.edu/bucflp/files/2012/07/rmg-for-Microfinance.pdf

National Bureau of Statistics Tanzania (NBS-2013). 2012 Population and Housing Census Counts. Retrieved from: http://www.nbs.go.tz/, on 13/12/2013.

Ndiege, B.O., Haule, T. B. and Kazungu, I. (2013). Relationship between Sources of Funds and Outreach in Savings and Credits Cooperatives Societies: Tanzanian case. European Journal of Business and Management, Vol.5, No.9, 2013.


Joseph John Magali

Niu, J.(2004). Managing Risks in Consumer Credit Industry; A working paper submitted to “Policy Conference on Chinese Consumer Credit” on August 7, 2004 in Beijing, China.

Norell, D. (n.d). How to Reduce Arrears in Microfinance Institutions. Journal of Microfinance Volume 3 Number 1:115-130.

Nyambo, J. (2012). SACCOS za Wakulima Mbeya Taabani. Habarileo News paper, 22nd November, 2012. Retrieved from: http://www.habarileo.co.tz/index.php/habari-za-kitaifa/6376-saccos-za-wakulima-mbeya-taabani. Site visited on 23/11/2012.

Odera, O. (2012). Corporate Governance Problems of Savings, Credit and Cooperative Societies. International Journal of Academic Research in Business and Social Sciences November 2012, Vol. 2, No. 11.

Olando, C. O., Jagongo, A. and Martin, O. M. (2013).The Contribution of Sacco Financial Stewardship to Growth of Saccos in Kenya. International Journal of Humanities and Social Science Vol. 3 No. 17; September 2013.

Ondieki, A. N., Okioga C., Okwena, D. K. and Onsase, A. (n.d). Assessment of the Effect of External Financing on Financial Performance of Savings and Credit Cooperatives in Kisii Central District, Kenya.

Online business dictionary (2014). Leadership. Retrieved on 01/02/2014 from: http://www.businessdictionary.com/definition/leadership.html

Onsase, A., Okioga, C., Okwena, D. K. and Ondieki, A. N. N. (n.d). Assessment of the Effects of Performance Management Practices on Provision of Financial Services by Savings and Credit Cooperative Societies: A Case of Gusii Mwalimu Sacco, Kisii Central District, Kenya.

Piprek (2007). Linking with Savings and Credit Cooperatives (SACCOs) to expand financial access in rural areas: a case study of CRDB Bank in Tanzania.

Qin, X. and Ndiege, B.O. (2013).Role of Financial Development in Economic Growth: Evidence from Savings and Credits Cooperative Societies in Tanzania. International Journal of Financial Research Vol. 4, No. 2; 2013.

Raj, K. B. and Sindhu (2013). Skill Levels in Risk Management: Training in Credit Risk-A Comparative Study of Indian Banks and Foreign Banks. Global Journal of Management and Business Research Finance, Volume 13 Issue 7, Version 1.0 Year 2013.

Randhawa, B. and Gallardo, J. (2003).Microfinance Regulation in Tanzania: Implications for Development and Performance of the Industry Africa Region Working Paper Series No. 51.

Rubambey, G.C. (2005). Policy, Regulatory and Supervisory Environment for Microfinance in Tanzania” Bank of Tanzania.

Schmieder, C. and Schmieder, P. (2011).The Impact of Legislation on Credit Risk-Comparative Evidence From the United States, the United Kingdom, and Germany.IMF Working Paper,WP/ 11/55.

Sebhatu, K.T. (2011). Management of Savings and Credit Cooperatives from the Perspective of Outreach and Sustainability: Evidence from Southern Tigrai of Ethiopia. Research Journal of Finance and Accounting.Vol 2, No 7/8, 2011.

Simtowe, F. and Zeller, M. (2006). Determinants of Moral Hazard in Microfinance: Empirical Evidence from Joint Liability Lending Programs in Malawi. MPRA Paper No. 461.

Steel, W.F. and Andah, D. O. (2003). Rural and Micro Finance Regulation in Ghana:


280

Implications for Development and Performance of the Industry. Africa Region Working Paper, Series No. 49.

Steinwand, D. (2000). A Risk Management Framework for Microfinance Institutions. Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Postfach , Eschborn, Division 41, Financial Systems Development.

Tanzanian Federation of Cooperatives (TFC- 2006). A Simplified Guide to the Cooperative Development Policy and the Cooperative Societies Act of Tanzania Mainland.

Triodos Facet, (2011). Tanzania Microfinance Country Scan, Final report. Zeist, The Netherlands, Washington, D.C.Sustainable Development Department, Best Practices Series May 2007.

United Republic of Tanzania (URT 2013). The Cooperative Societies Act, 2003. Retrieved from: http://bunge.parliament.go.tz/index.php?r=billdetail/view&id=10-2003-1-, on 30/09/2013.

Wangwe, S. (2004). Innovation in Rural Finance in Tanzania. Paper prepared for The Third Annual Conference on Microfinance held from 15th to 17th March 2004 at the AICC, Arusha, Tanzania.

Warue, B.N. (2012). Factors Affecting Loan Delinquency in Microfinance Institutions in Kenya. International Journal of Management Sciences and Business Research, 2012, Vol. 1, Issue 12:27-48.


Joseph John Magali

APPENDIX

Table 1: Leadership variables

Variable (N=37) Frequency Percent

Good SACCOS management 24 65

SACCOS leaders creativity and innovation 17 46

Effectiveness in loan collection 20 54

Table 2: External auditing frequency

External Auditing frequency (N=37) Frequency Percent

Never audited 7 18.9

Every year 14 37.8

After 2 year and more 16 43.2

Total 37 100.0

research paper the influence of leadership, corporate

Documents