of urban based commercial banks deposit taking institutions and non regulated

Of urban based commercial banks deposit taking

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of urban based commercial banks, deposit taking institutions, and non regulated micro finance institutionsin the financial markets as vehicles for savings. Hence Savings and Credit Cooperatives (SACCOs) areintended to offer an alternative to improve the above undesirable situation in low income countriesespecially helping members who in most cases are farmers (Dagnew, 2004).The rural economy and the urban economy in Ethiopia are largely disconnected .While urban banks haveexcess liquidity, which costs them money to manage, and some rural people have opportunities requiringcredit to be profitable that have low risk, there is no mechanism to bring this liquidity from urban banksto rural businesses. Saving and Credit Cooperatives (SACCOs) can be the link that will give urban bankslow risk loan opportunities in rural areas and give rural businesses access to credit at costs for lower thaninterest rates currently charged by moneylenders. Although the Government formulated the SACCOs as abasis of poverty reduction in the rural/urban areas having low income households, they have encounteredvarious challenges such as: shortage of funds for necessary investments in education and technologicalresources, building offices, knowledge in operation the SACCOs, and financing savings differs amongSACCOs (Vaclav, 1977).
According to Kalu Woreda Cooperative Promotion office Report (2013), poor internal control which is aresult of the system failure to prevent and detect fraud, corruption, and nepotism caused by granting loansto unworthy borrowers (members), risky investment done without making the fully required analysis, lackof members’ and management committees’ training, and lack of the decentralized financial system whichcan provide financial services to the SACCOs. Hence, this study tried to explore the challenges andprospects of SACCOs to introduce feasible SACCOs to Kalu Woreda SACCOs.Kalu Woreda is found in Amhara Regional state of South Wollo Zone. There are 20 saving and creditcooperative societies and this study was conducted on such cooperatives.1.2. Statement of the ProblemOne of the most important functions of financial institutions is the provision of services such as checkingand saving accounts. These accounts are the most basic financial assets that most households own andwhen held in insured depository institutions, provide a safe place to keep money, create opportunities tobuild wealth, and often serve as prerequisites for obtaining other forms of credit. Households withoutsuch transaction accounts face a number of financial disadvantages (Hudson &Williams, 1999).Lack of awareness and poor saving culture, weak governance, policy and regulatory environment, weakinstitutional capacity, low capital base, and inappropriate loan security requirements were among thechallenges affecting the outreach and sustainability of SACCOs (Tesfamariam, 2011).

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