THE ROLE OF FINANCIAL INSTITUTIONS IN SAVINGS …



THE ROLE OF FINANCIAL INSTITUTIONS IN SAVINGS MOBILIZATION:

THE CASE OF PRIDE MICROFINANCE UGANDA LTD

BY

NAMARA EMILY

07/U/12684/EXT

RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY.

AUGUST 2011

DECLARATION

I NAMARA EMILY do hereby declare that this research report is my original piece of work and has not been submitted for any other or similar award in any academic institution.

Signed: Date:

Namara Emily

07/U/12684/EXT

APPROVAL

This is to certify that this report on “The Role of Financial Institutions in Savings Mobilization, The case of Pride Microfinance Uganda Limited” has been under my supervision and is now ready for submission to Makerere University for the award of the degree of bachelor of commerce.

Signed: Date:

M/s. NABIDDO WINNIE

(Supervisor)

DEDICATION

I dedicate this work to my late mother Natukunda Imelda, My uncles, My Aunties, My sister Lubango Carol and her lovely daughter Casie, and My special friend Lubega Moses.

ACKNOWLEDGEMENT

I am so thankful to the Almighty God who has made it possible, under all circumstances, for me to carry out this research.

I am so grateful to my supervisor M/s. Nabiddo Winnie for her academic guidance, time; encouragement and patience that has seen me through, making this work a success. Thank you for your supervision.

Special thanks go out to my beloved family members, and my guardians Uncle Ben, Kamukama, Davis, Robert, Auntie Annet, Auntie Carol and her family, My sister Carol, My special friend Lubega Moses for their support, love, advice and encouragement throughout the period of my study. May God reward you with lots of blessings!

I lastly wish to extend my sincere gratitude toward my friends Liz B, Lizmo, Prossy, Davis, Nobert, all my group members and all those who have tirelessly guided and encouraged me at all times throughout my course. Thank you very much and may almighty God reward you abundantly!

TABLE OF CONTENTS

CONTENTS PAGE

DECLARATION i

APPROVAL ii

DEDICATION iii

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS v

LIST OF TABLES viii

LIST OF ABBREVIATIONS ix

ABSTRACT x

CHAPTER ONE 1

INTRODUCTION 1

1.1 Background to the study 1

1.2 Statement of the problem 2

1.3 Purpose of the study 2

1.4 Objectives of the study 3

1.5 Research questions 3

1.6 Scope of the study 4

1.7 Significance of the study. 4

CHAPTER TWO 5

LITERATURE REVIEW 5

2.1 Introduction 5

2.2 The concept of financial institutions 5

2.3 The concept of savings mobilization 5

2.4 The role of financial institutions in savings mobilization 6

2.5 Strategies financial institutions to mobilize savings in rural areas 9

2.6 Conclusion 12

CHAPTER THREE 13

METHODOLOGY 13

3.1 Introduction 13

3.2 Research design 13

3.3 Study population 13

3.4 Sample size, sampling methods and sampling procedure 14

3.5 Data source 14

3.6 Data collection instruments and methods 14

3.7 Data collection procedure 14

3.8 Data processing, analysis and presentation 15

CHAPTER FOUR 16

Presentation, Analysis and Discussion of Findings 16

4.1 The response rate of respondents 16

4.2 Demographic characteristics 17

4.3 The level of savings mobilization in Pride Micro Finance 18

4.5 Relationship between Pride micro finance strategies for savings mobilization and savings mobilization 22

CHAPTER FIVE 24

5.1 Introduction 24

5.2 Summary of findings 24

5.3 Conclusion 24

5.5 Area for further research 26

REFERENCES 27

QUESTIONNAIRE 29

LIST OF TABLES

Table 4.1:The response rate of respondents 16

Table 4.2: Responses by gender 17

Table 4.3: Responses by age 17

Table 4.4: The working positions of respondents 17

Table 4.5: The period employees have spent in the organization 18

Table 4.6: Showing the most service offered by Pride Micro Finance 18

Table 4.7: Showing the common form of savings mobilization offered by Pride Micro Finance. 19

Table 4.8: Showing factors that affect the level of savings mobilization in Pride Micro finance 20

Table 4.9: Showing promotional tools used by Pride to promote its activities 21

Table 4.10: Showing strategies used by Pride micro finance to mobilize savings 21

Table 4.11: Showing the effectiveness of some of the strategies used by Pride micro finance to mobilize savings 22

Table 4.12: Computing the relationship between Pride micro finance strategies for savings mobilization and savings mobilization 23

LIST OF ABBREVIATIONS

MFI: Micro Finance Institution

SPSS: Statistical package for Social Scientists

UG: Uganda

ABSTRACT

Willingness to save meanwhile is believed to depend on the ease of access to savings instruments, the attractiveness of such instruments and the prevailing economic conditions, yet microfinance institutions in Uganda seem not to have favorable conditions for such activities. The main study objective was to examine the performance level of the pride microfinance in respect to savings mobilization in rural areas. It has been noted that most banks which are the main financial institutions that have engaged in savings mobilization have mainly concentrated in the urban areas leaving out the rural areas and this has affected the ability to mobilize savings in such areas, however this problem can be solved by promoting microfinance institutions to concentrate their activities in rural areas but this has not been exploited by them. Findings revealed that the performance level of pride microfinance in respect to savings mobilization in the rural areas revealed a low level of performance. Recommendations are that government should put in place adequate policies for financial institutions to mobilize adequate savings from the rural areas; basically offerings high interest rates could world to attract more customers.

Key words:

Financial Institutions, Savings Mobilization, Pride Microfinance Uganda Ltd.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Financial institutions are those institutions which mobilize funds from the public and place them in financial assets such as deposits, loans and bonds rather than tangible property, (). Majority of financial institutions have engaged themselves in savings mobilization and have played a significant role in providing various savings services and products such as bonds, accounts holdings with interest yielding and they have played a vital role in savings mobilization.

Savings can be defined as income not spent on consumption. In case of salaried worker, it’s that proportion of income not spent on consumption. People save for a variety of reasons including putting aside money for a rainy day, out of plan habit and targeting of some big purchase in future. Among the factors that determine saving behavior is ability to save which depends on disposable income, propensity to save, access to financial institutions and the type of savings were found to determine the form of savings held. While most efforts to save are voluntary, others are compulsory as in the case of social security contributions, (Bagonza, 2001).

The system of financial intermediation can affect economic performance and growth directly through the role it plays in savings mobilization. In particular the financial intermediation channels savings into the most productive investment projects and thus contributes to higher rates of growth, (Matovu, 2010). Uganda as a country faces low savings rates in spite of stable macroeconomic stabilization effort. It has the lowest savings rate of any developing region, the capacity to save is mainly determined by income level, rate of income growth and the dependency ratio i.e. the ratio of population under 16 or above 60 years old to that of the working age population, (Loayza et al, 2000). Willingness to save meanwhile is believed to depend on the ease of access to savings instruments, the attractiveness of such instruments and the prevailing economic conditions, (Wright, 1999) yet Micro finance institutions in Uganda seem not to have favourable conditions for such activities.

1.2 Statement of the problem

Financial institutions have time and again played a crucial role in savings mobilization in the economy; however they are more concentrated in urbanized areas than rural areas, which limit their savings mobilization. As noted by Matovu,(2010) in the book ‘Domestic resource mobilization in Sub – Saharan Africa the case of Uganda’s stated that most banks which are the main financial institutions that have engaged in savings mobilization have mainly concentrated in the urban areas leaving out the rural areas and this has affected the ability to mobilize savings in such areas. However this problem can be solved by promoting microfinance institutions to concentrate their activities in rural areas but this has not been exploited by them, (Matovu, 2010). Therefore this research looks at the various factors that affect savings mobilization, role of financial institutions in savings mobilization and lastly the relationship between the role of financial institutions and savings mobilization so as to identify strategies that can be employed by FIs to mobilize savings in rural areas.

1.3 Purpose of the study

The purpose of the study aimed at establishing why savings mobilization has not been fully and potentially exploited by the numerous financial institutions especially micro finance institutions in the rural areas.

1.4 Objectives of the study

The study was guided by the following research objectives:

i. To examine the performance level of the pride micro finance in respect to savings mobilization in rural areas.

ii. To find out what strategies have been employed by pride Microfinance especially in the rural areas to increase their savings mobilization levels.

iii. To establish the relationship between Pride micro finance strategies for savings mobilization and savings mobilization

1.5 Research questions

The study answered the following research questions:

i. What is the performance level of the Pride Micro Finance in respect to savings mobilization in rural areas?

ii. What strategies have been employed by pride Microfinance especially in the rural areas to increase their savings mobilization levels?

iii. What is the relationship between Pride micro finance strategies for savings mobilization and savings mobilization?

1.6 Scope of the study

The research is on Pride microfinance Uganda Limited, the study focuses on the role of financial institutions in savings mobilization as the independent and dependent variable respectively.

Financial institutions involves those institutions which mobilize funds from the public and place them in financial assets such as deposits, loans, and bonds rather than tangible property. They include commercial banks, microfinance institutions to mention but a few. But this study particularly focused on Pride Micro Finance one of the financial institutions whose operational scope is rural based

The research covered the period of 2008 to 2010 in which financial institutions have increased in the country yet rural savings mobilization remains low.

1.7 Significance of the study.

i. The findings of the research will enable pride microfinance to know what kind of strategies, procedures, and policies to employ to increase their savings mobilization potential in rural areas.

ii. The study will help government in formulating policies and regulations that will favor savings mobilization by financial institutions in rural areas.

iii. To the researcher, the study will improve her basic research skills from which she can base to conduct applied research for purposes of career and practice development.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter reviews related literature to the study. The review focuses on the concepts of financial institutions, savings mobilizations, how financial institutions mobilize savings, financial institution’s role in savings mobilization and strategies that financial institutions to increase savings mobilization.

2.2 The concept of financial institutions

An organization, which may be either for-profit or non-profit, that takes money from clients and places it in any of a variety of investment vehicles for the benefit of both the client and the organization. Common examples of financial institutions are retail banks, which take deposits into safekeeping and use them to make loans to other customers, and insurance companies, which do not take deposits, but provide guarantees of payment if a certain situation occurs in exchange for a premium and micro finance institutions that are known for credit advancement and savings mobilizations (Dmitri et al, 1991).

2.3 The concept of savings mobilization

Savings are cash or physical products set aside for future use. Therefore savings mobilization is a way to keep cash or physical purposes n amounts suitable for investment purposes (Mpuga, 1999).

People in rural and other low-income communities, although poor, can save when they are guided and encouraged. In rural communities, savings are made through traditional credit rotation groups, or purchase of domestic animals (goats, pigs, chickens or cows).

Every micro-enterprise needs injection of capital or funds which may be owner's money or a loan. When a loan is used, it is someone else who has done the saving. Micro enterprises, like other businesses, convert savings (of the owners and of others) into investment, in the generation of wealth.

2.4 The role of financial institutions in savings mobilization

In financial institutions savings are transformed into deposits, which may either be normal savings or time fixed deposits. These constitute the bulk of their working capital, if on lent. In other words the core resources used in financial institutions are comprised of deposits from the public, which is one of their primary resources of funds. For this reason financial institutions have a task of attracting customers to keep deposits with them. This is known as savings mobilization. It involves tapping the savings the public may hold by provision of several assets in which people can save, (Mpuga, 1999).

Financial institutions provide a system where savers deposit their amounts and borrowers can access such amounts. This ensures an efficient transformation of mobilized funds into real productive capital. Financial institutions comprise of both the formal and informal sector.

The mobilization of savings and channeling credit to the lower income group in both the rural and urban areas is done by the informal sector, (Dmitri et al, 1991). They play a significant role in savings mobilization for example microfinance institutions though they are not allowed to mobilize deposits; they fill the gap left by formal institutions (Kasekende, 1998). The formal sector includes central bank, commercial banks, credit institutions, development banks and so on.

For financial intermediaries, savings mobilization increases the supply of internally generated funds that can be invested in housing, microenterprise and small business loans, (education/savimgs).

Savings is a foundational pillar in inclusive financial system. Savings contributes to financial inclusion at the client, microfinance institutions and industry levels. Savings services strengthen the finances of low- income households, savings deposits strengthen the funding base or microfinance and are the basis for a competitive, efficient and sound microfinance industry,(Alliance for financial inclusion policy/ formalizing microsavings,2010).

On a micro level, there’s of course an extensive body of academic research to explain how a well developed (deep) financial market contributes to economic growth in a country, an industry and in individual firms,( Levine,2005). Further it shows that financial development reduces income inequality in general, has a disproportionately positive impact on the income of the poor, and that it contributes to poverty alleviation, (Beck,et.al,2007).

MFIs that intermediate deposits are the best positioned to sustain growth and innovation. MFIs that are funding growth by mobilizing local savings as regulated financial intermediaries have derived benefits from deposit-based funding in at least three ways. First, deposits tend to be more stable and scalable funding source relative to other options. Microcredit organizations typically face challenges with wholesale funding related to finance costs, term structure, currency risk, administrative effort and ultimately getting enough capital to fund growth that keeps up with demand. Also the recent international financial crisis has demonstrated the liquidity risks associated with over dependence on foreign debt funding. In addition to the stability of savings in most markets, it’s also a less expensive funding source.

The second benefit manifests in incentives that drive a MFIs approach to growth and expansion. Deposit based institutions link their asset growth to deposits and therefore growth is based on service to savers and the perception of savers of the integrity to MFI. These MFIs tend to be disciplined, service-oriented and cautions about their reputation. Deposit funding also links the MFI evolution to economic realities since MFIs can only grow if they are successful in intermediating effective market demand for savings and credit.

Finally deposit-based MFIs enjoy customer loyalty since customers that save in an institution have a sense of trust and ownership that credit clients don’t necessary have. For some customer’s savings may be the first step to accessing credit and other services later on, (AFI policy/formalizing microsavings, 2010).

To increase savings, policies should be focused on the major determinates of savings in the economy,(Mukwanason, 1994). The mobilization of small and micro savings respond to demand if the poor and is commercially viable source of funds. It should be noted that successful savings mobilization requires a macroeconomic environment that is conducive. Financial institutions need to put in place strategies that are dynamic and aggressive to encourage savings by enhancing public confidence, provide cost effective schemes, and most importantly they must be seen by the public especially to the concerned not only with balancing sheets but promoting peoples welfare and prosperity, (Bagonza, 2001).It’s important to understand why people save, in doing so financial institutions will create products that are suitable and complement with the needs of those who save,(Fin scope Ug, 2009)

Communities in Uganda have always raised capital for farming, petty trading and other income generating activities through savings mobilization. It is this traditional arrangement that modern micro finance institutions are trying to modify in the mobilization of savings. Over the last decade, micro finance institutions have found those poor households are interested in a variety of savings services and products. Deposit services allow low income household to save for large expenses like dowries, or school fees, accumulate funds for future investment as purchasing a cow, or prepare for periods such as rainy periods when they may have little or no income; this is according to the microfinance experience with savings mobilizations and that they are basically two reasons why microfinance should mobilize savings. Locally mobilized savings are potentially the largest and the most immediate available source of finance for some microfinance institutions, and there is a vast demand for institutions savings services at the local levels.

2.5 Strategies financial institutions to mobilize savings in rural areas

According to savings mobilization as a financial instrument and its relevance to the poor by Marguerite Robinson, 2010, the following preconditions are needed by M.F.I is for savings mobilization. They are grouped into outside M.F.Is and within the M.I.Fs control.

Outside MFI Controls are controls that are found outside MFI regulation and they include enabling macro economy and some degree of political stability (no hyper inflation or continuing serve warfare), appropriate regulatory environment, public supervision. Within M.F.I control; these are controls that operate within the microfinance institutions and they include good track record of accountable ownership, effective governance, consistently good management of funds and allocation of full time high level committed management plus a financially sound with a high rate of loan recovery and consistently good returns.

The system of financial intermediation can affect economic performance and growth directly through the role it plays in savings mobilization. Pride microfinance has played this vital role of savings mobilization especially in the rural areas. It offers various savings accounts and it is a deposit taking institutions. It has facilitated the growth and empowerment of women who have been beneficiaries because it offers a wide range of appropriate instruments. According to Winiwiski, (1999) financial instruments play a vital role in facilitating savings because of appropriate instruments.

Savings play a crucial role in financial management strategies of the poor. Deposit facilities make it easier for poor clients to turn small amounts of money into ‘useful lump sums’, enabling them to smooth consumption and mitigate the effects of economic shocks,( Rutherford, 2001). Secure savings also can provide a measure of independence to socially and economically vulnerable individuals, notably women and children and unlike credit; the benefits of savings are not limited to the economically active. Although significant research has document the benefits of savings to the poor, the microfinance sector remains focused largely on credit delivery. Funders and government often don’t realize how vital asset- building policies and that savings mobilization can bring many benefits to the poor clients and microfinance providers (e.g. stable funding and protection from the foreign exchange risk.

Savings are fundamental to sustainable economic development. Savings are by far the most frequent source of funding to microfinance startup and expansion. They also enable households to build for the future and better prepare for unexpected emergencies. Woccu credit union savings mobilization profit in Latin America have demonstrated that lower income people will substantially increase their savings deposit if provided with convenient service, market returns and security for their savings. Yet millions of people throughout the region lack access to safe, reliable and convenient savings services,(education/savings).

According to education/savings the following key principles and is developing operational guidelines and tools to be utilized by all microfinance institutions for mobilizing savings. Preconditions for savings mobilization include legal deposits: is there an appropriate legal framework in place to identify which institutions are able to receive deposits and what recourse savers have to recover their deposits? Are you authorized to capture savings? Do you have a charter and by laws established? Is an effective system of supervision in place?

External analysis; under this one has to consider the following, is there a market for saving products in your geographic location? Which institutions are capturing savings now? Also one has to look at prudential a discipline that’s to say do you understand the minimum standards? Have you established the core financial disciples of delinquency control, loan loss provisions, liquidity reserves and capital reserving to protect client savings? To mention a few.

The following procedures for efficient savings mobilization would benefit every financial institution especially M.F.Is in collecting savings and they are completion of savings registration form with passport size photographs and payment of fees, maintaining savings accounts for individual and group, issuances of savings pass books and opening of ledger records, issuances of receipts for every deposit within their means and lastly flexibility of deposits time and withdrawal rates.

2.6 Conclusion

Savings mobilization requires a macroeconomic environment that is conducive, (Bategaka, 1998) and policy makers must ensure an effective regulatory framework that entails adequate protection of savings and provide incentives for sound management. But these seem to be lacking in Ugandan financial institutions. The study therefore will assess the extent to which financial institutions in Uganda possess favorable macroeconomic environment conditions to enhance savings mobilization in rural areas where they are currently performing below par.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter covers research methodology and specifically research design, the type of data that was adopted in carrying out research, sources of data, data collection instruments, data collection procedure, measurement of variables, data presentation and analysis methods as well as limitations that were encountered during the study and how they were overcome.

3.2 Research design

The study adopted a case study design. A case study is a method for learning about a complex instance based on a comprehensive understanding of that instance obtained by extensive description and analysis of that instance taken as a whole in its context, (Chelimsky, and 2001). For this study Pride microfinance Ltd Uganda headquarters as a single site is chosen as a case study.

3.3 Study population

The study was conducted at Pride Micro Finance Ltd, Uganda headquarters in Kampala. The population comprised of workers of pride MFI both at the top management, middle management and lower management levels.

3.4 Sample size, sampling methods and sampling procedure

The sample size comprised of 20 respondents from the management of Pride microfinance involving top management, middle management and lower cadre. One of the sampling methods was stratified as per management levels to involve employees at different levels of management, simple random sampling was adopted in identifying respondents from each level to minimize bias.

3.5 Data source

Both primary and secondary data was used. The primary data was sourced from the management of Pride MFI. The secondary data was sourced from existing information regarding financial institutions and savings mobilizations. This was sourced from records kept by Pride MFI such as registration books showing the number of savers, and types of accounts held.

3.6 Data collection instruments and methods

Data was collected through self administered questionnaires and interviews. Both close ended and open ended questions were involved in the questionnaire for the former to collect precise information about the study variables and for the later to clarify on the responses given in the close ended questions. The open ended questions also stimulated interviews between the researcher and the respondent.

3.7 Data collection procedure

The research presented a letter of introduction to the management of Pride microfinance limited headquarters showing the reasons of research. Questionnaires were administered by the researcher and she filled as responses were being obtained directly from the respondent. This was a one by one respondent at a time until all the respondents were covered. In the process, the researcher asked questions where clarity was required.

3.8 Data processing, analysis and presentation

Raw data was thoroughly edited, coded and entered in to SPSS data editor for analysis. Major analytical statics included frequencies and percentages while tables were the basic methods for data presentation. Themes were developed in accordance with study objectives for the analysis of qualitative data. The relationship between variables was determined using spearman’s rank correlation coefficient.

CHAPTER FOUR

Presentation, Analysis and Discussion of Findings

4.1 Introduction

This chapter includes the presentation, analysis and discussion of findings in accordance with the study objectives. However, the background information of respondents is presented first.

The study set out to answer the following questions:

i. What is the performance level of the Pride Micro Finance in respect to savings mobilization in rural areas?

ii. What strategies have been employed by pride Microfinance especially in the rural areas to increase their savings mobilization levels?

iii. What is the relationship between Pride micro finance strategies for savings mobilization and savings mobilization?

4.1 The response rate of respondents

Out of the 25 target respondents, responses were only got from 20 respondents as illustrated in Table 4.1 below:

Table 4.1:The response rate of respondents

|Responses |Frequency |Percentage |

|Answered questionnaires |18 |90.0 |

|Unanswered questionnaires |2 |10.0 |

|Total |20 |100.0 |

Source: Field data.

Results in Table 4.1 show that out of the sample size of 20, 18 assisted the researcher by answering the questionnaires.

4.2 Demographic characteristics

Table 4.2: Responses by gender

|Gender |Frequency |Percentage |

|Male |11 |61.1 |

|Female |7 |39.9 |

|Total |18 |100.0 |

Source: Field data.

Results in Table 4.1 show that the majority of respondents (61.1%) were males compared to females. This implies that males participated more in the study than females.

Table 4.3: Responses by age

|Age group (in years) |Frequency |Percentage |

|20-30 |10 |55.6 |

|30-40 |2 |11.1 |

| Above 40 years |6 |33.3 |

|Total |18 |100.0 |

Source: Field data.

Results in Table 4.3 show that the age group of 20-30 years participated more in the study and could be due to the fact that pride micro finance employees more of young graduates. However, these have a little experience in savings mobilization.

Table 4.4: The working positions of respondents

|Management Level |Frequency |Percentage |

|Top level |3 |16.7 |

|Middle level |11 |61.1 |

|Lower level |4 |22.2 |

|Total |18 |100.0 |

Source: Field data

Results in Table 4.4 show that most respondents were from the middle level management followed by lower level and then top management. This implies that the information provided concerning the research topic was in relation to what Pride microfinance uses, applies concerning the questions that were in the questionnaire. This is because they are involved in the daily routine operations of the organization and they are updated of the ongoing changes in the organization hence providing adequate and relevant information.

Table 4.5: The period employees have spent in the organization

|Period in years |Frequency |Percentage |

|Less than a year |9 |50 |

|1-2 |5 |27.8 |

|2-3 |1 |5.6 |

|3-4 |1 |5.5 |

|Above 4 |2 |11.1 |

|Total |18 |100.0 |

Source: Field data.

Results in Table 4.5 show that most respondents have worked for less than a year, followed by those that have worked for 1- 2 years. These results show that the information was provided by mainly the newly employed and this presented a problem of them not really having provided adequate and relevant information since they are new on the job and still under going on job training to be well versed of the organization.

4.3 The level of savings mobilization in Pride Micro Finance

Table 4.6: Showing the most service offered by Pride Micro Finance

|Service |Frequency |Percentage |

|Credit/ loans |10 |55.6 |

|Deposits/ savings facilities |4 |22.2 |

|Pension / social security |- |0 |

|Leasing facilities |1 |5.6 |

|Insurance services |2 |11.1 |

|Others |1 |5.6 |

|Total |18 |100.0 |

Source: Field data

Results in Table 4.6 show that most the most service offered by Pride Micro Finance is credit or loan facilities, followed by deposit facilities, then insurance services. Leasing and other were rated equally in the forth position. Among others, respondents stated managing fixed deposits accounts. This implies that Pride Micro finance clients significantly enjoy the services of credit and deposit facilities. This could be explained by the fair terms and conditions that apply to credit and good interest rates offered on deposits.

Table 4.7: Showing the common form of savings mobilization offered by Pride Micro Finance.

|Form of savings mobilization |Frequency |Percentage |

|Securities |0 |0.0 |

|Physical assets |0 |0.0 |

|Cash |16 |88.9 |

|Others |2 |11.1 |

|Total |18 |100.0 |

Source: Field data.

Results in Table 4.7 show that most respondents stated that Pride micro finance mobilizes savings mainly through individual cash, followed by other forms represented by 11.1% and the other forms of savings included group savings, offering western union services.

Table 4.8: Showing factors that affect the level of savings mobilization in Pride Micro finance

|Factors |Responses | |

| | |Strongly agree |

|Logos |5 |27.7 |

|Media adverts |11 |61.1 |

|Brand names |1 |5.6 |

|Educational campaigns |1 |5.6 |

|Participation in social activities |0 |0.0 |

|Others |0 |0.0 |

|Total |18 |100.0 |

Source: Field data.

Results in Table 4.9 show that of the above promotional activities used to mobilize savings, media adverts, logos, brand names and educational campaigns are used by Pride microfinance of which media adverts is the most promotional activity used. Logos, brand names, educational campaigns are used at a lesser extent.

Table 4.10: Showing strategies used by Pride micro finance to mobilize savings

|Factors |Responses | |

|Offering a wide rage of | |Strongly agree |Agree |Not sure |Disagree |

|financial instruments | | | | | |

| |frequency |18 |0 |0 |18 |

| |Percentage |100 |0 |0 |100 |

|Extension of working hours |Frequency |0 |18 |0 |18 |

| |Percentage |0 |100 |0 |100 |

|Introduction of new products |Frequency |18 |0 |0 |18 |

| |Percentage |100 |0 |0 |100 |

Source: Field data

Results in Table 4.11show that widespread and accessible network and introduction of new products are the most effective strategies in mobilizing savings compared to the extension of working hours. Extension of working hours has not been used. Therefore Pride needs to also pay much attention on the extension of working hours to allow business people deposit their money in the bank and the end of the working hours. This is so because most businesses close late in the evening at around 6pm. This may require operations until this time in order to capture these deposits hence a strategy that could be used to increase on their level of savings mobilized.

4.5 Relationship between Pride micro finance strategies for savings mobilization and savings mobilization

The relationship between pride micro finance activities and savings mobilization was determined using spear man rank correlation coefficient. It is given by the formula:

[pic]

Where

P the correlation coefficient

d2 is the difference between items squared

n is the number of item being correlated.

Table 4.12: Computing the relationship between Pride micro finance strategies for savings mobilization and savings mobilization

|Strategies |Savings mobilization |Rx |Ry |Rx-Ry =d |d2 |

|Offering a wide rage |Credit/ loans |1 |1 |0 |0 |

|of financial | | | | | |

|instruments | | | | | |

|Promotions of Pride |Deposits/ savings |2 |2 |0 |0 |

|Activities |facilities | | | | |

|Introduction of new |Pension / social |3 |6 |-3 |9 |

|products |security | | | | |

|Education and |Leasing facilities |5 |3 |2 |4 |

|sensitization | | | | | |

|Improvement of |Insurance services |4 |4 |0 |0 |

|customer services | | | | | |

|Extension of working|Others (fixed |6 |5 |1 |1 |

|hours |deposits) | | | | |

|Total | | | | |15 |

Source: Field data.

Hence p =1-6x15/6(62 -1)

= 0.571

Results in Table 4.12 show a positive moderate relationship between savings mobilization strategies employed by Pride micro finance and savings mobilization. That is savings mobilization strategies employed by pride accounts for only 32.7% (0.5712 x100) of savings mobilization in Pride micro finance in rural areas. This shows that their level of savings mobilized is low so to increase savings the strategies of extension of working hours, participation in social activities and education campaigns should be strengthened and put in place.

CHAPTER FIVE

Discussion of Main Findings, Conclusions and Recommendations

5.1 Introduction

In this chapter, a summary of findings, conclusions and recommendations are presented in accordance with research questions. The research questions answered were:

The study set out to answer the following questions:

The study set out to answer the following questions:

i. What is the performance level of the Pride Micro Finance in respect to savings mobilization in rural areas?

ii. What strategies have been employed by pride Microfinance especially in the rural areas to increase their savings mobilization levels?

iii. What is the relationship between Pride micro finance strategies for savings mobilization and savings mobilization?

5.2 Discussion of main findings

The study aimed at examining the role of financial institutions in savings mobilization as in the case of Pride Microfinance Uganda Ltd. Findings about the performance level of Pride Microfinance in respect to savings mobilization in the rural areas revealed a low level of performance. Most of the savings are in form of property, but not in form of assets managed by Microfinance. This is explained by the fact that savings mobilization strategies employed by pride accounts for only 32.7% of savings mobilized by pride microfinance in rural areas, (field data, 2011).

The strategies employed by Pride Microfinance in the rural areas to increase their savings mobilization included offering a wide range of financial instruments, promotion of pride activities, introduction of new products, education and sensitization of clients about savings mobilization. Although these strategies are dynamic and aggressive to encourage savings by enhancing public confidence, the earlier studies of Bagonza (2001), savings mobilization has still remained low for Pride Microfinance in rural areas. This low savings mobilization is explained by the fact that although Pride is a microfinance deposit taking institution, most of the microfinance institutions are just filing the gap left by formal institutions if they allowed to mobilize savings, the earlier studies of Kasekende, (1998).

Despite the fact that savings mobilization in the rural areas is still low, for the case of Pride Microfinance, their intermediation in savings mobilization has promoted the strengthening of the funding base for microfinance and the basis for a competitive, efficient and sound microfinance industry, (AFI, 2010).

The system of financial intermediation can affect economic performance and growth directly through the role it plays in savings mobilization. Pride Microfinance has played this vital role of savings mobilization especially in the rural areas although the level of savings is still low. It offers various savings accounts and it’s a deposit taking institution. It has facilitated the growth and empowerment of women who have been beneficiaries because it offers a wide range of appropriate instruments. According to Winiwiski, (1999) financial instruments play a vital role in facilitating savings because of appropriate instruments.

5.3 Conclusion

From the study findings, it can be concluded that:

The performance level of Pride micro finance in respect to savings mobilization is still very low given that most clients are interested in investing in real property than in cash form. The strategies employed by Pride Micro finance in mobilization of savings are lacking in that they don’t include important ones such as customer care and extension of working hours where necessary. The savings mobilization for Pride micro finance is low due to lacking savings mobilization strategies.

5.4 Recommendations

At the corporate level, Pride micro finance needs to improve its strategies for savings mobilization to include improvement in customer care such as improving working hours where necessary.

i. Extension of working hours until 6pm. Since most of their savers are mainly business people and their working hours closure of the day’s business is normally in the evening at around 6pm working hours until such a time gives them the opportunity to deposit their money in the bank since they are operating until such a time.

5.5 Area for further research

Government policy and savings mobilization strategies by financial institutions in the rural areas; that’s to say the strategies employed should encourage savings and improve their standards of living.

REFERENCES

Alwisniwiski, H, (1995), Challenges of Micro savings. Deutsche Gessellch Mobilization concepts and views from the Fur field, Internet.

Bagonza G, (2001), Have the banks Mobilization Strategies led to disintermediation of savings, The Uganda Bankers Vol. 9 No. 1. Uganda Institute of Bankers.

Finscope Uganda, (2009), Results of a National Survey On Demand, usage and Access To Financial Services In Uganda, Final report. The Uganda Institute of Bankers Library.

Graham Wright, (1999), The case for voluntary, open access savings facilities and why Bangladesh’s largest MFIs were slow to react, Uganda Institute of Bankers Library, 332.0415 WRI.

Kasekende L, (1998), Savings in the context of Macro Economic Policy Issues. The East Africa Experience. gtz.de/dokumente/bib/98-1494

Levine Ross, (2005), Finance and Growth: Theory and Evidence, in Philppe Aghion and Steven Durlayf, eds. Handbook of Economic Growth. The Netherlands: Elsevier Science, Uganda Institute of Banker Library.

Marguerite Robinson, (2011), Savings Mobilization as a Financial Instrument and its Relevance for the poor.

Matovu J.M, (2010), Domestic Resource Mobilization in Sub–Saharan Africa, the case of Uganda. .uk/R4D/PDF

Mpuga P, (1999), Savings Mobilization in Uganda, Journal of Capital Markets Authority Vol. 3. No. 1

Mukwanason H, (1994), Interest Policy and Savings Investment Process a policy stance. The Uganda banker Vol. 5. No. 1. Uganda Institute of bankers.

Rani D, (2007), Country level Savings Assessment tool, Uganda Institute Of Banking And Financial Services Limited.

Ross H, (2005), Finance and Growth: Theory and Evidence in Philippe, Uganda Institute of Bankers Library.

Rutherford S, (2001), The poor and their money. Oxford University press, Uganda Institute of Bankers Library.

QUESTIONNAIRE

TO BE ANSWERED ON THE ROLE OF FINANCIAL INSTITUTION IN SAVINGS MOBILIZATION

Dear respondent.

This questionnaire is aimed at collecting data for the above research topic. The study will not be used for anything other than for academic purposes and will be treated with confidentiality.

Please tick as appropriate

A. Demographic characteristics.

1. What is your Gender status?

a) Female b) Male

2. What is your age range?

a) A bove 4o years

b) 30-40 Years

c) 20-30 Years

3. How long have you been employed in this organization?

…………………………………………………………………………………………..

4. What is your working position level?

a) Top level

b) Middle level

c) Other

B. Savings mobilization

5. Which services do your offer to customers?

a) Credit loans

b) Deposits /Savings facilities

c) Pension / Social security

d) Leasing facilities

e) Insurance services

f) Any other please mention ………………………………………….

6. Which form of savings does your organization offer to clients?

a) Securities

b) Physical assets

c) Financial Assets (cash)

c) Others…………………………..

7.To what extent do you agree that the following factors affect your clients levels of performance in savings.

| |Strongly Agree |Agree |Not sure |Disagree |Strongly |

| | | | | |Disagree |

|a)Level of income | | | | | |

|b) Monetary and credit | | | | | |

|policies | | | | | |

|c)Inflation rates | | | | | |

|d) Number of dependants | | | | | |

|E0Political instability | | | | | |

|f) Fiscal policies (eg. | | | | | |

|Taxation) | | | | | |

Others please specify………………………………………

……………………………………………………………………………………….

8. Which promotional activities does pride use to promote its activities?

a) Logos

b) Media advertisement

c) Educational campaigns

d) Brand names

e) Participation in social Activities

Others please specify……………………………........................................................

…………………………………………………….

C. Role of pride microfinance

9. To what extent to you agree that pride uses the following strategies to mobilize savings?

| |Strongly |Agree |Not Sure |Disagree |Strongly |

| | | | | |Disagree |

|a) Offering a wide | | | | | |

|rage of financial | | | | | |

|instruments | | | | | |

|b) Promotions of | | | | | |

|Pride Activities | | | | | |

|c) Introduction of | | | | | |

|new products | | | | | |

|d) Education and | | | | | |

|sensitization | | | | | |

|e) Improvement of | | | | | |

|customer services | | | | | |

|F)Extension of | | | | | |

|working hours | | | | | |

10. How effective have the following strategies been in mobilizing savings?

| |Effective |Not Effective |Not Sure |

|a) Wide spread and accessible| | | |

|network | | | |

|b)Extension of working hours | | | |

|c)Introduction of new products | | | |

11. What strategies are being employed to improve rural areas in savings mobilization?

…………………………………………………………………………………..............

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