Member-Owned Financial Institutions : Lessons from Uganda and Tanzania, 1997 - 2004

This paper examines the member-owned Financial Services Associations (FSAs) in Uganda and Tanzania and presents the findings. It analyzes the FSAs on the basis of economic and social incentives that determine institutional and member behavior.

The paper states that member-owned financial institutions face three challenges:

• Effective internal management of the operations;
• Monitoring and enforcement of loan contracts;
• Building mutual trust and relationships with the community by offering their member owners value propositions that can meaningfully translate into improved lives.

The findings of the paper highlight:

• The most important determinant of performance is the ability of the member-owned financial institution to offer economic incentives to its staff and its members;
• Local ownership and local social ties do not always provide the needed social incentives in the form of trust and cooperation between the institution and the members;
• Self-enforcement of contracts, because of reputation and credit history, are the main incentives for loan repayments;
• Local human resources are not easily available for meeting the management and governance requirements and need a significant amount of training.