PPF Pensions Fund SACCOS scheme A case of the PPF Pensions Fund

Transcription

1 Good Practices in Social Security Good practice in operation since: 2004 PPF Pensions Fund SACCOS scheme A case of the PPF Pensions Fund PPF Pensions Fund Tanzania Published

2 Summary In 2004, a special loan product was introduced by PPF Pensions Fund to assist members to live a comfortable life while still actively working and prepare for life after retirement. The product was structured such that it is easily accessed, very affordable to members and has low risk to the scheme. The loan is disbursed to the SACCOS already established by employees at their working places hence the name Employees-based Saving Credit and Cooperative Society (SACCOS) was given to the product. The use of existing SACCOS already established in the members working places enabled the Fund to reduce administration costs, minimize the credit risks to the Fund and hence provide affordable interest rate to members. Up to 31st July 2014 approximately USD43 million was disbursed to members and the outstanding loan balance was USD22.22 million. PPF Pensions Fund was the first scheme to introduce the product in the market. The product supplements members monthly income, enables members to access medium term loans, encourages members saving culture and helps recruit new members to the scheme. CRITERIA 1: What was the issue/problem/challenge addressed by your good practice? Please provide a short description. PPF Pensions Fund realized that in order for the members to live a comfortable life while they are still actively working and after retirement, there was a need to introduce a product that will supplement members monthly income. The product had to be structured such that it is easily accessible, very affordable to members and has a low risk to the scheme. In 2004, a special loan to members was introduced. The loan was structured so as to be disbursed to the SACCOS already established by employees at their working places hence the name Employees based Saving Credit and Cooperative Society (SACCOS) was given to the product. The product leveraged on the existing SACCOS already established in the members working place. This approach enabled the Fund to reduce administration costs, minimize the credit risks to the Fund and hence allow an affordable interest rate to the members. The Fund was the first scheme in Tanzania to introduce this product. The loan is disbursed to the SACCOS for payment to the PPF contributing members who are the members of the SACCOS. The basic eligibility criteria for the SACCOS to qualify for the loan are: SACCOS has to be established at the working place by members who contribute to the PPF. SACCOS must have been in operation for a period of at least one year and its accounts are audited. The employer must agree to deduct loan installments from the beneficiaries salary and remitting the same to SACCOS Management for payment to PPF Pensions Fund as per the agreed repayment schedule.

3 2 CRITERIA 2: What were the main objectives and the expected outcomes? The main objectives of having direct loan to members through SACCOS were as follows: To supplement members monthly income. This is achieved by granting affordable loans to enable members to set up small projects and to pursue other social development activities such as paying children s school fees. Over a period of time, the Fund realized that the majority of loan beneficiaries have set up businesses and are pursuing various projects like poultry, farming, buying commercial vehicles, building residential houses etc. Indeed the product has been very successful for the members. Demand for loans has been increasing continually. To date the Fund has already disbursed total loans to members amounting to TZS72.35 billion (approximately USD43 million). More than 5,000 members have already benefited from the product. To enable our members to access medium term loans at an affordable interest rate compared to loans offered by other financial institutions. The Fund offers loan to members with the maturity period of 3 years or 5 years. The loan is disbursed to the SACCOS at the fixed interest rate of 10% per annum, and the SACCOS is restricted to lend to members at a maximum rate of 13% per annum ( i.e. the maximum allowable administration cost is 3% per annum). No other charge is to be paid by members. The rate is affordable because, the average interest rate currently charged by commercial banks and other financial institutions ranges between 21% per annum to 35% per annum. Encourage a savings culture in our members. Members are obligated to save in their SACCOS before borrowing; consequently, more savings are accumulated by a member up to retirement age. CRITERIA 3: What is the innovative approach/strategy followed to achieve the objectives? The product used the existing structure already established in the members working places, i.e. SACCOS. SACCOS have well defined structures, policies and procedures for the management of credit to members. The use of the existing SACCOS reduces administration costs and credit risks and hence allows affordable interest rates to be offered to members. The size of the loan is determined by the total of savings, deposits and shares the members hold in the SACCOS. The maximum loan is five times the total savings, deposits and shares held by a member. SACCOS management is responsible for undertaking a credit analysis before a loan is disbursed to members. Both the employer and employees are involved in the process. Employees are the loan beneficiaries, while the employer assures the Fund that installments/deductions will be made from the salary and remitted to the SACCOS for onward submission to the PPF Pensions Fund. This relationship is important to ensure the commitment of the

4 3 employer. This approach has been very successful as performance of the portfolio has been very good. The non-performing loans as at 31st July 2014 were 0.78%. The use of revolving credit terms. Under this approach, the Fund approves the maximum loan limit for a SACCOS loan. As long as the limit is not exhausted the SACCOS is allowed to borrow/withdraw and disburse to new members. The approach has been useful because the SACCOS does not need to apply for a new loan every time a new member is introduced into the SACCOS. Limit uplifting. This occurs where the existing limit failed to meet the growing demand for loans by SACCOS members. Therefore the product set a provision which allows uplifting of the credit limit. This again helps the Fund to accommodate the growing demand of the existing and new members. CRITERIA 4: Have the resources and inputs been used in an optimal way to achieve the set objectives and the expected outcomes? Please specify what internal or external evaluations of the practice have taken place and what impact/results have been identified/achieved so far. The resources and inputs have been used in an optimal way because: Low administration costs: the product is administered internally under the Directorate of Investment. The introduction of the product did not necessitate the employment of additional staff. Since then it has been handled by the same staff responsible for other investments activities. The Fund has already disbursed a total of TZS72.35 billion (approximately USD43 million) and the outstanding loan balance as at 31st July was TZS33.76 billion (approximately USD22.22 million). The performance of the portfolio has been very good. The non-performing loans as at 31st July 2014 were 0.78%. In 2012, the Fund conducted a study on the benefit of SACCOS to members and it was realized that the loans to members are mostly used for the following activities: construction of residential and commercial houses; construction of boreholes for clean water; education (paying school fees); purchase of shares during Initial Public Offers (IPO); dairy farming; poultry farming.

5 4 CRITERIA 5: What lessons have been learned? To what extent would your good practice be appropriate for replication by other social security institutions? Please explain briefly. In this financial year 2014, the Fund celebrated 10 years anniversary of extending affordable loans to members through SACCOS. The following are the key lessons learned:- Affordable Loan granted to Members while are still actively working supplements their monthly income and enables them to prepare for life after retirement well in advance. Short-term benefits such as loans to members can help to retain members in the schemes and reduce the withdrawal of members from the scheme. Pensions schemes have a fiduciary duty to promote a savings culture among its members and the community at large to provide for a better future. The SACCOS loan has attracted savings of more than TZS14 billion, which in turn have generated loans of TZS72.35 billion. This is because the loans disbursed are five times the said savings. Loans to members have attracted the recruitment of new members to the Fund/scheme and hence assisted in all aspects of scheme continuity. Due to the unique nature of this product and the benefit accrued, the SACCOS product is very appropriate for replication by other schemes.