SACCO PROFITABILITY. Turning SACCOs into dynamic and vibrant institutions. 7 th SACCO OPERATIONS FORUM 2016 JOHANNESBURG SOUTH AFRICA

Transcription

1 SACCO PROFITABILITY Turning SACCOs into dynamic and vibrant institutions 7 th SACCO OPERATIONS FORUM 2016 JOHANNESBURG SOUTH AFRICA

2 OUTLINE Defining Profitability Measuring Profitability Factors that Drive Profitability Role of Leadership Role of Management Role of Information Technology Making Efficiency top Priority 2

3 SACCO PROFITABILITY Profitability is the ability of a business to earn a profit. A SACCO as a Financial Services Business must be profitable to stay in business. A profit is what is left of the revenue a SACCO generates after it pays all expenses. In SACCOs, Profit is generally called Surplus

4 SACCO PROFITABILITY Profitability is the primary goal of all business ventures. Without profitability the business will not survive in the long run. A SACCO; therefore, without profitability can not attract new members and existing members may stop saving and it can not survive.

5

6 SACCO Service Depositors CFI Share Savers Employees Borrowers 6

7 SACCOs have a Dual Mission Economic Mission Social Mission 7

8 SACCOs have a Socio-Economic Mission The Social Mission To help members improve the quality of their lives by providing them access to quality financial products and services. 8

9 SACCOs have a Socio-Economic Mission The Economic Mission To become a safe and sound financial institution that above all else, has earned the trust of the Community in which it operates. 9

10 The SACCO Paradox The more businessminded you are. The more social impact you can have 10

11 SACCO PROFITABILITY Remember! Co-operative Principle 7 Concern for the Community Possible with Profitability

12 MEASURING PROFITABILITY Measuring profitability is the same as measuring the success of a business. An income statement shows a breakdown of income and expenses during the financial year. One measure of a business's profitability is the profitability ratio. Profitability ratios analyse the financial health of a business e.g. Gross Margin, Operating Margin, ROA, ROE etc.

13 MEASURING PROFITABILITY Using the PEARLS Performance Monitoring System, Profitability in SACCOs is measured through the rate of Net Income to Average Total Assets which is linked to Net Institutional Capital to Total Assets Minimum is 10%

14 MEASURING PROFITABILITY Without making it too Academic, lets look at: a) SACCO Balance Sheet b) Income Statement Which Factors Drive SACCO Profitability?

15 Earning Assets Loan Portfolio Liquid Investments Financial Investments Non-Financial Invest. Non-Earning Assets Liquid Assets Accounts Receivable Fixed Assets Other Assets Problem Assets Total Assets Balance Sheet Int. Bearing Liab. Member Deposits External Credit Non-Int. Bearing Liab. Short-Term Payables Provisions Other Liabilities Capital Member Share Capital Transitory Capital Institutional Capital Total Liab. & Cap. Income Statement Interest Income Loans Liquid Investments Financial Investments Non-Interest Income Non-Financial Invest. Other Income Financial Costs Member Deposits External Credit Member Share Capital Operating Expenses Personnel Governance Marketing Depreciation Administration Provisions for Risk Assets Net Income 15

16 FACTORS THAT DRIVE PROFITABILITY A number of factors affect the profitability of a SACCO. Their influence varies in the short term, as well as in the long term. An important role falls to the Manager of the SACCO, who must make all efforts to improve the financial results of the SACCO.

17 FACTORS THAT DRIVE PROFITABILITY 1. SIZE OF THE SACCO It s a Game of Numbers!! Size of the SACCO has positive influence in its profitability. The larger the SACCO, the better its access to the resources the more likely it is to increase profitability. Big SACCOs take advantage of economics of scale in transactions and enjoy a higher level of profits.

18 FACTORS THAT DRIVE PROFITABILITY 1. SIZE OF THE SACCO It s a Game of Numbers!! ASSETS Loanable Amount Interest 25% R R R R R R R R R R R R R R R R 1 Billion R R

19 FACTORS THAT DRIVE PROFITABILITY 2. PRODUCTIVITY OF THE SACCO The Size and Quality of Loan Portfolio Low Delinquency Less than 5% of Loan Portfolio The Yield and Safety of SACCO Investments Growth in Savings No External Credit Optimal Expenditure Levels

20 Board of Directors main responsibility is to Ensure. 24

21 Thank You 42