Mpanga Tea Growers Savings Survey Report

Mpanga Tea Growers Savings Survey 2011

Mpanga Tea Growers Savings Survey Report Table of contents Executive summary...3 1. Background...4 1.1. The importance of savings...4 1.2. Mpanga Tea Growers...4 2. Research findings and recommendations...5 2.1. Survey population and sample size...5 2.2. Saving practices...7 3. Way Forward... 11 4. References... 11 5. Appendix... 12 Corresponding research coordinator and author: Felix Meier zu Selhausen (felix.meierzuselhausen@giz.de) 2

Executive summary MMU Microfinance and Banking Department conducted the field research in July in joint collaboration with Mpanga Tea Growers. In general, the study finds a relatively low savings culture among Mpanga s tea growers. Also a low variety of savings products at Mpanga SACCO and a long distance from tea-centre to factory (or high costs of cash) for tea growers can be attributed to this development. Small-scale tea growers save to protect themselves from unpredictable emergencies (e.g. sickness, natural disasters, burials, etc.) or to plan for future and acquire assets (e.g. roof, bodaboda, farm inputs). Savings are higher during yield per acre peak-seasons. On this basis the report recommendations are four-fold (grey shaded boxes in this report): 1. Establish savings groups along tea-centre social structures. 2. Commitment savings accounts to channel peak seasons higher savings into future lumpsums for school fees, assets and farm inputs. 3. The SACCO and Mpanga s accounting office need to be merged in order to create synergies for the company and reduce small-scale tea-farmers. 4. Mobile Money has the potential to reduce costs of cash associated with large distances and long waiting periods. Simultaneously this would encourage savings since farmers send their savings from non-tea income to SACCO to store it safely and earn interest MMU Microfinance and Banking Department s research results and recommendations were presented to the Board of Directors of Mpanga SACCO in early September 2011. In November 2012, the management of factory and SACCO were advised on venturing into Mobile Money by CGAP (World Bank) and the Grameen Foundation Kampala, organized by MMU. 3

1. Background 1.1. The importance of savings A prominent view is that poor people are too poor to save. However, in the past decade the focus of microcredit shifted to the more appropriate terminology of microfinance, acknowledging the capacity and willingness of the poor to save. In other words, poor people need to save not despite they are poor but because they are poor. Their complex lives make them more vulnerable to emergency expenses, natural disasters (i.e. drought or flood) and opportunity spending, thus representing an immediate need for saving. With savings, not only can households accumulate assets to use as collateral for a loan, but they can meet emergency needs, such as medical expenses, smooth seasonal consumption needs, finance lifecycle events such as school fees and funerals, self-insure against major shocks, and self-finance business investments. However, not only that they have small incomes but also lack reliable and effective ways to store the money they have (Collines, Morduch, Rutherford et al., 2010). Informal self-help savings groups (i.e. ROSCAs and ASCAs) and savings and credit cooperatives (SACCOs) are offering financial services (loans and savings products) for this segment of the formal financially excluded. Poor people get by on incomes that are small and irregular. But they often need sums of money larger than they have immediately to hand, to pay for life-cycle events such as birth, education, marriage, and death, for emergencies, and seize opportunities to invest in assets or businesses. The only reliable and sustainable way to obtain these sums is to build them, somehow or other, from savings. Poor people have to save: and financial services for the poor are there to help them find ways to do so. 1.2. Mpanga Tea Growers -Rutherford and Arora (2011)- Mpanga Tea Growers was founded in 1995 and is one out of four tea factories owned by smallholder tea-farmers in Uganda (the other 3 include Igara, Mabale and Kayonza). Mpanga is located 14km east of Fort Portal on the Fort Portal-Kampala highway. Mpanga s tea plantations stretch from Kyenjojo District into Kabarole District and cover 400m2. Farmers themselves or their sub-contract casual workers pick the green leaf of their plantations and drop it at the 16 tea centers along the main-road to Kampala. From there the tea is picked-up by trucks which transport the green leaf to the factory to be processed into made tea. Then the tea is transported and sold on behalf of smallholder tea growers through the Mombasa Auction, held every Monday. March to May and October to December represent the so called peak-seasons when yields per acre are considerably higher than during other months of the year. In May 2011, Mpanga counted 785 associated tea growers with an average of 1.6 hectares, producing 917kg of green leaf per month translating into a 330,000 UGX monthly income from tea. Mpanga is fairtrade listed since 2001 and reinvests its premiums into its community health services (clinic) and shallow water wells and pumps for example. In 2008, Mpanga SACCO was founded in order to ease financial access for its tea-farmers almost all tea farmers are members and some of Mpanga s staff members. Per May 2011 the SACCO had 754 registered fully paid-up members of 4

which 150 are female. The SACCO is a male-dominated institution given that the majority of tea farmers are men. Per 31 st April 2011, the SACCO reported 654 individual savers and 554 active individual borrowers. The SACCO had neither savings nor credit-groups. The SACCO offers its members five loan products (business, school fees, agriculture, individual, and emergency loan) with very competitive interest rates of 2% p.a., except for the emergency loan which has an interest rate of 10% per month. On savings products the SACCO provides only one product voluntary savings. Mpanga Tea won a grant from the German Development Cooperation GIZ PPP Program. Part of the activities to increase savings, included an academic field research in order to assess the saving practices of Mpanga s smallholder tea farmers. To conduct the field research and analysis Mpanga contracted Mountains of the Moon University. The two institutions are close community partners and worked together on another research project in the past. Other activities included a savings workshop for tea-centre head-farmers, Mpanga s extension workers and SACCO staff. Mpanga SACCO was basically interested in three questions: 1. Is there a low savings culture among Mpanga s small-scale tea farmers? If so, what are the reasons for it? 2. What kinds of products and operational processes have the potential to increase member s savings? 3. How to improve the efficiency of factory cash handling? In order to collect the data and translate it into information MMU used ten trained students as enumerators under supervision of the Business School s Research Coordinator, Felix Meier zu Selhausen and Head of Department Banking and Microfinance, Geoffrey Muzigiti. Dr. Oliver Schmidt supported the team for data analysis and presentation of findings. Field research took place in the period July August 2011. 2. Research findings and recommendations 2.1. Survey population and sample size The sample interviewed is composed by about 13% of female and about 87% male respondents. Figure 1 shows the sex-disaggregated profile of the 139 respondents. 108 are members at Mpanga SACCO 94 male and 14 female, which corresponds to about 14% of the survey population. Data was collected from 7 tea centers equally spread out over Mpanga s tea small-scale farmers` tea plantations in order to cover tea farmers representatively and not only from one particular area. Table 1 reports household and acre sizes of respondents, as well as the average distance from the tea-growers affiliated tea-centre to the factory. Surprisingly, tea farmers on average grew tea on about 30% of their total land, reflecting income diversification in order to spread the risk in case of a bad harvest. Secondly, larger acre size would also result into additional wage labour on the plantations, since the family labour may not be sufficient. Acre size and household size are statistically significant correlated (Figure 2), meaning when household size increases by one, acre size increases by 0.3 acres. More tea acres require more family labour. Average distance from tea-centre to factory equals 13.6 km. Average household size was 7.1 people, captured as how many people 5

acres of tea take regular meals together within the household. The questionnaire used for field research is attached to the Appendix (Section 5). Figure 1: Survey respondents by sexes Field supervisors 5 Tea pickers 34 1 Tea growers 82 17 No. of respondents 121 18 Male Female Table 1: Overview of respondent s household data Average Age (years) 44 Household size 7.1 No. of total acres 6.3 No. of acres of tea 1.8 Distance from tea-centre to factory (km) 13.6 Figure 2: Relationship between acres of tea and household size 14 12 10 8 6 4 2 0 0 5 10 15 20 household size 6

2.2. Saving practices Out of the sample of 139 individuals, 108 are SACCO members at Mpanga. Among the out-growers that save in Mpanga SACCO, 31 reported to save at the same time in another place (Table 2). Thirteen reported to save with another SACCO; 10 saved with a commercial bank, 11 stated to save with savings groups, like ROSCAs and ASCAs. The majority of them reported to save once per month at Mpanga SACCO, presumably when picking-up their cash from tea-leaf. The farmers that have an additional commercial bank account own almost triple the size of acres for tea as the average tea small-scale farmer and therefore potentially can afford a commercial bank account. The small-scale farmers that are also members of a SACCO or other MFI are on average further located from the Mpanga factory by 2.5 km. Thus distance to Mpanga factory and therefore access and storage of savings is bridged via being a multiple member of formal and informal savings institutions. Twenty-two individuals reported to save exclusively in places other than Mpanga SACCO. Among the 22 non-mpanga SACCO members 6 stated to save within their house, 6 in savings groups, 4 in commercial banks, 4 in another SACCO and one with friends/relatives. Table 2: Savings locations (n=139) Other place No. Average Savings (UGX) Other SACCO (monthly) 17 9,200 Savings group (weekly) 17 9,000 Commercial Bank (monthly) 14 97,000 In the house (monthly) 8 18,500 Total 56 Table 3: Monthly income and savings Average Monthly income from tea UGX 175,000 Income from other sources UGX 165,000 Total income UGX 340,000 Monthly savings at Mpanga SACCO (108) UGX 21,000 % of income 6% Monthly savings at other places (56) UGX 24,000 % of income 7% On average Mpanga SACCO members stated to save UGX 21,000 per month. The sum is broken down into ranges of savings below in Table 4. The majority of respondents that are members of Mpanga SACCO (108), 60% (65) save within a range of UGX 500 to UGX 10,000 per month. However, average savings per person translate into 6% of member s monthly income or UGX 21,000. For non-members and some multiple members that (also) save in other places (51) 53% (27) are saving monthly below the UGX 10,000 threshold. For this group average savings per person come to UGX 24,000 or 7% of their monthly income. 7

Table 4: Distribution of monthly savings (n=139) UGX Mpanga SACCO Other places 500-5,000 36 19 5,001-10,000 29 8 10,001-15,000 4 1 15,001-20,000 9 4 20,001-30,000 9 5 30,001-40,000 2 3 40,001-50,000 7 3 50,001-70,000 2-70,001-120,000 1 3 >120,000 2 5 no response 7 5 Total 108 51 From Table 2 and 3 we can draw the following conclusions: 1. On average members and non-members save less than UGX 10,000 per month or 7% of their monthly income. Still a low savings culture. Why is that? Perhaps because of a lack of savings options (products) offered by Mpanga SACCO. 2. Distance represents a problem savings deposits at Mpanga SACCO are low and members save in local groups as well as in other SACCOs. 3. How can saving with Mpanga be attractive for larger growers that have a commercial bank account? 4. How can in-house -savings be channelled to Mpanga SACCO? Product recommendation: Organise farmers around tea-centres into saving-groups. Take advantage of their social and commercial bond. Farmer groups to receive tutorials by Mpanga s extension staff (that has undergone the training of trainers workshop in October 2011) on savings practices and group formation. One group member to be chosen to deliver group savings to SACCO in order to save multiple transport costs. Product recommendation: Mpanga SACCO needs to advertise its voluntary savings product more effectively. The current interest rate of 0.5% per month (approx. 6% per annum) is a very competitive rate and can also compete with commercial banks. The principle barrier to saving is lack of money, according to the respondents: 1. Don t have enough money (28%) 2. Earn too little to save (26%) 8

However, 57% (63 respondents) of the out-growers stated that they would save more during a peakseason. The majority of farmers responded they would save for emergencies and opportunities (Table 5). For opportunities the greater part of farmers emphasized the need to save for future investments, like farm inputs (i.e. fertilizer, seeds, tools, etc.). Table 5 illustrates that the majority of respondents save in order to protect them from emergencies (i.e. sickness, natural disaster etc.). More than 1 out of 3 responses to why savings was about preparing/planning for the future or acquiring an asset. Farmers want to plan for the future and invest into assets. However, farmers require a product that channels their seasonal peak-incomes (March-May and October-December) into future lump-sums. Saving for life-cycle events (i.e. school fees, ceremonies etc.) receives less importance than the other first mentioned motives. Product recommendation: Commitment saving accounts (contractual savings), saving for an asset (i.e. fertilizer, boda-boda, school fees, etc.) money-bound or time-bound to be offered just before peak-season to channel biannual peak-incomes into savings and reduce temptation of immediate spending. Field experiment in Malawi: Commitment accounts for small-scale tobacco farmers yielded positive outcomes on the amount of planting for the next season, sales from the next harvest, and consumption after harvest (Brune et al., 2011). Table 5: Respondent s motives for saving Life-cycle events Emergencies Opportunities School fees Family Emergency Safety Accumulation Future investment Loan acquisition Purchase asset Home development 8 6 56 16 6 39 6 5 8 Total 14 72 64 Table 6: Costs of cash and mobile money Distance to factory (km) 13.6 Travel costs to factory from tea-centre (UGX) 8,400 Own a mobile phone (%) 61 Distance to closest Mobile Money agent (km) 6.1 Use Mobile Money (%) 17 9

Savings (UGX) Figure 3: Relationship between distance to tea-factory and monthly savings 120.000 100.000 80.000 60.000 40.000 20.000 0 0 5 10 15 20 25 30 35 40 Distance to factory (km) Figure 3 illustrates the negative relationship between distance to factory and farmer s savings. However, ordinary regression analysis (OLS) proves the relationship to be insignificant (p-values are above the 0.15 significance level). Still, certainly distance to Mpanga SACCO does not encourage savings since it ultimately increases the costs associated to access/store savings when needed. Distance to Mpanga factory from the respondent s tea-centers is on average 13.6 km translating into UGX 8,400 for a return ticket (Table 6). This represents high financial and time costs for small-scale tea farmers when collecting their monthly payment for tea. Product recommendation: 1. The SACCO and Mpanga s accounting office need to be merged in order to create synergies for the company and its small-scale tea-farmers. The SACCO could then immediate channel a preagreed amount of the monthly payment channel into savings products, reducing a possible endowment effect on the farmer s side. 2. Spread payment days over month in order to avoid a run on the SACCO/accounting office. This will result into less waiting time for farmers and create a more efficient process for the SACCO. 3. Mobile Money has the potential to reduce costs of cash associated with large distances and waiting periods significantly. Simultaneously it would encourage savings since farmers can send their savings from non-tea income (see Table 2) to the SACCO to store it safely and earn interest. The SACCO is encouraged to take steps to become a MTN Mobile Money agent after having investigated the network coverage of MTN in its areas of operation. Furthermore, since the factory is a busy commercial place Mobile Money and airtime sales are likely to increase Mpanga SACCO s income. Satellite Mobile Money payment centres could be considered to reach out to the farmer and thus reduce her/his costs of cash. 10

3. Way Forward MMU would be happy to support the development of commitment savings accounts at Mpanga SACCO, as well as together with the Grameen Foundation and MTN explore the various roles that MFIs can play in m-banking and, as well as explore the potential benefits MFIs and their customers expect to gain from pursuing m-banking. The first step into this direction means to become a Mobile Money agent and fuse the accounting office and SACCO farmer accounts. These steps will lay the foundation of a cost-efficient and tea farmer-friendly business environment. 4. References Brune, L., X. Giné, J. Goldberg and D. Yanga (2011): Commitments to Save: A Field Experiments in Rural Malawi, World Bank Policy Research Working Paper No. 5748. Collins, D., J. Morduch, S. Rutherford and O. Ruthven (2010): Portfolios of the Poor: How the World's Poor Live on $2 a Day, Princeton University Press, Princeton. Rutherford, S. and S. Aroroa (2011): The Poor and Their Money: Microfinance from a Twenty-First Century Consumer's Perspective, Practical Action, London. 11

5. Appendix Table 1: Applied questionnaire MPANGA small-scale tea farmers Questionnaire (19 th July 10 th August 2011) A. Basic Information 1. Work activity: O Tea-plucker O Tea-outgrower O Employed by Mpanga 2. Tea Centre name and number: 3. Distance to Mpanga Tea Factory from housing (in km) 4. Gender: O male O female 5. Age: years 6. Household size (number of adults and children taking regular meals together): B. Ownership 7. How many acres of land do you have? acres 8. (a) How much of this land do you use for planting tea (in acres)? (b) In case not all the land is used for planting tea, what is the remaining land used for? (Give details.) km 9. (a) Do you own the tea fields or do you rent? (tick only one) O Own land O Rented land O any other.. (b) If you rent how high is the rent per (fill: either per month, 6 month or year) in UGX? UGX 10. (a) Do you own the house where you live in? O yes O no (b) If no how high is the rent per month in UGX? C. Sources of income 11. (a) Name your sources of income (more than one can be ticked): O Tea UGX O Others (give details e.g. business, trade, agricultural activity etc.) (b) How much do you earn from Tea in UGX per month? (c) How much do you earn from Others sources of income? (Give details in relation to question 10(a) 12. On agricultural activities, name your 4 O O Own consumption only O Both own consumption and commercial O Commercial only 12

most important crops and how you use them: O. O Own consumption only O Both own consumption and commercial O Commercial only O O Own consumption only O Both own consumption and commercial O Commercial only 13. How much income do you earn from Tea and Other income generating sources (given in Question 11) spread over the yearly seasons in terms of production (in kg or UGX? O.. Tea... O Own consumption only Peak season rain season O Both own consumption and commercial.. D. Expenditures What are your monthly expenditures on: Mid season O Commercial only Drought season 14. Tea gardens (E.g. fertilizer, seeds, pluckier s salaries, transport of green leaf to factory, rent of fields, etc.) 15. Household (e.g. food, clothes, paraffin, rent, etc.) 16. Health care: 17. Education (school fees, books etc.): 18. Community (e.g. weddings, burials, parties etc.): 19. Any other (name) : E. Savings 13

20. Why do you save? For what purpose? 21. (a) Where do you save? O Mpanga SACCO O Other places (b) If ticked Mpanga SACCO in 20(a), how often you save there (daily, weekly, monthly)? (c) If ticked Mpanga SACCO in 20(a), how much money do you save in the SACCO per month (in UGX)? (d) If ticked Other places in 20(a), where do you save, please specify. (more than one answer is possible) O In the house O Friends/Relatives O Other SACCO (give details) UGX O Commercial bank O Saving groups O Other places (give details) (e) If ticked Other places in 20(a), how often (daily, weekly, monthly) do you save according to each of the ticked other places, given under 20(a)? (f) If ticked Other places in 20(a), how much money do you save in each of these other places, given in 20(a)? 22. Do you save more during a peakseason? 23. If Yes, how much more? O Yes. O No 24. In your opinion, what are the strengths and weaknesses in your OWN savings behavior (give details)? Strengths (+) Weaknesses (-) 25. How often do you collect your cash at Mpanga Tea Factory per month? 26. How high are the transport costs to travel to Mpanga tea factory for you? UGX 27. Do you have a mobile phone? O Yes O No 28. What s the distance to the closest Mobile Money Agent from where you live (in meters or km)? 14

29. (a) Do you use Mobile Money? O Yes O No (b) If yes which company? 30. How can Mpanga SACCO improve your savings (in terms of savings products and services)? 15