Leaders have advised Savings and Credit Cooperative Organisations (Saccos) to adopt alternative dispute resolution mechanisms to settle internal disagreements instead of resorting to courts, which often damages their credibility and drains their finances.
Many financial institutions continue to spend large sums on legal fees and bailiffs in pursuit of arbitration.
"Running to courts whenever there is a disagreement isn't good at all, especially for SACCOs that are owned by members. It's better for the warring factions to sit at a roundtable and sort out their issues amicably," said Ahimbisibwe Wilberforce Ongom, the deputy Resident District Commissioner (RDC) of Rukungiri.
Saccos in western Uganda have recently been plagued by management and governance disputes, putting their credibility at stake. These disagreements often arise from forceful loan recoveries and conflicting views in board meetings.
"When all the loan recovery procedures have been exhausted, we are compelled to take some of these stubborn borrowers to court to recover members' money, which sometimes doesn’t go well with the defaulters," said Nayebare Olive, General Manager of Buyanja Sacco.
Beyond loan recovery, governance issues among board members have also threatened Sacco operations. While board members take an oath of secrecy upon election, internal disputes frequently spill into the public, eroding trust in the institutions.
"Conflicts in Saccos are always not good, especially among board members," said Atuhaire Caroline, Acting District Commercial Officer for Rukungiri.
"At times when board members are not working as a team, it shows you that something is wrong. We encourage them to exercise a high level of integrity and teamwork," she added.
Some Saccos already have cases in court, mostly related to loan defaults. However, due to the high legal costs, many are now shifting to alternative dispute resolution to minimize court expenses.
"It's too costly to secure lawyers and court bailiffs. For example, our Sacco(Buyanja) spent close to Shs 40 million last year in court to recover loans. Having adopted alternative dispute resolution, we believe we will now cut these expenses," said Can. Yosiya Twirire, chairman of the Board of Directors at Buyanja Sacco.
"The alternative dispute resolution initiative by President Museveni is really working for us here in Rukungiri, but it requires both parties to be willing to settle their matters," said Ahimbisibwe Ongom, the Deputy RDC.
Speaking at the 21st Annual General Meeting of Buyanja Sacco, Atuhaire urged Saccos to prioritise financial literacy and governance training for their members to curb loan defaults and leadership wrangles.
"I encourage all Saccos to embrace financial literacy and management training so that members can personally know how to manage their loans," she said.
"Despite the ups and downs, I encourage all our members to patronise their SACCO because it is through their share capital, savings, and loans that Buyanja Sacco has been able to grow," Nayebare added.
Loan defaulting in financial institutions is on the rise, with leaders attributing the problem to multiple borrowing enabled by the issuance of multiple loan agreements on the same collateral by LC1 chairpersons. In response, Rukungiri leaders have vowed to take action against those enabling these fraudulent practices.