Abstract:
This paper focuses on evaluation of factors and methods used in setting up sustainable loan
interest rates in Savings and Credit Cooperative Societies (S4CCOS), using three selected
SACCOS in Dodoma as a case in point. Multiple case study design was opted. Furthermore,
questionnaires, observation and interview were used to collect data from three selected
SACCOS in Dodoma Municipality. The paper deploys a model by Consultative Group to
Assisting the Poorest (CGAP) in sustainable interest setting model and attempts to test its
applicability in Tanzania. The model is developed as a method for estimating interest rate that
an MFI will need to realize on its loans, if it intends to fund its growth primarily with
commercial funds at some point in the future. The model claims to be simplified and it yields
an approximation that should be useful for many MFIs especially the young ones. The study
reveals that all three SACCOS consider different factors in setting up interest rates and no
specific formula is used to calculate interest rates. The current interest rates charged by these
SACCOS were either below or higher than the calculated interest rates. From the findings, it
is concluded that, CGAP model, as it is currently, is not directly suitable for SACCOS in
Tanzania as it appears to be relatively more sophisticated compared to level of development
for most SACCOS development in the country. It is recommended that training for board
members and staff is crucial especially on financial management skills as these institutions
deal with money business. Furthermore, it is recommended that modification of CGAP model or development of a new model to suit Tanzania environment should be done in order to enable
SACCOS estimate sustainable loan interest rates.
