Abstract:
This paper focuses on evaluation of factors and methods used in setting up sustainable loan interest
rates in Savings and Credit Cooperative Societies (SACCOS), using three selected SACCOS in
Dodoma as a case in point. Multiple case study design was opted. Furthermore, questionnaires,
observations and interviews were used to collect data from three selected SACCOS in Dodoma
Municipal. 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 its 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 for
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 load interest rates.
