ACCOUNTING POLICIES & PROCEDURES FOR

PARLIAMENTARIANS SAVINGS AND CREDIT COOPERATIVE SOCIETY LTD

2008

By Uganda Cooperative Savings & Credit Union Limited P.O.Box 6203 Kampala Ug. Plot 33 Lumumba Avenue Murtala Courts, 5th Fooor Tel. 256-414233601 Fax256-414233598 Email: ucscu@africaonline.co.ug

SAVINGS POLICY 1. Objectives: The principal objective of this document is to: 1. Serve as a familiarization tool to achieve greater mobilization of discretional and voluntary savings within SACCOs, as part of a more modern viewpoint and competitive perspective at the market. To assist in improving the management and savings mobilization attracting a greater participation within the formal financial system where SACCOa operate, so that they may be able to provide more effective financial intermediation and a better financial services to their members. To improve the market share of SACCOs in the savings market, as a percentage of the formal financial system in which the society operates. Conditions Necessary for Savings Mobilization The SACCOs should consider the following factors and guidelines for implementing a Savings Mobilization Program: i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii) 3. A through knowledge of the targeted market, and market demographics. A functional, positive and progressive image of the SACCO. Feeling of security and soundness emitted to the members. Professional staff good working Standards. Workable and competitive scheduling competitive scheduling compatible with the needs of the members. Efficient means of communication Attitude and mentality to mobilize voluntary savings Competitive financial services for savings mobilization and to meet the demands of the market. Management level monitoring of depository interest rates. Current, flexible policies regarding savings mobilization Interdependent financial disciplines with mobilization Protection mechanism for savings lending services Implementation of short, medium and long range marketing programs

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Implementation of marketing Strategies To mobilize sanings , the SACCO shall apply aggressive marketing efforts to change the status in the market.

Market Development To make the SACCO known to the public, its is advertises its services, influence the market, sell their image, recruit new membership, facilitate access to services and disseminate the SACCOs concepts. Market Penetration The SACCO shall intensify use of services to attract saving growth in terms of number of accounts, volume of savings, per capita average savings and membership. Market Expansion The SACCO shall orient Savings mobilization towards other geographical markets by opening new services in strategic areas of growth. Marketing Department A SACCO shall establish a marketing Department, which will be responsible and take care in all its respective ventures, to maintain a solid and secure image of the institution through the implementation of the societys long term strategic plan in mobilization of savings products. Management and officials of the SACCO are to ensure that services offered by the society are those desired by the members, offered at competitive prices with other local financial institutions and the members have convenient access to their money. The Savings to be promoted through: i) ii) iii) Personal contact with the members through the selling of products during their visits top the society, at financial counseling sessions or workshops. Printed materials like posters, sign posts, brochures shall also be used as a way to reach a large group of people Awards and incentives may be offered to the members as an extra benefit for savings.

Branding Different loan mobilization services or savings accounts of societies may be marketed under Commercial Trade Marks or Brand Names with the purpose of creating a much more modern, distinct and recorgnizable image to more directly promote motivations for savings. Societies are continually trying to change the concept of traditional short and long term savings services under the premise that people are more responsive to commercial concepts that reflect their daily lives and values.
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Both short and long term savings may be considered as services, where different types of mobilization methods may be developed as part of diversification and services, which work as a function of customer demand, potentailly including their ability to save. It is necessary to differentiate between pure savings (the surplus balance remaining after expenses, voluntary or not) and savings that are acyclical in nature ( those savings managed by the customer, being deposited and withdrawn regularly). For example, if at the beginning of the month he/she deposits a cheque and makes withdrawals on a gradual basis and by the end of the month there is little remaining until he/she makes the next deposit to repeat the cycle. These two types of savings are vitually important to the society, the former creating a feeling of accumulation, and the later with an account management, but what the society needs to bear in mind is the average monthly balance. Considerations for Managing a Brand Name The society should consider the following in managing a brand name: 1. 2. 3. 4. 5. 6. 7. Awareness of the dynamic commercial influence of the Brand Name in the market Ease in pronouncing, recording, selling, and positioning in the market. To express a concept and a marketing it with real and understandable value. The name should be associated with the market or niche to which it is directed. The launching of the name should be build as along term investment The Brand Name is susceptible to replacement, altering the actual service and creating an aggregate value greater than that which existed previously. The marketing of the Brand Name should be performed in a professional manner directed to the market of interest, maintaining a competitive quality, only through quality media such as printed materials, Radio Programs, Televisions Programs, or other marketing media. One should take care in all of their respective ventures to maintain solid and secure image of the society. Financial Protection Disciplines

Savings mobilization requires the implementation of a series of financial disciplines, necessary to protect members savings, to preserve a sound institutional image as a financial intermediary and, to establish market trust on savings management. Liquidity Reserve: The SACCO shall require a Reserve Percentage calculated on all Savings portfolio to be deposited in other financial institutions, as yielding liquid investment, readily available to cover unexpected withdrawals from Savings. The Cash Reserve should be between 10%-15% of the deposit portfolio. Capitalization Savings mobilization, when done productively should yield reasonable growth and income from a loan balanced growth; these yields build the institutional capital of the society capital through capitalization of surplus, setting the minimal relation of Institutional capital at 10% in relation to total assets. This capital in term protects the value of the savings from losses in the society. Delinquency Delinquency should be reduced a minimum so that deposits finance a sound portfolio with maximum yield. Other wise the need to create provision for loan losses will reduce profitability and the capitalization level. Delinquency should not exceed 5% of the loan portfolio volume. Charge off of Loan Losses Loans with delinquent balances for more than 12 months are written off. Members savings and share balance should be applied before using provision for loan losses. Non Productive Assets The Savings Portfolio should only finance productive assets. Liabilities with a cost should not finance assets, which do not generate income. Idle Liquidity Daily management of non-earning cash operational requirements is reduced to provide strictly that is necessary to meet withdrawals and grant loans. Financial Structure

The Savings Portfolio should be the main source for assets growth of selffinancing. Financial Margin The gross margin product of financial intermidation of Savings should be sufficient to cover operational expenses, Provisions for Loan Losses and contributions to capital of the society. Interest Rates of Deposits This implies the entreprenual and timely management of pricing, set the interest rates on deposits at competitive rates in the market and protect the real value of members savings from inflation. Terms Matching Short term Savings funds should be invested in short term assets. INTEREST RATES ON SAVINGS Interest rate management will depend on the consideration of the following elements: a) b) c) d) e) f) g) h) i) Financial market behavior. Current inflation rate. Real resulting deposit rate ( positive or negative) Transaction cost on savings. Savings mobilization volume. Terms offered to the market. Discrimination according to portfolio levels. Average rate on deposits weighted on portfolio. Business methodology to estimate rate on capital.

SPECIFIC SAVINGS POLICIES a) b) c) The interest rate on savings should be competitive in the market environment where the society operates. The interest rate should be reviewed periodically according to competitive patterns and should be adjusted in a timely manner according to the market. The interest rate, calculation, capitalization term and payment conditions are differently applied according to the services offered by the society to stimulate or

to the benefits the society would like to sell as an added value to a particular account. d) If the financial market allows it, the interest rate on deposits should be higher than inflation rate, in order to preserve the users cash value through real positive interest rates. Nominal interest rates should be differentiated according to savings amounts levels, regardless of the different modalities to capture savings. Minimum savings amounts should be established to open an account. Real interest rate should be marketed by savings ranges, in order to show the competitive advantage of the SACCO. The net interest rate should be sold as a competitive advantage, while keeping similarities with other financial institutions. A negotiated interest rate can be offered within the market selective niches with a large savings capacity, where people maximize the yield for their savings. The interest capitalization period, in different savings modalities, if applicable, could be daily, monthly or quarterly. Interest calculation on savings accounts is based, if applicable on the daily balance, or on the monthly average balance, this is to say on a more competitive and impartial basis to recognize members earnings. To calculate interest, the 365 day calendar should be used and the corresponding monthly calendar. Upon settling a savings account, interest should be counted until the previous day. Interest rates on fixed term savings accounts should be fixed rates, terms and amounts. Variable interest is paid or credited to a regular savings account. Interest payments on fixed term savings accounts can be previously agreed, monthly or at maturity, according to the terms agreed to the time of capturing the resources. Interest rates or earning on shares as a dividend should be higher than the earning on fixed term savings accounts and higher than inflation, in order to offer members a real positive rate. TYPES OF SAVINGS PRODUCTS OFFERED Structural factors to be considered

e) f) g) h) i) j) k)

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Market demographic information Services currently offered Financial need of interest market niche. Relation or links to market niches served Installations available to offer services Market testing before implementation Marketing services through Brand Names Permanent improvements or adjustments to market requirements Competitive advantage Diversification and differentiation of attracted services.

SAVINGS PRODUCTS: Regular Savings Account This is the primary account offered to the membership. The characteristics of this account include: Easy accessibility of account by a member, Minimum amount to open the account, The payment of competitive interest and, The funds on this account may be used to secure loans. To encourage savings, high interest rates will be paid on accounts with large balances. The minimum balance on the regular Savings account shall be Ushs.. A member may withdraw from his/her account at any time. Withdraws for less than Ushs shall be made in cash, and withdraws over that amount shall be made by cheque. The Committee and management shall determine the Interest rates payable on these accounts based on the market rates. Special Savings Account These accounts are for special purposes such as Christmas, School Fees, Vacation, or any other niche, which will serve the societys membership. These accounts are usually paid a high rate of interest than regular savings because the member cannot make any withdraw on these accounts until the specified date. Also there is a maximum amount established that may be deposited in these type of accounts because the interest rate is higher. Withdraws on these accounts may be made on .

If the funds are withdrawn prior to that date, no interest will be paid on the account. The maximum amount that may be deposited in this account is Ushs Youth Savings Accounts These are Savings Accounts for members under the age of. This account is used to motivate and establish a pattern of saving at a young age. The minimum balance on this account is normally lower along with the balance needed to receive interest payments. These accounts will be handled in the same fashion as those for regular savings account. The minimum balance to open a youth account is Ushs. The minimum balance to receive interest on this account is Ushs On a monthly basis the member is allowed .. withdrawals. After that amount there will be a fee of per withdraw. Fixed Term Deposits These deposits are for a stated amount, until a specified maturity date at a certain interest rate. A member will sign a contract with the society when making this type of deposit in the society. The interest rate is fixed and will be paid upon maturity for all certificates. Institutional Savings Any association, club or similar organization is eligible to open any of the accounts with the SACCO as long as their membership is made up primarily of individuals who meet the eligibility requirement for individual membership. The terms and conditions shall be the same for organizations as they are for individual members. POLICY REVIEW The societys Committee will be responsible for formulating, reviewing, and adjusting the Savings Policies.

On an annual basis the Committee will review this policy and make changes if necessary so that it is reflective of the current operations. SAVINGS PROCEDURE These procedures are to be used in opening Regular, Special, Organizational, Club, and Youths Savings Accounts. Prior to the opening any Savings account the individual requesting to open an account must be a member of the SACCO. The Committee and Management will determine who is a member according to the Bylaws. i) Upon opening an account with the society, a member will be issued with a savings passbook or opening contract and will be assigned or given an account number. Deposits will be accepted to any account without requiring the presentation of the appropriate passbook as long as the member submits an official deposit form. When the passbook is presented at a later date, it will be updated. The account holder shall be responsible for any case of error or neglect. iii) iv) v) Deposits on a savings account will be verified by issue of a society receipt. Only account holders will be allowed to withdraw money on their accounts accompanied by their passbook. Replacement of the passbook or certificate of deposit due to loss, destruction or theft, will be the responsibility of the member on payment of a fee to be determined by the Committee and Management. For each transaction, a member should complete a receipt for deposit or withdrawal, which shall be verified and stamped by the daily teller. If certificates of deposit are offered an employee of the society is to complete a certificate of deposit form and set up a number for this account. No withdrawal may be made from this account until the stated maturity date. If the funds are requested prior to maturity there will be a penalty or fine on this account that must be paid prior to withdrawal. If cheques are taken for deposits into members accounts, the accounts should not be credited until it is determined that there are sufficient funds to cover the cheque.

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SAVINGS INTERNAL CONTROLS 1. 2. 3. 4. 5. All passbook entries should contain teller identifications Tellers are not allowed to hold or keep members passbooks at the society for member convenience. All teller transactions are to be documented with a receipt. No society official or employee may transact business on their account or on a family members account. Telephone transfers between accounts are only allowed between accounts owned by the same member and after the member has given the surname as identification. Employees and official accounts, and if desired their family members accounts are to be reviewed for unusual or abnormal activity on a quarterly basis by the Supervisory Committee. All members should be notified immediately in writing if there are any deposit errors. All changes of address requests must be in writing and signed by the member. Any account in which there has been no activity for more than 12 months shall be considered dormant. The dormant accounts should be segregated from the active accounts. Any transaction on a dormant account must be initiated by an employee at the point of origin to indicate approval. When an account is transferred from dormant to active status, the approval of the Manager is required. Number 11 and 12 should not be performed by the same individual. When an account is closed the signature card is to be promptly pulled from the active account file and placed in the closed account file.

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A list of closed accounts including the account number, member name, and reason for closing shall be provided to the Committee at each monthly meeting.

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