Technical Efficiency of Urban Savings and Credit Co-operative Organizations (SACCOs): A case study of Mekelle city, Tigray.

Abstract

The efficiency of urban SACCOs is critical for financial inclusion and economic development. This study examines the technical efficiency of urban SACCOs in Mekelle city, Tigrai, using stochastic frontier Analysis (SFA) and a census method covering all SACCOs in the study area. The research aims to assess the efficiency levels of SACCOs, identify factors influencing efficiency, and provide policy recommendations for improving their performance. A quantitative approach was employed, utilizing financial and operational data from SACCOs. The SFA model was applied to estimate efficiency scores, and relevant explanatory variables were analyzed to determine their impact on efficiency. The findings reveal that, on average the SACCOs in the study area were operating efficiently with high level of efficiency difference. Significant number of SACCOs exhibit inefficiencies due to factors such as low members saving mobilization, inadequate managerial capacity, potential challenges with digital banking adoption, suboptimal resource utilization, and regulatory constraints. The results underscore the need for targeted policy interventions, increase member savings, capacity building initiatives, manage administrative expense, and improved governance structures to enhance SACCOs efficiency. Strengthening regulatory frameworks and promoting financial education among SACCOs can further contribute to the sector’s sustainability. The study provides valuable insights for policy makers, SACCO managers, and stakeholders aiming to improve the financial performance of urban SACCOs in Mekelle city.