Factors influencing saving patterns of smallholder farmers in savings groups in Sironko district, Uganda

Abstract

Savings are important in low-income countries such as Uganda where small-scale farmers use the little money they have to save for future shocks and investments. The study described socio-economic characteristics, saving approaches and patterns of small-scale farmers in Sironko district in Uganda. The main objective was to analyse the behaviour of smallholder farmers’ saving patterns in savings groups. The study analyzed primary data collected from 126 sample respondents from Sironko district. Descriptive statistics revealed male dominance in these groups by 90%. Most respondents reported having large household sizes of 8 to 10 members. Meanwhile 39% use the money received from the sale of farms to save, about 31% of members reported that their main purpose of saving is to invest in education.

The study revealed saving approaches of these small farmers to include money saved in savings group, purpose of saving, sources of money, method of saving, method of earning money and share out month. Multiple Correspondence Analysis (MCA), a data reduction method was applied to variables to discern the correlations in these savings approaches that led to the development of indexes. The results showed three distinct patterns. The first pattern called Reserve pattern loaded with high savings (-0.49), which was negatively associated with the purpose to save to be an agricultural business (0.39) and the share out from October to November (0.44). This suggested a trade-off between savings and investment in agriculture. The second pattern, Income pattern, loaded with farm sales as a source of savings (0.49) and receiving cash income (0.41). Thirdly, a different way of saving which is savings group (SG) was labeled the Institutional pattern.

Ordinary least square (OLS) was used to identify the factors that influence saving patterns (patterns derived from saving approaches). Selected socioeconomic and savings group characteristics were regressed against these patterns. Age group showed a significant positive association with reserve pattern and income pattern, indicating the importance of age in saving patterns. The number of sources of income required showed a negative relationship with the reserve pattern, institutional pattern, and overall saving pattern. The religious discrimination associated with these saving groups is supported by the negative influence of religion on the reserve pattern, the institutional pattern and the overall saving pattern. The cyclic share out has a positive effect on the reserve pattern and the income pattern. It has also shown great association of large end-of-year savings withdrawals with improved saving patterns. The number of community groups had a negative relationship with the reserve pattern, but a positive relationship with the institutional pattern. The worth of returns on savings was negatively associated with the income pattern, but positively influenced by the institutional pattern.

The findings suggest a comprehensive approach to the savings behaviour of smallholders in savings groups. Age plays an important role in saving patterns. The members require age-appropriate financial literacy. Different sources of money require more education about use and management of finance. There is a need for support in the management and use of shared money to improve saving patterns. Community programs, including those led by religious organizations, are needed to promote economic development and raise public awareness of the importance and benefits of savings groups. More research is needed to examine region-specific studies, different savings methods, and longitudinal studies to effectively address the financial challenges faced by smallholder farmers.