Managing operational risks by savings and credit cooperative societies (SACCOs) : the case of Ilala municipality

Savings and Credit Cooperative Societies (SACCOs) offer one of the best options for organizing their self-help financial services. Although the history of SACCOs in Tanzania goes back to 1938 an enhance promotion came after independence. Improved small business policies and access to finance through Microfinance institution will allow the business to grow and hence contribute to country economic growth. Operational risk arises from human or computer error within daily product delivery and services. This risk includes the potential that inadequate technology and information systems, operational problems, insufficient human resources, or breaches of integrity (i.e. fraud) will result in unexpected losses. The risk management is at the core of BaselII guidelines and essential to optimizing the performance of Microfinance Institutions. Risk management feedback loop describe key role and responsibility within MFIs (SACCOs) can follow in identifying any risk including the operational risk. The Social Statistics Software programme (SSSP) was used for data analysis and chi square was used to make interpretation of the quantitative data so that to test Hypotheses for this study. This study revealed that operational risk is a function of internal controls, information systems, employee integrity, and operating processes, the weakness in internal control and growing size of SACCOs are the main cause of operational risk. The size and capabilities of committees to manage SACCOs profitable are questionable in most SACCOs, while some SACCOs do not have permanent employed staff or human resource development plan. Effective operational risk management allows SACCOs to capitalize on new opportunities and minimize threats to their financial viability. This will be possible if the Regulatory authority will revise the frame work for supervising Sacco’s activities.