The Contribution of Activity-Based Costing on the Increase of Membership Savings Among the Tanzanian Savings and Credit Co- operative Societies

Godfrey Frank  Molela

Godfrey Frank Molela Department of Accounting and Finance, The University of Dodoma, Tanzania

Keywords: Activity-based Costing Applications, Loan Interest Rate, Savings Increase, Capital Structure, Financial Leverage

Abstract

The aim of this study was to assess the contribution of activity-based costing (ABC) on the increase of membership savings among the savings and credit co-operative societies (SACCOS) in Tanzania. ABC system was initially applied to determine the lowest interest rate on loans offered by SACCOS while ensuring the financial sustainability of these microfinance institutions (MFIs) in the country. Furthermore, the study examined the causal relationship between the interest rate specifically referencing the computed rate and the amount of membership savings, which play a significant role in SACCOS' capital structure. The data collection exercise employed a cross-sectional survey design and a desk review approach, utilizing both primary and secondary sources from 192 SACCOS operating in the regions of Dar es Salaam, Arusha, and Dodoma. Both primary and secondary data were analyzed using the simultaneous equation model (SEM). The first phase of the model, in which the ABC system was applied, revealed that SACCOS in Tanzania could remain financially sustainable even with a single-digit interest rate as low as 4.57% per annum. The second phase, which utilized the binary logistic regression model, indicated that the transition to a single-digit interest rate was a key driver of increased savings, which is essential for reducing the financial leverage of SACCOS.