Savings and Credit Cooperative Organizations (SACCOs) have become an integral part of financial inclusion in Kenya, providing millions with access to savings and affordable credit facilities. If you’re new to the concept of SACCOs, this step-by-step guide will help you understand how they work and how you can benefit from becoming a member.
1. What is a SACCO?
A SACCO is a member-owned financial cooperative that provides savings, credit, and other financial services to its members. Unlike traditional banks, SACCOs are non-profit organizations that prioritize the welfare of their members over generating profits. SACCOs operate under the cooperative principles of mutual assistance, democratic control, and equitable distribution of benefits. By pooling their resources together, members can access loans at lower interest rates and earn dividends on their savings.
2. Joining a SACCO
Becoming a member of a SACCO is the first step towards reaping its benefits. To join, you need to find a SACCO that aligns with your needs—whether it’s an employer-based SACCO, a community SACCO, or one affiliated with a particular profession or industry. Membership usually requires you to purchase a minimum number of shares and pay a registration fee. This initial contribution makes you a part-owner of the SACCO and gives you the right to vote in its Annual General Meetings (AGMs), where key decisions are made.
3. Saving with a SACCO
Once you’re a member, you’ll be required to make regular contributions to your savings account. These contributions are not just deposits but an investment in your financial future. The more you save, the higher your chances of accessing larger loans, as your savings act as security. SACCOs offer various savings products, including fixed deposits, holiday savings, and education savings, tailored to meet different member needs. At the end of the financial year, SACCOs distribute dividends to members based on the profits made, with the rate depending on the SACCO’s performance.
4. Accessing Loans
One of the primary reasons people join SACCOs is to access affordable loans. SACCO loans are typically more favorable than those offered by commercial banks due to lower interest rates and flexible repayment terms. To qualify for a loan, your savings history and the number of shares you hold in the SACCO are considered. The loan amount you can borrow is usually a multiple of your savings—often three to four times. SACCOs also require you to have guarantors, who are fellow members, to co-sign your loan, providing an extra layer of security.
5. Loan Repayment Process
Repaying a SACCO loan is straightforward, with terms set during the loan application process. Repayments are usually made monthly, directly from your salary or savings. The repayment period can range from a few months to several years, depending on the loan type and amount. SACCOs encourage timely repayments, as it ensures that other members can also access loans when needed. In case of financial difficulties, SACCOs may offer restructuring options to help you manage your repayments without defaulting.
6. Earning Dividends
At the end of each financial year, SACCOs distribute a portion of their profits as dividends to members. The amount you earn as dividends depends on the SACCO’s performance and the number of shares you own. This profit-sharing model is one of the key benefits of being a SACCO member, as it allows you to earn a return on your savings and shareholding. Dividends can either be withdrawn or reinvested into your SACCO account, further increasing your savings and earning potential.
7. Participating in SACCO Management
SACCOs are democratic institutions, meaning that every member has a say in how the organization is run. As a member, you have the right to attend and vote in the SACCO’s Annual General Meeting (AGM), where important decisions such as dividend distribution, election of the board, and approval of financial reports are made. Members can also be elected to the SACCO’s management committee, allowing them to play a direct role in shaping the SACCO’s policies and direction.
8. Benefits of Being a SACCO Member
Membership in a SACCO offers several benefits, including access to affordable credit, a platform for savings, and the opportunity to earn dividends. SACCOs also provide financial education to their members, helping them manage their finances better. Additionally, because SACCOs are community-based, they often foster a sense of belonging and mutual support among members. This social aspect can be particularly valuable during times of financial difficulty, as members can rely on each other for support.
9. Risks and Challenges
While SACCOs offer numerous benefits, they are not without risks. Poor management, misallocation of funds, or economic downturns can negatively impact a SACCO’s performance and, consequently, members’ savings and dividends. It’s important for members to stay informed about their SACCO’s financial health and participate actively in its governance. Additionally, because SACCOs rely on member savings for capital, liquidity issues can arise if many members withdraw their savings simultaneously or if there’s a high rate of loan defaults.
10. How to Choose the Right SACCO
Choosing the right SACCO is crucial to ensuring that you maximize the benefits while minimizing risks. When selecting a SACCO, consider factors such as its financial stability, reputation, the range of products and services offered, and the level of member involvement in decision-making. It’s also advisable to review the SACCO’s annual financial reports, which are usually available to members, to assess its profitability and management practices. By carefully selecting a SACCO that aligns with your financial goals and values, you can enjoy the full range of benefits that SACCOs have to offer.
Conclusion
SACCOs offer a unique opportunity for individuals to save, access credit, and participate in financial management in a cooperative environment. By understanding how SACCOs work and actively engaging in their operations, members can build a secure financial future while contributing to the growth and success of the cooperative. Whether you’re looking to save for a specific goal, access affordable loans, or earn dividends, joining a SACCO can be a smart financial decision.
