Which SACCO to Join? Credit Only or Deposit Taking SACCO?

Image illustrating members shaking hands as it can occur during SACCO joining

How to know if your SACCO is a deposit-taking SACCO or not

Savings and credit co-operatives (SACCOs) have come under increasing public scrutiny of late, mostly on charges of loss of member funds. Let’s first understand SACCOs; and to do that, we have to start with the cooperative movement. Co-operatives are defined as an independent association of persons united with the purpose to meet their common economic, social, and cultural needs and aspirations through a jointly owned and controlled enterprise. SACCOs offer financial services focusing on the provision of credit facilities and mobilization of funds to its members who are the users and owners. SACCOs are becoming the best places to save and take loans in Kenya.

SACCOs are one of the most important and often visible types of cooperatives in Kenya. Their distinguishing and unique character trait from other types of cooperatives is the objective and purpose for which they are incorporated, which is to transact the business of mobilization of savings, and advancement of credit facilities to their members. The provision of savings and credit facilities is part and parcel of the financial services sector and consequently, SACCOs are also often referred to as financial cooperatives.

In Kenya, Saccos are divided into two segments: deposit-taking and non-deposit taking. Both segments mobilize savings deposits from members, which are used as collateral for purposes of advancing loans to members.

The first segment is the deposit-taking SACCOs (DT-SACCOs), and the second segment is the non-deposit-taking SACCOs (non-DT-SACCOs). The DT-SACCOs are those that take deposits and thus offer withdrawable savings account services similar to those offered by banks. They also offer front office services where members can walk into their banking halls as they withdraw or deposit money into their accounts.

On the other hand, the non-DT-SACCO segment is those that mobilize savings from their members; these savings are strictly utilized as collateral for credit facilities advanced to such members. These deposits are not withdrawable by the member, but can only be refunded when the member leaves the SACCO. The non-deposit-taking SACCOs do not offer front office services as members do not hold accounts where they deposit or withdraw money.

Deposit-taking SACCOs are licensed and regulated by SASRA (SACCO Societies Regulatory Authority). Besides the basic savings and credit products they also provide basic banking services that is; they demand deposits, provide payment services and some even provide ATMs. These deposit-taking SACCOs are allowed to offer easy-to-withdraw savings account (banking) services, through front-office savings activities.

Today, deposit-taking SACCOs are more popular than they were in the past because they pay relatively high interest on savings as compared to commercial banks.  It is important to note that the main difference between depository institutions and non-depository institutions lies in their demand for deposits from members.  Deposit-taking SACCOs require you to open a savings account and deposit money that you can easily withdraw similar to what commercial banks do.  But, non-deposit-taking SACCOs, require you to buy shares into the Sacco and become a member and save your money – but you cannot withdraw it unless you are leaving the Sacco.  The only way to access funds here is through loans.

Another difference is deposit-taking Saccos are regulated by the Sacco Societies Regulatory Authority (SASRA), while the non-deposit-taking segment falls under the supervision of the Department of Co-operatives Development. This distinction is probably only unique to Kenya. Globally, all Saccos or credit unions as they are referred to elsewhere are deemed to be deposit-taking and are licensed and regulated as such.

Sasra (Sacco Societies Regulatory Authority) is the sole licensing authority for deposit-taking SACCOs in Kenya, under the SACCOs Societies Act. SASRA draws its powers from the Sacco Societies Act, 2008, and the accompanying regulations. Deposit Taking Saccos (DT Sacco) segment of the sub-sector is composed of those SACCOs which undertake both easy-to-withdraw and nonwithdrawable deposits.  Whereas the nonwithdrawable deposits portion of the business may be used as collateral and not refundable unless on cessation of membership from Sacco Society. The non-deposit-taking SACCOs are licensed by the co-operative societies Act.  They are not authorized to take withdrawable deposits or present themselves to the public as deposit-taking entities.

When choosing a SACCO, you may opt for either deposit-taking or non-deposit taking.  Whilst the non-deposit-taking SACCOs are pretty straightforward; exercise caution before you join a deposit-taking SACCO. First of all, ensure that you place your funds with a credible and duly licensed deposit-taking institution.  You should be wary of unlicensed deposit-taking entities and Ponzi/pyramid schemes.  Such entities entice members of the public to place money with them and promise quick and abnormally high returns on their money or acquisition of non-existent properties.  Avoid placing your money with such unlicensed entities.

The deposit-taking Saccos (DT-Saccos) has continued to register impressive growth in membership, assets, revenue, and dividends to shareholders. This growth has had an overall positive economic impact on the individual members of these SACCOs and the national economy in general. This, therefore, calls on all of us to encourage and support the deposit-taking SACCOs in their business. With the continuous growth of deposit-taking savings and credit cooperative societies in Kenya and the positive reception given to the Sacco societies concept by Kenyans of different statuses, regions, age,s and professions, the future of the cooperative movement is very bright and needs to be well nurtured.

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