Difference between SACCOs and Microfinance

Illustrations of SACCOs and microfinance

Are you interested in starting a business?  Then you need resources and capital.  So what do you do?  If you are like most Kenyans, you head to your bank and inquire about a loan.  While you may successfully get a loan, if you are considered low-income, the odds are you will be denied.  That’s where SACCOs and Microfinance Institutions come in. Before you proceed, what is the difference between the two?  That is a question many people ask themselves.  Others think that these two entities are one and the same.  That they do the same thing.  Give loans at a low price.  Whilst it’s true these two institutions offer cheap loans, there is a world of difference between them.  Let us explore the differences.


Sacco stands for Savings and Credit Co-operative. Saccos are defined as private or cooperative financial intermediaries where membership is open and voluntary.  It is an institution formed by a group of people who have a common factor, usually a profession, where they live or worship in order to provide a worthy return for their savings as well as empower their members by providing lower-interest loans.  It is a financial institution by the members, for the members. It belongs to its members who manage it democratically. The purpose of Saccos is the help its members achieve certain common goals to better their lives that they would ordinarily not be able to do individually such as housing, gaining assets such as motor vehicles, buying land, funding education etc.

On the other hand, Microfinance Institutions (MFIs) are designed to provide financial services to low-income people. These entities are funded by external loans, grants, or investors.  They target low-income clients mostly women. Also these institutions help aspiring entrepreneurs generate income, build assets, manage risks and meet their household needs.  The end goal of MFIs is to have its users outgrow these smaller loans and become ready for a traditional bank loan.


SACCOs elect a volunteer board of directors from their membership.  Members each have one vote in board elections, regardless of their amount of savings or shares in the Sacco.  Microfinance institutions, they are run by an appointed board of directors or salaried staff.


Profits made in Saccos and microfinance institutions are used differently.  For instance in Saccos, profits earned are used to lower interest on loans, for higher interest on savings, or for new products and service development.  At microfinance institutions, profits are used for cash reserves or divided among investors.

Products and services

Saccos offer members a platform to access low-cost loans.  Members are required to buy a membership into the Sacco first and then place their savings there.  After a while, they may apply for a loan to buy property, pay school fees, or whichever individual goal one has.  After the loan application, the member must seek out other members to guarantee him. As the loan needs to be guaranteed by other Sacco members.  The collateral is the member’s savings as well as that of those who have guaranteed the loan. However, microfinance institutions focus on micro-credit.  Where people in small business form groups of 10-15 people who save together and borrow together.  The aim is to help these budding entrepreneurs access loans backed by the group model which acts as collateral.  The terms vary from institution to institution.  The difference between the two is Saccos you can join alone whilst with microfinance institutions you join as a group at the same time.  Your savings are clustered together as a group and all transactions are done group-wise.  While in Saccos you hold an individual account and you only need other members when you need guarantors for your loan.  At microfinance, you have to do each and every transaction together.  Some Saccos offer ATMs, banking halls, and digital banking to help you do your transactions easily as an individual.  Whilst for microfinance institutions you must make regular visits to the community group for your transactions.


So what is the benefit of joining a Sacco?  Here, you will get low-interest rate loans and a high annual return on savings realized through a divided payment.  You will be encouraged to own assets such as land and houses as many SACCOs offer them at a highly discounted rate to its members and there is less bureaucracy in getting a loan.  If you are working, the Sacco is for you.  Besides SACCOs paying an annual dividend of at least 10 percent of your shares, some SACCOs give up to 15 percent of your shares. For example, if your share capital is 500,000 shillings at the end of the year you get dividends worth a cool 50,000 shillings or even more. It is a good place to be especially when you have school-going children and your only income is your salary plus a busy job schedule that leaves no time for business. The benefits of joining microfinance are high if you are a budding entrepreneur.  Here you will be able to build your business step by step with the support of other business people like yourself.  You will also benefit from business training that is offered by some of the microfinance institutions to help you build your business.  Microfinance institutions can help you grow your small business until you are able to qualify for loans at traditional commercial banks.

Leave a Reply

Your email address will not be published. Required fields are marked *