Kenya’s famed co-operatives sector appears to be growing pretty fast with more and more Kenyans jumping into the fray. However, there are many people who are not conversant with Sacco operations and rules and are often disappointed when they cannot secure loans, especially where they are unable to mobilize members to act as guarantors or due to restrictions on direct withdrawal from their savings.
In this article, we will therefore highlight some of the factors and conditions that one needs to consider before joining a Sacco:
You must be a member first before you save
Just like a commercial bank where you have to open an account before you can be allowed to have a savings plan, you must first buy shares in a Sacco to become a member. Every Sacco has a minimum share capital. This may not be payable in lump sum but can be deducted in installments.
You can start making your monthly contribution as soon as you are registered as a member. These shares are only transferable if you want to leave the Sacco. It is advisable to look for a member to whom you can transfer your shares if you plan to exit.
Savings and contributions must be regular
Unlike saving schemes offered by commercial banks where the customer can put away something if he wishes, a Sacco saving scheme is not optional and is strictly regular. This means monthly contributions must be maintained throughout the course of membership without default.
A default can lead to termination of membership
This is where most income earners who had initially held saving plans with commercial banks hit a hurdle. You must ascertain the size of your regular income to determine the amount to be deducted every month.
To save is to deposit and to access deposit is to borrow
The monthly contribution will constitute the member’s deposits out of which the loans are approved. But you have to take out a loan to access this money. This rule is simply captured in the phrase: “to save is deposit and to access deposit is to borrow”. You must figure out your liquidity needs before you transfer your lump sum savings from your bank to a Sacco. Once you put the money into a Sacco deposit, you can only access the money by taking out a loan or terminating your membership. This is the misconception James had when he transferred all his savings from his bank to the Sacco.
Saving and contributions have a minimum limit
Although members have the choice to determine the size of their monthly contributions, there is a mandatory minimum monthly payment. This varies with various Saccos. This sum cannot be withdrawn except on termination of membership. But you can choose any amount above the minimum which you can contribute every month. Besides, there is flexibility in review of savings and contribution limit. Saccos, unlike banks, rely on members’ savings and shares as their only source of capital to lend out. But one of their key benefits is the rule that what you qualify for must be within the limit of your savings.
This means a member has to save over a period not less than six months to be considered for credit. As a universal rule in many local Saccos, the member is only eligible for up to three times his savings.
No borrowing without guarantor ship
This is where some contrast between banks and Saccos lie. Whereas commercial banks insist on collateral, Saccos only need members to guarantee the loan. The guarantors’ accumulated deposit should be equivalent to the amount of the loan. In case of default, the guarantor bears the debt burden as the Sacco will seize his deposits until you settle the debt.
Loan repayment is separate from your regular savings plan
Some members believe they can stop their monthly contributions to concentrate on repayment. This is a misconception. Your regular contribution to the Sacco must be maintained even as you repay your loan. It is advisable to find an extra income for loan repayment as you continue to save.
If you want to leave a Sacco
As a member, you can resign from a Sacco you have joined. You have to do it in writing addressed to the committee or the Office Accountant/Administrator. Then the office will confirm if there are any amounts due to the member or whether the member owes the Sacco. If a member owes the Sacco when the loan exceeds the deposit, then the member agrees with the office on how the balance can be paid. If the Sacco owes the member; deposit exceeds loan then the Sacco organizes for the refund. If a resigned member has guaranteed an existing member then the existing member has to find a replacement before the resigned member can be cleared.
Acting as a guarantor
Do understand that when you guarantee a loan to another member of the Sacco you are responsible for your part and also for the whole of the loan when the member is in default. It is the responsibility of the members who have guaranteed a member to ensure that the member pays the loan. If a borrower falls behind, guarantors together with the borrower have to inform the Sacco on the way forward regarding how payment will be made. If a member defaults the Sacco will recover the loan from the guarantors’ deposits.