Small business owners play a critical role in the global economy. This is most especially due to their efforts in driving innovation, creating jobs, and contributing to local communities. 

However, small business owners face numerous challenges. The challenges could range from a lack of ease in accessing credit to challenges in building networks and also navigation of regulations set.  In developing countries, entrepreneurs face the wrath of these challenges as they can be particularly acute.

Limited access to financial services and a lack of support for entrepreneurs mostly attribute to this. That’s where SACCOs come in to help small business owners navigate these challenges.

The member-owned financial institutions, Savings and Credit Cooperatives (SACCOs), can provide a range of services to small business owners.

The services could include affordable loans, training, and networking opportunities. 

 In this article, we’ll explore some of the benefits of SACCO membership for small business owners, and why SACCOs can be a valuable resource for entrepreneurs in developing countries.

How SACCOs work to provide support to small business owners

First, it’s important to understand what SACCOs are and how they work.

Their members own and operate SACCOs as cooperative financial institutions. The members are typically either individuals or small business owners. Each of the members has a say in how the SACCO is run and can vote on important decisions such as loan interest rates and other matters that affect the SACCO’s operations.

SACCO members are also able to save by opening savings accounts. The savings are necessary to provide the capital that the SACCO uses to provide loans to members.

SACCOs and loans

SACCOs provide loans to members at affordable interest rates. Small business owners often typically use the loans for business purposes such as inventory purchases, equipment, or other assets. SACCOs are also in a position to offer personal loans or home improvement loans. After members acquire the loans, they must repay them in regular installments. The SACCOs use the money to fund new loans for other members, thus creating a cycle of lending and borrowing.

SACCOs are also able to offer training and education programs to their members. This is important as it equips members with the skills and knowledge they need to successfully run businesses. Therefore SACCOs work on training members on financial management, marketing, and business planning.

By being part of a SACCO, small business owners are able to network. This is because the SACCOs provide a platform for members to connect with each other and with potential customers or suppliers. This can help members grow their businesses and expand their networks.

There is no doubt that SACCOs focus on meeting the needs of their members. Therefore, they are flexible in terms of the products and services they offer as they aim to provide more personalized services to their members.

Overall, SACCOs work by providing a member-driven, community-based approach to financial services. By pooling their resources and supporting each other, SACCO members can access affordable loans and other services that can help them grow their businesses and improve their livelihoods.

Benefits of SACCO membership for small businesses owners

SACCOs are able to provide small business owners with access to affordable loans. In most instances, small business owners struggle to access credit from traditional lenders. This can be because they don’t have a credit history or because the interest rates are too high. 

This is where SACCOs come into play. They are able to provide an alternative source of financing, with lower interest rates and more flexible repayment terms. This is attributed to the fact that SACCOs are member-owned, thus they do not have the same profit motive as traditional lenders. This makes it possible for them to offer loans at lower rates than banks or microfinance institutions.

SACCOs not only provide affordable loans but also other services that can be valuable for small business owners. This could be in the form of business training and networking opportunities. This is key to small business owners as it helps entrepreneurs develop the skills and connections they need to grow their businesses. SACCOs can also provide insurance products that can protect small businesses against unexpected events, which could include natural disasters or theft.

SACCO Accessibility

Since entrepreneurs take up loans and make regular payments, they demonstrate their creditworthiness and build a positive credit history. This is very relevant for small business owners as they are able to access credit in the future from a variety of sources.

In addition to that, SACCOs, being member-owned, are often more accessible to small business owners than traditional banks. In many developing banks, some of the real areas are left out in the provision of banking services. This is because most of the banks are majorly concentrated in urban areas and may not have branches in rural or remote areas. Therefore, SACCOs are an effective alternative as they are often community-based with branches or service points located in smaller towns and villages. Therefore, they have made it easier for small business owners in rural areas to access financial services.

Challenges of SACCO Membership by small business owners

SACCO membership by small business owners is not a smooth journey as it presents several drawbacks. These could include:

1. Lack of collateral.

As security for loans, many SACCOs could ask for collateral. This proves to be a challenge for small business owners who may not have assets to pledge.

2. Limited financial resources

In most instances, the membership of a SACCO requires individuals to pay some deposit requirements. Many small business owners could struggle to meet the minimum deposit requirements for membership. Also, they may not have sufficient cash flow to meet the loan repayment obligations.

3. Low level of regulation or oversight

Traditional banks invest highly in regulation and oversight. On the other hand, SACCOs may not have the same level of regulation or oversight as traditional banks. This could make them more vulnerable to fraud or mismanagement. Therefore, it is really important for small business owners to do their due diligence when choosing a SACCO to join, and to make sure that the institution is reputable and well-managed.

In conclusion, SACCO membership can be a very valuable resource for small business owners in developing countries. By being part of  SACCO, a member is able to access affordable loans, training, networking opportunities, and other services. SACCOs can help entrepreneurs overcome the challenges they face and grow their businesses. This is essential for them to overcome financial challenges and achieve their long-term goals. While there are some potential drawbacks to SACCO membership, the benefits are clear, and entrepreneurs who join a reputable SACCO can reap the rewards for years to come.

References:

• Kiunga, M. (2022) Why sacco is best avenue for smes to make savings, Business Daily. Business Daily. Available at: https://www.businessdailyafrica.com/bd/corporate/enterprise/why-sacco-is-best-avenue-for-smes-to-make-savings-3868742 (Accessed: April 13, 2023). Kiunga, M. (2022) Why sacco is best avenue for smes to make savings, Business Daily. Business Daily. Available at: https://www.businessdailyafrica.com/bd/corporate/enterprise/why-sacco-is-best-avenue-for-smes-to-make-savings-3868742 (Accessed: April 13, 2023).
• Kna (2023) Small businesses urged to tap sacco loans for Growth, Kbc. KBC Kenya. Available at: https://kbc.co.ke/local-business/article/36500/small-businesses-urged-to-tap-sacco-loans-for-growth (Accessed: April 13, 2023). https://kbc.co.ke/local-business/article/36500/small-businesses-urged-to-tap-sacco-loans-for-growth