SACCO Failure: 4 Main Reasons Why SACCOs Fail

SACCO failure varies from one SACCO to another, especially in today’s setting. SACCOs have been around for decades, offering millions of SACCO members better financial solutions. However, some SACCOs succeed and do well while others do not remain steady and end up closing. SACCOs fail for many reasons, and the following article will break down some of these reasons.

Main Reasons Why SACCOs Fail

SACCO failure

SACCO administrators and founders usually start SACCOs with the main goal of succeeding among their competitors. Maintaining SACCO membership and increasing new members is the most challenging issue while running a SACCO. Additionally, SACCOs seek to invest their members’ contributions to generate profit for the SACCO. Therefore, SACCO administrators must be careful not to make poor decisions that can lead to losses.

However, many SACCOs usually face unavoidable risks that may lead to the SACCOs failure. Therefore, SACCOs must invest in better strategies that will prevent SACCO failure. Some of the reasons why SACCOs fail include the following:

1. Misappropriation of SACCO Funds Leading to SACCO Failure.

mismanagement of SACCO funds

One of the major reasons why SACCOs fail is due to the mismanagement of SACCO funds. Some SACCO administrators are corrupt and embezzle funds, leading to SACCO failure. SACCO members may lack an understanding of how the SACCO administrators invest their money. Therefore, it can become easy for corrupt administrators to plunder the members’ contributions. The SACCO will fail since it cannot conduct its operations effectively due to the missing funds. Additionally, SACCO members will lose their contributions and they will exit the SACCO and invest in other SACCOs.

Poor governance leads to SACCO failure since the SACCO will not meet its goals and vision. Accountability and transparency are important to foster unity and cohesion within the SACCO. When SACCO administrators hide important information from SACCO members, they lose their trust in them. Thus, members can exit a SACCO due to a lack of transparency from SACCO administrators. SACCO members will no longer be comfortable in a SACCO that does not listen to their grievances.

2. Poor Services Leading to SACCO Failure.

SACCO members make different transactions through the SACCO at different times of the day. Therefore, a successful SACCO ensures that it meets the financial demands of its members. From depositing savings to paying back loans, SACCOs must make all financial services available to its members.

SACCO failure happens when members lack satisfaction with the SACCO financial services. For example, members may experience difficulties while transacting with the SACCO. SACCOs with slow systems experience downtime more frequently which annoys SACCO members. Thus, the SACCO member may opt out of the SACCO and use another SACCO that offers fast service delivery.

Sometimes, SACCO members need to meet SACCO agents physically to sort out more complex issues. However, SACCO members living far from the SACCO’s offices have a disadvantage in receiving the best services. Large SACCOs should expand and open more branches which offer their members more access to the SACCO. Poor access to SACCO agents actively leads to SACCO failure due to customer dissatisfaction.

3. Bad Investments Leading to SACCO Failure.

bad investments leading to SACCO failure

SACCO administrators have an important duty to make the best financial decisions to generate profits for the SACCO. Making poor decisions will lead to poor investments, leading to the SACCO’s closure. SACCOs must set up proper risk management strategies to avoid facing financial risks that harm the SACCO.

SACCO administrators may take loans to finance different SACCO projects and investments. Poor financial management may lead to the SACCO defaulting on loans after acquiring high interest. SACCO members can also lead to the SACCO’s failure by defaulting on loans they receive from the SACCO. SACCO administrators must provide better loan repayment strategies to minimize loan defaulters.

4. Lack of Financial Inclusion and Adaptability.

Financial inclusion offers financial empowerment to the most vulnerable individuals in the community. For example, the young population has lesser financial power when you compare them to the older generation. Thus, most SACCOs may fail when they do not find ways to include young people in SACCOs. SACCOs must adapt and change to include more community members to grow and become successful.

Additionally, SACCOs must include new technologies that gradually improve SACCO operations. For example, SACCOs can adapt and incorporate SACCO managing software for monitoring SACCO operations better. Manually handling important information and operations will eventually lead to SACCO failure. Manual operations tend to exclude necessary financial information due to the large number of transactions in the SACCO.

Also, SACCOs must regularly check the SACCO compliance laws and change their operations to include them. The Societies Regulatory Authority (SASRA) regulates and monitors compliance in all SACCOs in Kenya. SACCO failure will occur when the SACCO does not adapt and comply with the new regulations. SACCO members will join the SACCOs regularly updating their regulations to fit new standards.

Solutions SACCO Can Implement to Avoid SACCO Failure

solutions to SACCO failure

SACCO failure can occur in any SACCO, whether big or small, old or new. SACCO administrators must implement ways to ensure their SACCOs remain and stand the test of time. Therefore, it is up to SACCO administrators to ensure that SACCO runs smoothly and achieves its goals and objectives.

One of the ways SACCOs can avoid SACCO failure is by ensuring that the SACCO has better financial management. Therefore, SACCO administrators can implement SACCO management software that offers better management systems. SACCO administrators can observe all SACCO transactions from each member in one platform. Thus, digitization of SACCO operations offers ease for SACCO members to make different transactions. Additionally, using SACCO management software improves making better financial decisions and avoids risks.  

SACCO administrators must employ managers who understand and fulfil their roles in the SACCO. Better SACCO administrators will ensure that the SACCO moves in the right financial direction. Thus, the SACCO will not have any cases of poor fund management and the administrators remain accountable to SACCO members. More members will join a SACCO with a good track record, increasing SACCO membership and contributions.

SACCOs must package themselves to accommodate more people, especially young people to avoid SACCO failure. SACCOs can offer better services including reducing membership fees to attract newer members. Additionally, SACCOs must take a different marketing approach to reach more members. They can include expanding SACCO branches and using social media platforms to advertise and reach more members.


There are many challenges facing SACCOs currently, with many leading to SACCO failure. Some challenges are external with others arising from within the SACCO. External challenges include policy changes from SASRA that control the regulations of all SACCOs. Internal challenges may arise from poor management of funds by corrupt SACCO administrators.

However, most SACCO administrators can solve the issues by implementing better strategies in their SACCO. That way SACCO administrators can improve and maintain SACCO membership since the SACCO becomes more reliable. For example, SACCO founders and administrators should appoint better financial managers to ensure proper fund management. Additionally, SACCOs can implement SACCO management software for effective finance management. Using the software ensures transparency in SACCO operations, offering better risk management strategies and monitoring.

SACCOs must always strive to excel and adapt to becoming more inclusive, especially to the vulnerable in society. Thus, a SACCO with better social impact will avoid SACCO failure and become more successful.

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