We pile praises for Saccos and how they have helped advance financial security for many. And they have. Saccos are an excellent saving and investing vehicle. Most importantly, Saccos are not biased toward the ‘unemployed’ when accessing credit. 

 

Still, one can never be too careful about financial institutions. Banks, insurance companies, investment firms, and Saccos have collapsed everywhere, leaving their customers penniless and in utter financial ruin. So we must always be vigilant and be ready to abandon ship when signs of trouble are looming. 

 

I have a friend who was looking for a loan from their Sacco a few weeks ago, and they could not get the money on time. In fact, they had to wait for about a month to get the money. Of course, this raised some red flags. So I started asking them more questions about their Sacco. While it has been operating for a while now, it seems to have cash flow problems, leading to some of the telltales you can see in all collapsed Saccos. 

 

The case of Saccos collapsing with millions of member savings, leaving them distraught and financially ruined, is as old as time. There are many examples on the internet, and a quick search will show how many Kenyans have lost their hard-earned money through rogue Saccos.  

 

You might not be a savvy financial analyst or financial statement reader. But try to take a keen interest in your Sacco’s operations and information availed during general meetings. Also, what are other members saying? These will undoubtedly help you discern whether you are contributing to a sinking ship or not. 

 

Looking for a Sacco to join? Here are a few recommendations 

 

 

RUN! Top 6 Signs to Leave Your Sacco

There are many reasons to leave a Sacco, from wanting higher returns to demand for more products and higher credit limits. However, when it comes to signs of trouble, aka, a collapsing Sacco, these are some of the top red flags to watch out for;

 

1. No Credit Extensions

Is there money available to meet members’ loan applications? When you apply for credit, how long does it take to get that money? Most importantly, are there limits to how much you can access and does it match the Saccos asset base and cash flows?  

 

Remember that some Saccos are younger or have fewer members and, therefore, have a smaller asset base that limits them from extending huge credits. But I believe this should not make it nearly impossible for members to get loans. Some collapsed Saccos had an asset base in the millions but could still not afford to extend credit to their members. 

 

Of course, something is fishy when it gets here. 

 

Related post: Sacco vs Money Market Funds: Which is Better?

 

2. High Loan Defaults

You already know that Saccos make most of their money through interest from borrowings. Right? So, what happens when members default on their loans? It is simple; the Sacco is simply headed for its destruction. 

 

The Sacco has issued loans (that’s money out of its accounts), and borrowers are not repaying the money or the interest (so no money is coming in). So as the cycle continues, it will have no money to lend to other borrowers, meet its operational expenses, or repay its own borrowings. 

 

To that end, what is your Saccos loan default rate? How much have members defaulted? The higher or more alarming these numbers are, the higher the possibility of liquidation. 

 

3. High Number of Dormant Members and Low Membership Registration

Again, if the Sacco has too many dormant members, how will it make money to sustain its operations? It is basically losing money from member contributions and interest from loans it would otherwise earn if it were to extend credit to these members. 

 

If these numbers keep increasing and fewer members join the Sacco, something is cooking. The cash inflows will be limited, reducing Sacco’s ability to meet its expenses and other responsibilities. 

 

4. Unpaid or Late Payment of Dividends

Does your Sacco pay members their dividends and rebates in time? Or have you not received any payments at all? What were the reasons behind this?  

 

SASRA has been implementing stringent measures to protect members’ savings. One of these measures included BOSAs (Non-Deposit taking Saccos) maintaining a minimum core capital of Ksh. 5M, and increasing Sacco’s capital base. This move might have forced some Saccos to either retain part of the profit they would otherwise distribute to members or raise the minimum required share capital. Or both. 

 

But regardless of whether your Sacco is trying to meet these new regulations, paying no dividends and rebates or late payments are probably signs of a failing organisation. It simply translates to cash flow problems, which is a huge red flag. 

 

If the Sacco is trying to meet these regulations, there needs to be an explanation. And probably distribution of part of the profits, meaning lower dividend and rebate rates, while using the rest to meet the requirements. 

 

Related read What To Do With Your Dividend And Interest Payments

 

5. Investing in Dead, Unexplained or Unchecked Projects

Sometimes, there is little one can do as a mere member. For example, when the management of the Sacco undertakes certain projects, perhaps even approved by a group of members, it might be hard for your opposite opinion to sway their resolve. It doesn’t mean you must stick around and sink together with the ship, though. 

 

Some of the collapsed Saccos had their management invest in unexplained or unchecked projects. Sooner or later, members would discover it was either a dead project or some fraudulent scheme that saw the money go into the pockets of high-ranking members in the Sacco. 

 

6. Mismanagement and Political Wrangles

Unfortunately, many Saccos are prone to mismanagement and lots of politics. This, of course, leads to all the above points, with many of the higher-ranking members making a killing at the expense of other members. 

 

Check whether your Sacco has a checking system that holds management to account. For example, are members of the board and higher management positions vetted before the appointment? Or has appointing officers in important positions become a highly political affair? How long do they stay in the office? Who makes up the board, and what is their track record? Most importantly, are the financials audited and signed off by a reputable firm? 

 

 

Is Your Sacco on the Verge of Collapse?

Back to my friend. By the end of our conversation, all I could only say was to RUN. You see all the above telltales of a failing Sacco; that’s them. 

 

For starters, they cannot access loans in time because there is insufficient money. Whatever is there cannot meet the needs and demands of the organization. That means applying for loans and probably waiting for weeks before you can get the money.  

 

I was curious about this and whether the management had provided any information. Some reasons provided during the AGM included unmet Sacco expenses, low rate of contributions, many dormant members, and defaulted loans. Worse still, they had not received their dividends for the previous year, 2021. This was way past mid-year 2022! So they had to wait an extra few weeks for financials to be approved, dividends and rebates distributed, and whatever was remaining would be available for loans. Worse (I feel like I am saying this a lot, but it is what it is), the Sacco had some unpaid expenses and would need a loan to meet all these demands. 

 

If you are in a Sacco experiencing some of these issues, it is probably high time you jumped ship. The Sacco could survive with the implementation of some checks and controls. But I do not believe in tempting fate with my hard-earned money. These controls could take long to be effective or even yield any results. By then, nothing might be left to salvage. 

 

How to Safely Exit Your Sacco

Are all those red flags flashing everywhere? If the indication is that you must jump ship, it’s time to leave without jeopardizing your savings. Here’s how you can go about it;

 

1. Understand the Withdrawal Procedures

Have you read your Sacco’s policies? Every Sacco has a procedure for exiting. So it’s important to familiarize yourself with the procedure before taking things any further. With most Saccos, you must give a written notice, which takes up to 60 days for your member deposits to be refunded. Keep in mind that your share capital is non-refundable. However,  you can transfer to another member to get your money back.

 

2. Understand the Implications for Loans

Have you borrowed money from your Sacco that’s still outstanding? Prioritize settling any outstanding debts before initiating the withdrawal process. But there is another option. the Sacco can deduct the loan from your savings and refund the difference.

 

3. Transfer to Another Sacco

Fortunately, a lot of Saccos allow you to join by transferring your savings from another registered Sacco. One of the best things about this option is that you are not treated as a new member. The Sacco you are joining will treat you as an existing member. This allows you to access credit lines instantly compared to new members who have to wait for up to 6 months before getting loans.

 

4. Seek Alternative Investment Options for the Future

Have you grown weary of Saccos? Before leaving the Sacco, ensure that you have explored alternative investment options that align with your financial goals. This could mean investing your money from the Sacco in government securities, unit trusts, or even the stock market.
This move can help you diversify your portfolio. Diversifying your investments ensures that you continue to grow your wealth while mitigating risks associated with relying solely on one financial institution.