Saccos, Savings and Credit Co-Operative Organizations have grown over the past few decades and have been giving banks a run for their money. When it comes to saving money and offering a myriad of lending options for their members, Saccos seem to do it better for low and medium-income earning individuals. It’s, therefore, not hard to see why they have become so popular for this demographic population.
Now, the first advice you’ll probably get when you land your first job is “save”. The truth i that there are numerous options to save your money. From Money Market Funds and your bank’s current account to fixed deposit accounts and even treasury bills. But here is another option you must consider, joining a Sacco. And this is a very highly recommended option to consider.
So, why are Saccos gaining so much popularity in Kenya? Are they worth putting your money in, or should you be worried?
Looking for a Sacco to join? Here are some Saccos to consider
The Pros and of Cons Saccos
Many advocate for using Saccos as a savings, borrowing, and investment avenue. But when it comes to your money, you should take every advice with a pinch of salt. Every product in the market has its pros and cons, including Saccos.
Pros of Joining a Sacco
- Encourages saving – to keep earning higher returns and be able to borrow, you will need to be consistent with your savings. For this, you are pushed to be consistent with your savings.
- High returns – Saccos earn you a higher return at the year compared to fixing the money in a traditional bank account. While banks offer a rate of less than 8% for fixed accounts, most Saccos offer as high as 10% to 14% for member deposits and 12% to 20% for share capital. The rate of dividends varies from one Sacco to another and depends on the performance for that year.
- Access to numerous credit lines – most Sacco’s have several credit lines that are usually processed within 48 to 72 hours or less. These range from emergency loans and school fees loans to development loans, depending on your urgency. It’s also possible to be servicing more than one loan simultaneously when you are borrowing from the FOSA credit line products. Additionally, some Saccos have a mortgage credit line where you can borrow money to buy or build your residential home and have a repayment period of up to 10 years or more.
- High borrowing amounts – with most Sacco’s, you can borrow 3 to 5 times your savings. For example, if your savings are KShs. 100,000, you can borrow up to KShs. 300,000 or KShs. 500,000..
- Better credit terms than banks – even with the lending base for banks, most Sacco’s still offer lower lending rates compared to banks. Saccos have rates as low as 12% per annum, while banks charge about 14 or even higher. Besides interest rates, the repayments are usually more flexible.
- Ownership and control – as a member with share capital, you have ownership and control of the Sacco you join. That means each member has an equal say in the governance and operation of the organization. For instance, as a member, you have a voting right regardless of the amount of savings or loans you hold.
- Limited liability – while you have ownership and control in the Sacco your liability as a Sacco member is limited. This means your private property as a member is out of bounds in case the Sacco goes bankrupt.
Related read: What To Do With Your Dividend And Interest Payments
Cons of Joining a Sacco
- Guarantors – when it comes to borrowing money from a Sacco, you will require guarantors, who also need to be members of the Sacco. That’s where it gets tricky, because you have to join the same Sacco as people close to you so you can be each other’s guarantors.
- Savings withdrawal – you cannot withdraw your share capital savings unless you want to withdraw membership from the Sacco. If you need money, you have to take a loan and use your savings as collateral, assuming you have not guaranteed another member. Additionally, you’d have to give the Sacco a notice for withdrawal. Most Saccos have a notice period of about 60 days. The silver lining to this is some Saccos have FOSA (Front Office Services Activities) accounts where you can deposit and withdraw money at any time. However, the money in a FOSA account will not earn you the same high interest as any money saved in a share capital account.
- Share Capital withdrawal – unlike member deposits which are refundable, your share capital is non-refundable. The only way you can get your money is to transfer your share capital to another member.
- Limited borrowing amounts – banks have millions and billions of money at their disposal, which makes it easy for customers to borrow money in millions. Saccos, on the other hand, have lower resources and it is not easy to borrow millions of money. For example, some Saccos have mortgage loans.
- Limited investment opportunities – Saccos have limited investing opportunities, with most focusing mainly on land and property acquisition through their housing groups. Banks, on the other hand, provide access to more investment assets, like government securities, stocks, and mutual funds.
- Thievery and poor management – many savers have lost millions and billions of money through poor management and thievery through Saccos.
Related read: Sacco Guarantor’s and How You Can Protect Yourself
What to Consider When Joining a Sacco
As mentioned earlier, many savers have lost their hard-earned money through mismanagement and thievery in Saccos. It is not a guarantee that the Sacco you join is safe, but there are some factors to consider when looking for a Sacco to join. It might help reduce the chances of joining a Sacco that will mismanage or steal your money. Here’s what to look out for:
- SASRA registration – ensure that the Sacco you are joining is registered by the Sacco Societies Regulatory Authority (SASRA). The organization is under the Industrialization and Enterprise Development Ministry and is in charge of registering and overseeing all Saccos in the country.
- The asset base of the Sacco and its growth over the years
- The minimum share capital
- Membership growth
- Minimum monthly contributions
- Available product mix- loans, savings & investments
- Guarantors requirements
- Borrowing terms and limits
- Interest rates on loans
- Dividend and Rebate payments
- Accessibility – availability of web portals, mobile banking, apps and online onboarding
- Customer service of the Sacco
- Composition on board- (Central management committee)
Is your Sacco in trouble? Here are key signs to watch out for
Joining a Sacco is an excellent way to start saving the little that you can. It also gives you a chance to borrow money that you can use for your investments, meet tuition fees for your kids or yourself, or any emergencies. However, you need to be careful when choosing a Sacco to join to avoid losing your money through a mismanaged Sacco or cons.
How do I become a member of a Sacco?
To become a member of a Sacco, inquire about the membership criteria at the specific Sacco you are interested in. Typically, you’ll need to meet certain eligibility requirements and complete a membership application.
What are the main benefits of joining a Sacco?
Joining a Sacco offers benefits such as access to affordable credit, favorable interest rates on savings, a sense of community, and democratic participation in the decision-making processes of the organization.
Can I use a Sacco for business financing?
Yes, many Saccos offer business loans to support entrepreneurial ventures. However, the specific terms and conditions, as well as the eligibility criteria, may vary, so it’s essential to inquire with the Sacco directly.
How safe are my savings in a Sacco?
Saccos are regulated financial institutions, and the safety of your savings depends on factors such as the regulatory environment, governance practices, and financial management of the specific Sacco. It’s advisable to choose Saccos that adhere to regulatory standards and have a history of sound financial practices.
Are Saccos only for low-income individuals?
No, while Saccos do provide financial inclusion for low-income individuals, they are open to a wide range of members, including middle-income and high-income individuals. The cooperative model welcomes diversity in its membership base.
How can I stay informed about my Sacco’s operations?
Saccos typically hold regular member meetings, where financial reports and updates on the Sacco’s operations are shared. Members are encouraged to attend these meetings, actively participate, and stay informed about the Sacco’s activities. Additionally, many Saccos have embraced the digital world and have a heavy presence on social media platforms like Facebook. You can follow your Sacco on their social media pages to stay updated on any news and product/service offerings.