Imagine a financial institution where you are not only a customer but an owner. A place where you influence the decisions made and are part of a community-based growth. This is the essence of SACCOs—Savings and Credit Cooperative Organizations. In this guide, we will delve into the fascinating world of saccos, exploring how they work, their benefits, what makes them preferable to traditional banks, and the factors to consider before joining one. Get ready to discover how being part of a Sacco can transform your financial journey and enrich your community!
How Saccos Operate
A SACCO (Savings and Credit Cooperative Organization) is a type of financial cooperative where members pool their savings together to provide loans to each other at relatively low interest rates. They are similar to credit unions, but commonly found in Africa, Asia, and other developing regions. They may also be present in other parts of the world
Saccos are registered under the Ministry of Cooperative Development and Marketing in Kenya and regulated by the SACCO Societies Regulatory Authority (SASRA).
Joining a Sacco requires a one-time membership fee and shares representing ownership in the Sacco. Members must then make regular savings contributions, usually monthly, often outlined in the Sacco’s bylaws. Accumulation of these savings contributions over time later determines the loan amount a member can get from the Sacco. The most common loan facilities include:
- Personal loans
- Development loans
- Emergency loans
However, members can also get other loan facilities tailor-made to meet their specific needs.
An elected committee consisting of a board of directors is responsible for governing Saccos. They make key decisions regarding the Saccos operations such as setting policies that safeguard the members’ interests amongst others.
Advantages of Joining a Sacco
Saccos are a beacon of financial empowerment that provide their members with unique advantages. Here’s how your Sacco membership can hugely impact your financial journey.
Access to Affordable Credit Facilities
Saccos are not-for-profit entities whose main goal is to benefit members rather than maximize profits. Members are allowed to borrow up to three times the amount of their savings.
The amount contributed every month by members is used to provide loans to other members, with the interest rate determined at the annual general meeting. This allows the interest rate charged to be distributed amongst the members.
The low interest rates charged by Saccos are a way of encouraging more members to take up loans. To be eligible for a credit facility, most saccos require that:
- You be a member for a specific period, usually three months
- You have a good repayment history which indicates your reliability in repaying the loan
- You offer security for your loan, that could either be collateral or guarantors
You will then be required to provide your identification documents such as your ID and pin certificate then fill out an application form stating the purpose of the loan.
Promotes a Savings Culture
Saving money can be difficult especially when you have no motivation to do so. Saccos can however help you improve your savings culture in the following ways:
- Making a mandatory monthly share contribution. These regular deposits help instill a habit of saving regularly.
- Making automatic savings deductions from members’ bank accounts or salaries. Prioritizing savings this way ensures you’ve already committed money to your savings account.
- The inability to make regular withdrawals in times of emergencies. This prevents unnecessary usage of your money.
- They offer specialized savings accounts tailored to different financial goals that encourage focused saving, such as the 52-week saving challenge.
Attractive Returns on your Savings
Saccos offer different types of returns compared to instruments such as banks or money market funds that only pay interest on your deposits.
Also Read: Money Market Funds Explained: A Simple Guide for Investors
At the end of every financial year, Saccos pay out dividends or rebates to its members based on the amount of savings held.
These returns can be a suitable place to park your money when you don’t know your saving objectives or are saving for a long-term goal. Furthermore, Saccos redistribute profits among their members. This ensures that the members benefit from the Sacco’s financial success.
What Makes Saccos Preferable to Banks?
Saccos offer several advantages over traditional banks, making them more appealing in comparison to banks. Here are the unique qualities that make Saccos preferable to banks:
Member-Centric Approach
Saccos are owned and operated by members who take part in decision-making processes including the election of board members, distribution of profits, and approval of policies.
This democratic structure ensures the Sacco’s management is answerable to members during the annual general meetings as they have the right to question how their funds are being utilized.
This member-ownership of Saccos means that every member regardless of the number of shares owned is a co-owner of the organization. It also ensures that the member’s interests are aligned with those of the Sacco.
Focus on Community Development
Unlike banks that operate on national or international levels, Saccos are primarily community-based. They invest their profits in their immediate communities, channeling their efforts into local projects and initiatives.
These could include infrastructural developments or member educational programs that focus on financial literacy. This investment helps members and subsequent communities become self-reliant and prosperous in the long run.
Lower Fees
Saccos, unlike banks, offer lower fees for services such as deposits, withdrawals, account maintenance, and account inquiries.
This ensures that financial services are accessible and affordable to members. It also encourages low-income members to save more of their money in Saccos as they are confident that their savings won’t go into sorting out fees.
On top of lower fees, saccos ensure that their fee structures are transparent, with fewer hidden charges as compared to banks. This transparency ensures that members understand all cost-related transactions, enabling them to make more informed financial decisions.
Factors to Consider before Joining a Sacco
You’re probably wondering, what then should I look out for before joining a Sacco? Here are some of the factors to consider before committing your savings to a Sacco:
- Ensure the Sacco is registered and regulated by the Sacco Societies Regulatory Authority (SASRA). This ensures that the Sacco is adhering to the law and reduces the risk of mismanagement of funds.
- Ensure the Sacco’s objectives align with your financial goals. Saccos are based on specific sectors such as agriculture, business, or housing and it is therefore crucial to find one that caters to your particular needs.
- Assess the Sacco’s financial stability by assessing its financial statements, audit reports, and performance metrics. A stable financial history is a safer and more reliable option when it comes to dividend payouts and access to secure loans.
- Find out the Sacco’s dividend policy, including the rates paid out in previous years. Saccos with high dividend payouts indicate a well-managed Sacco that will likely keep up these payouts even in subsequent years.
- Understand a Sacco’s policy regarding withdrawals of your shares in case of an emergency or on exit from the Sacco. Some Saccos may have restrictions on withdrawals, require notice periods, or may even charge fees on account closure.
Drawbacks of Joining a Sacco
Despite the many benefits that come with joining a Sacco, certain limitations come with Saccos including:
- Joining a Sacco requires the purchase of share capital that is usually non-refundable even on member exit. While most Saccos allow selling to other members, this process is usually time-consuming and tedious.
- Limited borrowing limit in comparison to banks, as the amount one can borrow is directly linked to the amount of shares. This can be very disadvantageous especially if you need access to a larger loan facility.
Your Path to Smarter Savings and Community Impact
As we’ve seen, SACCOs offer a unique and compelling alternative to traditional banks, blending personal ownership with community-focused benefits. By joining a SACCO, you engage in a financial system where your savings directly contribute to both your personal growth and the collective prosperity of your community.
While SACCOs come with certain limitations, such as share capital requirements and borrowing constraints, the advantages often outweigh these challenges.
They promote a culture of disciplined saving and financial transparency, all while keeping costs low and fostering community ties.
If you’re seeking a more engaging and rewarding financial experience, consider joining a SACCO and discover how it can enhance your financial journey and enrich the lives around you.
