My mother loves sharing stories with me. Not long ago she shared a story about another of her friend’s son.
Let’s call him Peter. Peter just like many students in Kenya had a difficult school life.
Most of the time he was in and out of school. Despite him having attended a local day secondary school, he was often sent home.
Even during his last year in high school, he spent two thirds out of class because of unsettled fees.
As fate would have it he did not perform well in the Kenya certificate of secondary school examinations (KCSE).
You might think that that was the end for the young man but no. Today he owns a very nice car and has helped his parents pay for his younger siblings’ schooling.
This is another case of financial intelligence.
In case, you missed that article here’s the link. financial literacy
But that’s not our topic for today. Today we’ll focus on SACCOs.
Some of you might have heard of them while others have not.
A SACCO stands for savings and credit co-operative. As the name indicates one can save in a SACCO and get loans as well.
Here comes the big question, why save in a SACCO instead of saving in a commercial bank?
Here are some of the benefits of joining a SACCO
1. Well for starters most people cannot qualify for a good loan in a bank whereas a SACCO gives a loan that is up to three times the amount of your savings.
2. More to that a SACCO gives its members higher interest rates on savings, unlike banks that give simple interest on savings which is very low.
3. A SACCO gives its members flexible repayment. Giving you enough leeway to repay the loan without much hassle and Basel.
4. As a member of a savings and credit cooperative, you are given dividends at the end of every financial year.
If you have been following my blog posts I’ll have you know that this is another way of making your money work for you.
5. Another benefit is that as a member of a SACCO you can use your dividend earnings to offset an already existing loan.
Very awesome if you ask me.
Do you dream about owning your own home? Well, I do. And a SACCO can help you achieve this dream.
6. As a member of a SACCO, you can have the SACCO develop property on your behalf.
Some Sacco even gives their members the chance to buy land at a discounted price.
7. To top all that up. A SACCO will give you free investment education and advice.
I recently read about a dentist right here in Kenya. When he was an intern he started saving in a SACCO.
After a year of saving he got a loan and opened small dentistry.
A few years later thanks to his hard work and loans from the SACCO he has employed 15 practitioners.
On top of that, he owns a big restaurant in one of the biggest counties in Kenya where he has employed a little over ten workers.
Therefore, saccos are here to help all of us regardless of your education level or level of income.
It is however not always rosy when it comes to saccos.
I read about a person who had been saving in a SACCO and was denied a loan.
Shocking I know.
It is always good to read the fine print before placing your money anywhere.
This middle-aged man had been saving for a little over 6 months. The minimum period required for one to start accessing loans in most saccos.
But why was he denied a loan? Take a wild guess.
To help you out on that here are a few things you need to know before joining a SACCO.
what you need to know before joining a SACCO.
A rule of thumb is that: to save is to deposit and to access is to borrow.
1. This means that after depositing or saving you can only access your savings by taking a loan or terminating your membership in the SACCO.
2. One can only be a member after buying shares of that particular Sacco. These shares are different from other shares in that one can only transfer them when they want to exit the SACCO.
3. To be a member of a SACCO requires us to make monthly contributions to our savings account.
Is this a good thing?
Yes. It will instill discipline and help us build a good savings culture.
Let me warn you however that failure to make the monthly deposits could lead to the termination of the membership.
6. As mentioned earlier, before accessing loans one has to save for at least six months.
The best part is that after this period you can access loans up to three times your savings.
7. One other thing that I need to mention is that unlike banks where you need collateral. That is a logbook or title deed.
In a SACCO you only need a guarantor.
A guarantor is a person that assumes responsibility for the debt in this case your loan.
This means that your guarantor will guarantee that you will repay the loan.
Some if not most saccos require guarantors to have deposits that are equal to the loan.
Such that failure to repay the loan will lead to these savings being held by the SACCO until the loan is repaid.
Another thing worth mentioning is that once you acquire a loan you cannot stop depositing your monthly savings.
This might pose a challenge especially to anyone with only one source of income.
However, there is a solution to everything.
To remedy this one might simply increase the sources of income by using the loan to bring in more money than you had before.
Now that you know what you should know before joining a SACCO, do you know why the middle-aged man was denied the loan?
The answer is that the man had not bought shares therefore he was not eligible to get a loan.
What you should look at before joining a SACCO
1.As always do a background check on the investment vehicle you want to use.
Here are some of the things you should look at while doing the background check.
a) What other people are saying about the SACCO.
A good reputation is key in the finance industry and a bad one will always surface.
Whether it is through customer reviews or simply what reputable bodies are saying.
b) Look at the financial health of the SACCO.
This may require you to look at the financial statements of the SACCO.
If you can’t understand the financial statements, you can always get an independent person to interpret them for you.
Here you can look at the dividend pay-out. A good sign that the SACCO is not doing well is when the members complain about not receiving dividends.
Another sign is how long it takes to receive loans once you’ve applied for one. That is the liquidity of the SACCO.
c) Check whether the SACCO is registered, licensed, and regulated.
There are two departments of saccos and each type is regulated by a different body.
The first department is called a Front office service activity (FOSA) which is regulated by the Sacco Societies Regulated Authority (SASRA).
Here’s a link to the website
FOSA is the banking sector of the Sacco.
While the second department of a SACCO is called Back Office Service Activity (BOSA) which is regulated by the Commissioner of Cooperatives under the Ministry of Industry, Trade, and Cooperatives.
BOSA deals with share contribution and share based lending.
d) Check whether the SACCO is properly insured.
This is to ensure that your money will be protected just in case anything happens.
e) Some other things to look into include the management controls, the members’ concerns during annual general meetings as well as the investment portfolio of the SACCO.
Back to our story about Peter. I know that you are wondering how he was able to break the shackles of poverty. Some of you might already have a clue.
Let me tell you what Peter did. Well, Peter unlike many young people took the first job he could find and never looked back. He worked weighing tables, delivering goods, and any other job that he could find. He even worked night shifts.
During this time, he saved all his income in a local SACCO. His starting salary was only ksh. 8,000.Peanuts I know.
As small as his income was he was able to save ksh. 300,000 in three years’ time.
By this time, he applied for a loan and used it to buy a 3-year-old car in mint condition. This newly acquired car was used as a taxi cab. Increasing Peter’s streams of income.
The new source of income was used to pay off the loan as well as increasing the amount saved.
At this point, you might think that Peter did not have any hurdles to deal with. But he did. He had to deal with mean bosses, cruel co-workers, and having lost some money in the gakuyo scandal. Yet none of that deterred him.
Today he not only has a good-paying job and hope of getting his money back but he supports his parents and siblings. He is the pride and joy of the family, despite him still living with his parents.
Peter’s story is but one of the many success stories out there. Thanks to SACCOs.
There are very many saccos in Kenya. If you’d like me to make a list of some of the best saccos in Kenya, tell me in the comment section below.
As I pen off, I’d like to say that your financial freedom is but a decision away. Choose an investment vehicle today and as always never stop learning.