What are Saccos and how do they operate?
A Savings and credit co-operative, commonly known as a Sacco is a member owned financial association that offers both savings and credit services to it's members. Saccos have become increasingly popular among Kenyans who are looking to save money and gain access to credit facilities. You become a member of a Sacco by contributing money to it; this allows you to acquire shares of the Sacco, borrow money and earn dividends from it at the end of the year.
Saccos are managed by officials who are elected at the annual general meeting, by the Sacco members. These officials make decisions on dividend payouts among other things. Most saccos will allow you to access credit facilities worth three times your savings, and this is after saving with them for a minimum period of six months.
Why one should consider saving with Sacco?
- Access to cheap credit facilities: Saccos are well known for their low rates as compared to banks.
- Investment opportunities: Most Saccos have development projects that they sell to members at reduced prices. This could include land or houses. Purchasing a house through a Sacco provides some kind of security with regard to the legitimacy of the property, unlike dealing with a real estate firm directly.
- Avenue to save money: Some Saccos have a facility known as Front Office Savings Account, which allows you to have a savings account. Safaricom Sacco and Stima Sacco are some of the Saccos that offer these services.
What is the downside of saving with a Sacco?
- In the event that you take a loan, you will have to continue making your regular monthly contributions and still be paying the loan. This might cause a strain on your finances.
- To borrow from the Sacco up to three times your savings, you will require to have guarantors, and this might prove to be a challenge. Most people are not willing to be guarantors. However, if the amount you want to borrow is less than your total savings, then you can borrow against your savings and will not need to have a guarantor.
- To access your money you have to take a loan or just withdraw all your money from the Sacco. This puts savers who don’t like loans at a disadvantage.
- If you decide to withdraw your money, most Saccos will need you to give them a notice of 60 days, which can be a big inconvenience if you need the money urgently.
- Unlike a bank or other saving schemes, Saccos require you to make regular payments monthly. This can be an inconvenience for those with irregular incomes who may not be able to adhere to these strict regulations.
How to select a Sacco
- It’s imperative that one gets familiar with the by-laws of the Sacco, and what the rules say on borrowing and guarantors as well as security. Ensure that the Sacco is registered, regulated, and licensed under the regulatory body known as SASRA, Sacco societies Regulatory Authority.
- In the technology age we live in, one might want to establish if the Sacco has embedded technology for its services with regard to deposits or withdrawals of money.
- Check the fees charged, interest rates for borrowing, the types of loans they offer as well as the dividends paid out in the last few years.
- It does not hurt to ask for recommendations or check the reputation of the Sacco with friends, colleagues or family who have been or are members.
