As you calculate your Sacco dividends in 2024, you need to understand what influences the amount you receive as dividends. This will help you make decisions that will benefit you regarding dividends.
If you are joining a Sacco because of the dividends they offer, you need to be aware of these things.
In this article, we discuss four things to know as you calculate your dividends and the types of accounts in Saccos.
A Sacco is essentially a group of people who have come together to pull their money so that they can invest together or they can lend each other money when one needs it.
As a member of Sacco, you have monthly installments that you are supposed to keep contributing to Sacco for its growth. These monthly contributions also represent your shareholding in the Sacco. The more you contribute to the Sacco, the more shares you have in the Sacco.
Therefore, if you want to earn significant dividends from your Sacco, you must increase your Sacco contributions.
Sacco can give dividends quarterly, half-yearly, or yearly. However, most Saccos pay dividends annually. The frequency of dividend payments is determined when the Sacco members write the Sacco’s by-laws.
First, a Sacco makes money in two ways: by earning interest on the loans it extends to its members and through investing in other income-generating projects and assets.
Therefore, when you take a loan from your Sacco and pay interest on the loan, you allow your Sacco to make money. When enough members do this, the Sacco is in business.
Mark you, Sacco is member-friendly. Therefore, they can extend loan terms that are more lenient than banks. This incentivizes members to prefer to take loans from Sacco rather than banks.
Once Sacco has made money through the interest on loans and from other projects in which Sacco is invested, they have to subtract the running cost. A Sacco has to pay the workers, buy office equipment, pay the necessary licenses, and have insurance, among other expenses. All these costs have to be subtracted before arriving at the dividend to be paid.
Secondly, the Sacco also has to put money aside to be reinvested in the Sacco for its growth. Once all this has been considered, Sacco decides how much to give back to the members.
The Sacco earnings come in two ways. Interest in Capital shares and Dividends. The interest on shares is how much your money will earn you. However, this is not deposited in your account. It is only added to your principal.
Dividends, on the other hand, will be deposited into your account directly. For instance, if you have shares worth Ksh100,000 in a Sacco, and the Sacco pays dividends at a rate of 10%, you will have Ksh10,000 deposited into your account.
The performance of the Sacco affects the amount you receive in dividends. If the Sacco is performing well, you will earn more dividends. If it is not performing, you might not receive any dividends.
Since you are a shareholder and a member of Sacco, it is important that you pay attention to how your Sacco is being managed and the type of investments they are making.
To begin with, look at the growth of your Sacco in terms of membership. If the Sacco is growing in members, then that means that the Sacco is appealing to more and more people. This indicates that Sacco is doing something good. The more members, the more business a Sacco can conduct, hence the more dividends it can have at the end of the year.
However, if numbers plummet, the Saco is on a downward trajectory.
Study the financial statements of the Sacco. Even if you are not a financial guru, by attending the Saccos general meetings and reading their reports, you can spot trends that will tell you whether the Sacco is healthy or deteriorating.
Evaluate the asset quality that your Sacco is investing in. How risky is the investment, and is the return worth the risk? For a Sacco, you are looking for a well-diversified, low-risk portfolio to ensure you are not risking your savings.
Additionally, pay attention to the customer service in your Sacco. Excellent customer service can be a sign of growth in a Sacco. That means the Sacco employees are well compensated and have a great working environment. This shows that the management of the Sacco is being done correctly.
Furthermore, excellent customer service will attract more people to join Sacco, strengthening its growth.
Before you pocket your dividends from your Sacco, you have to factor in some deductions, including taxes and dividend processing fees.
You must pay a withholding tax and excise duty in Kenya on your dividend. According to Kenya's Income Tax Act 2021, both these taxes stand at 5% each.
Furthermore, you have also to consider the processing fees, which vary from Sacco to Sacco.
However, you also have to consider loan interest deductions. Although this does not happen in every Sacco, there are Sacco where you might find that a portion of your dividend is used to offset your loan with the Sacco.
Now that you have learned everything that will influence the amount of money you will take home in dividends, let us understand how the dividend amount is calculated.
Dividend is usually calculated on the closing balance at the end of a financial year.
The Sacco management analyses how the Sacco has performed throughout the year. They propose a dividend percentage that every member should earn. The proposed dividend has to be approved at the Saccos AGM. Once approved, it is applied to the closing balance, and every member gets paid their dividend.
For instance, if a Sacco decided to pay a 12% dividend and your closing balance at the end of a financial year was Ksh 100,000, your dividend would be Ksh12,000.
However, remember you have to factor in the taxes and deductions. You must pay a 5% withholding tax and 5% excise duty. After these deductions, you will be left with Ksh10,800.
Depending on your Saccos processing fee, you will pocket 10,800 minus the Saccos processing fee.
A Sacco has two main types of accounts. The Front Office Services Activities (FOSA) and the Back Office Services Activities (BOSA) accounts.
This is the banking arm of the Sacco, which offers savings and transactional accounts through which you can access your money while you are still a continuing member of the Sacco.
Such accounts may be used as a salary pay point, and funds may be accessed through Visa-branded automated teller machines (ATMs), mobile banking, and over-the-counter.
Under FOSA, you can have the following accounts.
BOSA, on the other hand, stands for Back Office Services Activities. Here, a member makes a prescribed minimum contribution (non-withdrawable deposits). These deposits are used as collateral for loans. They are only withdrawable on cessation of membership.
Under BOSA, you can have the following accounts.
Joining a Sacco is a great idea. It will allow you to earn dividends and interest on your savings. You will also access affordable loans and get to be part of a member-centric financial organisation where your voice can be heard.
Nonetheless, due diligence is always vital. There have been incidences of Sacco management going rogue, leading to members losing their money. Ensure you are always vigilant to protect your investment.