The history of co-operative societies in Kenya dates back 113 years ago in 1908 when the first co-operative society was established - a dairy co-operative.
It would take another 38 years (1946) in colonial Kenya for Africans to be included in the co-operative movement. By 1969, over 1,800 societies had been established with heavy government involvement.
During the liberalization of economic policies in the 1990s, a 1997 decision to reduce government involvement almost led to the collapse of the cooperative movement in Kenya. Saccos would pick up momentum at the turn of the millennium.
In the intervening period and indeed today, the duka credit, borrowing from friends and family and chamas or as otherwise called table banking was a major source of credit for everyday Kenyans.
Saccos - Savings and Credit Co-operatives - have grown to become one of the most preferred financial services providers since the enactment of the Co-operative Societies Statute, 1991.
Initially restricting membership to certain groups e.g. teachers, police officers, company employees, coffee farmers etc. Saccos have since gone mainstream.
Some of the biggest Saccos in Kenya today include; Stima, Mwalimu, Harambee, Kenya Police and Afya Saccos.
Saccos are popular for providing relatively low interest on credit becoming an alternative to banks. But they do have certain bespoke requirements that could make some more attractive than others.
So what do you need to know about Saccos?
Every Sacco has a minimum share capital requirement that you must purchase either as a lump sum or in instalments. So before you can start saving you need to be a registered member and buy some shares.
Share capital is a unit of ownership in the Sacco that a member acquires to become a co-owner (shareholder) - a permanent contribution by a member towards the Sacco’s capital. One has to purchase shares to be eligible to borrow as well as access other Sacco services.
In the event that you want to leave a Sacco, that is the only time your shares are transferable to another Sacco member of your choosing. The share capital is non-refundable and is only transferable to an existing Sacco member or sold to a Sacco member when you cease being a member.
Importantly, your share capital earns you yearly dividends depending on the Saccos annual performance. Some of the leading Saccos in 2020 offered dividends of up to 14% per share on fully paid-up shares.
Since Saccos depend on member savings and their shares as the main source of lending capital, the loan you qualify for is limited by the amount of savings/shares you have at the Sacco.
A general rule for most Saccos is that you are only eligible for a maximum loan that is equivalent to three times your savings. So, if say you have Ksh100,000 in savings, then the maximum loan you can borrow is Ksh300,000.
Also, if you are a new member you do not automatically qualify for a loan. Depending on the Sacco, you need to have saved for at least three months to qualify for a short-term loan and six months for long-term loans. This is in addition to having purchased the minimum share capital.
Unlike commercial banks that ask for collateral for secured loans, Saccos primarily require one to get members to guarantee a loan.
The number of guarantors you need for a loan depends on the amount you are borrowing but the entire amount must be guaranteed. So, the accumulated deposits by the guarantors must be equivalent to the amount of loan you are borrowing.
In the event that you default, the guarantors take the debt burden with the Sacco seizing their deposits until the debt is settled.
The guarantors’ liability reduces as you repay the loan. If you guarantee someone, you are still eligible to borrow but the specifics of how much you can borrow have to be discussed with the Sacco.
The ability to get guarantors is thus one of the factors considered before joining a Sacco. Many Kenyans have had their borrowing attempts frustrated by inability to get members to guarantee their loans. This happens especially when you join a Sacco where you know none of the members.
In response to this hurdle, many Saccos now do accept collateral such as title deeds, logbooks, etc. in lieu of guarantors to help members stuck at the guarantor phase of their loan application.
Further, Saccos now do offer short-term mobile loans that do not require guarantors or collateral in line with the mobile lending trend in Kenya.
For many years now, many Saccos have been offering front-office banking services making them true alternatives to commercial banks. These include current accounts that you can channel your salary through. They have also added the ability to make payments such as retail purchases or standing order payments for regular services meaning you can now have a Sacco as your sole financial services provider.
Saccos have also ventured into investment options such as purchase of commercial land exclusively only available to members - a service that has been hailed as being one of the most trusted given the myriad of uncertainties around land purchasing in Kenya.
Saccos do get a standing ovation on this one - these lifesaving loans can be approved between 30 minutes and 24 hours depending on the Sacco. With a relatively lower interest rate than commercial banks, Saccos make a great choice for emergency loans as compared to commercial banks. They also do offer salary advance loans if you have chosen to channel your salary through the Sacco. Note, however, that the repayment period for emergency loans is also shorter as is the disbursement time.
This is one of the most important factors. Make sure you do your research - how long it has been operating, any red flags, member reviews on social media and their Apple Store/Google Play apps.
Note that some pyramid schemes and scams disguise themselves as Saccos. The Sacco Society Regulatory Authority (SASRA) is the government regulatory authority for Saccos which you can contact when in doubt since any legitimate Sacco has to be licensed by the authority.
The good old word of mouth could probably give you even much more confidence by learning about the good and bad of a Sacco through the experiences of your friends, family, colleagues and acquaintances.
You would do well to learn about the Saccos guarantor and loan limit policy. Since different Saccos have different approaches to ensuring loans advanced are repaid, it’s upon you to evaluate the different policies and choose a Sacco that best meets your needs.
Some Saccos may insist on guarantors while others offer the flexibility of giving collateral. Depending on your situation, you may want to join a Sacco where you already know some members who can guarantee your loan such as your employer’s Sacco or one where most of your friends or family members are in. You could also choose a Sacco whose reputation and performance interests you and also offers the option for collateral.
If your main reason for joining the Sacco is to secure a loan, then analysing these options is of even much more importance
While most Saccos have incorporated modern technologies in their operations and customer service, it is still important to know what your preferred Sacco offers in terms of the convenience of not having to visit a branch when you want something approved.
Can you send money, deposit contributions, make purchases, withdraw money without having to stay on a queue or worse still, travelling to a location where one of the nearest branches is located? Other technological considerations include integrated savings plans online budget management and bookkeeping.
It is preferable to choose a Sacco that is technologically advanced since it will save you time and energy and give you easy access to your money.
While all Saccos may look the same, some will offer you double-digit interest rates on your shares while others will only manage 5% or less at the end of the year.
Depending on your reason for joining a Sacco, then looking through different dividends rates offered by Saccos you are considering may be very important.
To be specific, if you are going to buy a significant amount of shares relative to your income levels, then interest rates on shares should be a priority for you.
While the whole idea behind Saccos started with helping people create a savings culture and borrow against their savings, many Saccos have created investment subsidiaries that offer members investment opportunities - one of the more popular ones being the ability to acquire land.
Saccos licensed by SASRA give you the confidence to choose them as investment partners. You have to find out which of these entities you are considering have the biggest range of investment options that could interest you.
Why these investment opportunities offered by Saccos are becoming popular is that they have been seen to be more credible, low-risk and offer the ability to extend the inherent low interest credit to improve your net worth.
While all Saccos have near-similar operating rules, not all Saccos are made equal. Some have hundreds of thousands of members across the counties, others have just a few branches, some have few technological additions, even fewer offer double-digit interest rates on shares and others are tragedies in waiting.
So it is upon you to do your due diligence and figure out the best Sacco that suits your needs, offers you as much flexibility as possible and gives you the confidence that your money is as secure as can be.