A Sacco is an organization where members pool their money together and borrow loans from their organisation for their various needs. The word SACCO is an abbreviation for Savings and Credit Cooperative Organisation, which essentially tells what a sacco's primary function is, savings and credit.
Therefore, individuals join a sacco mainly for two reasons: to access credit or earn interest from their money. With Saccos being member-centric rather than shareholder-centric like banks, their credit terms are a little more affordable, and whatever profit the Sacco makes is shared with the members at the end of the agreed period through dividends and interest on share capital.
Read Also: How to Build Wealth in Kenya Using Saccos
Before joining a Sacco, you should conduct thorough research so that you do not have to be actively Sacco hoping. Sacco hoping might even be negative to your finances since there is a minimum share capital that you have to hold in a Sacco, and when you leave, the amount representative of the share capital is not refundable. It is only transferable to another member. If you fail to find a willing member to reimburse you the share capital money, it might be a loss on your balance sheet.
However, sometimes you do your due diligence and join a Sacco, but after being there for a while, you start seeing some signs and symptoms that trigger you to start considering changing your Sacco. What are these signs and symptoms?
That is what we shall be exploring in this article.
Read Also: Sacco Vs MMFs: Which One Should I Choose?
When people come together and pool their money, the aim is to grow the money. Hence, people join a Sacco to earn interest in their money. The Sacco makes money in two ways: the loans members take and pay back with interest and investing in other assets that generate income or earn interest for the Sacco.
Therefore, having a well-performing sacco financially means that the members' money is being invested well and is earning the expected returns.
However, this is not always the case like in any other business. When the economy is struggling, it becomes even more difficult to make money, which might affect the performance of the sacco. Nonetheless, deteriorating Sacco's performance is a sign to pay attention.
The Sacco can be performing dismally because the loans given out to the members are becoming non-performing, meaning that most members are not paying back their loans. This makes the Sacco strain in cash flow, which can result in a bank run and eventually the collapse of the Sacco.
Secondly, the Sacco might invest in non-performing assets that tie up the Sacco's money in investments that do not have a return or an investment that makes the Sacco bleed money.
You can tell how your Sacco is performing by looking at the financial report, which was shared during the Saccos general meeting, and if you notice any of these performance issues, it might be a good time to start considering moving Saccos.
One of the primary functions of a Sacco is savings. When members save with the Sacco, they expect a return on their savings. In a Sacco, the return is realized in two ways: earning on interest on deposit and earning on dividends.
In most Saccos, interest on deposit is paid on a per annum rate but paid out monthly. This means Sacco determines the rate of interest for the year, which is divided up monthly, and at the close of books every month, the interest is applied on a member deposit for the month.
Sacco's interest rates tend to be higher than those of other financial organisations; hence they are preferred.
The second way one earns from savings in a Sacco is through dividends. A dividend is a share of the Saccos profit that is redistributed to the members. For instance, if a Sacco made a profit, they will use some of the profit to reinvest in the Sacco and the rest to give back to the members. The dividends are usually paid yearly but can also be quarterly or per half a year, depending on the Saccos by-laws.
If you realise that your earnings from a sacco are declining, it might be a sign that things are not going well for the sacco. This does not mean that a Sacco should not have a difficult year in investing. Sometimes, the returns are not great. However, if the decline in earnings is constantly increasing and the trend is clearly towards the downside, it might be time to consider changing Sacco.
Read Also: Saccos in Kenya - To Join or Not?
Apart from earning interest on your deposits or share capital, Saccos offers loans to members. The more robust the Sacco, the more loan options are available to its members. However, the options tend to shrink when the Sacco is not performing well.
To advance credit to its members, a Sacco must have cash flow. If it starts experiencing cashflow problems, it becomes difficult to advance loans to members; hence, the Sacco might opt to reduce the offered loans.
Reducing loan options can indicate tough times ahead, which might signal that you should consider changing your Sacco.
One of the most common ways for Saccos to secure the loans they offer is through guarantors. To guarantee a loan, one must be a Sacco member.
When you join a Sacco, you should ensure that you have some people in the Sacco that you are well acquainted with, and they can guarantee a loan. A lack of guarantors might deny you access to certain Sacco products. Lack of access to Sacco products defeats the reason for joining a Sacco and might be why you want to change your Sacco.
Read Also: Top 5 Reasons to Join a Sacco
As previously mentioned, Saccos are member-centric. Therefore, the interest rates and fees charged for their products are supposed to be favourable to the members. When a sacco increases interest rates and fees charged to the members, it might indicate a more serious underlying problem.
It might be time to consider changing Sacco and joining one that is more member-friendly.
Customer service in any business is crucial. Good customer service ensures that you get assisted as soon as you need help and get assisted satisfactorily. Therefore, if you realise that the customer service of the Sacco you are in is subpar, it might be time to consider jumping ship.
For instance, if there is poor customer service in a Sacco, the communication to the members is not as prompt and efficient, which might be detrimental to the members investments. It might make it cumbersome for members to access Sacco’s products and services, which defeats the aim of joining a Sacco.
Another reason you might consider changing Sacco is if Sacco no longer aligns with your financial goals and needs. For instance, you might be looking to build or buy a house. Hence, you might need a mortgage. However, not all Saccos have mortgage products. If this is the case, changing Saccos and joining one that can give you a mortgage would be prudent.
Therefore, you should review your financial goals and assess whether the Sacco you are in is a good fit. If not, consider changing.
It is a good idea to always stay on the market researching other Saccos. The world of finance is very competitive, and new products come to market every day. Therefore, staying in the loop is advisable to make the most of your savings and access the best credit facilities.
As you learn about the developments and the updates in the industry, compare Sacco’s services, interest rates, fees, and returns regarding dividends and interest on deposits. This will better inform your decision if you decide to change Saccos.
Changing Sacco is not an alien idea. When a Sacco starts performing dismally, it fails to serve its members either by not giving enough returns or failing to offer products its members need. This then makes it impractical for a member to stick around. Hence, if you find that the Sacco you are in is not serving your needs, it is advisable to change to one that fits your needs and goals.