There are many saccos in Kenya. But not all Saccos are good for you. When investing, you need to find a Sacco that aligns with your financial needs and goals. Conduct thorough research on the Sacco to ensure you trust them with your savings.
However, even after selecting the best sacco for you, the sacco might develop challenges and risk becoming a financial nightmare. It is, therefore, crucial that you learn what signs you should be looking out for so that when a Sacco you are invested in starts to take a direction you are uncomfortable with, you can tell well in advance before you lose your money.
Hence, we discuss the red flags that tell you you are saving in the wrong Sacco.
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Declining returns and poor financial performance are major red flags for Saccos. Understandably, the economy might be somewhat tricky. Hence, the Sacco might decide to reduce the interest rate.
However, suppose the interest rate keeps reducing consistently. In that case, that might be a sign of something beyond the economy and specific to the Sacco, which should ring your alarm bell and call you to scrutinize the longevity of your Sacco.
Furthermore, introducing unexplainable fees and deductions indicates that the sacco is not operating optimally. The fees and deductions will start eating into your savings. Hence, your money does not earn as much return as it should.
On the other hand, these fees and deductions could indicate that the sacco is under a cash crunch, and they are finding the means necessary to make up for it, which is a big red flag.
When a Sacco consistently offers lower interest rates and introduces unexplainable fees and deductions, Sacco members will most likely experience delayed dividend and/or interest payments.
Failure to receive the dividend or interest proceeds cannot be underplayed. This should raise your eyebrows, as it is a serious red flag for Saccos.
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A Sacco works by taking deposits from its members and finding ways to invest the money to grow members' money and pay out dividends and interests. Part of these investments is giving loans to its members, which they pay back with an interest. But even beyond that, Sacco invests in other assets that grow the members' money.
Therefore, as a member of a Sacco, you should be on the lookout for which investments your Sacco is making. If you find that the Sacco is making suspicious investments, for instance, investing in unknown, unverifiable companies, making unexplainable investments, or even cancelling investments without due explanation, that should serve as a red flag since it might indicate that the sacco is juggling your money in a risky way.
You also want a Sacco that is adapting to market trends. The reality is for your investment to earn money, Sacco has to keep up with the markets and be adaptable. Rigidity in a Sacco could be a sign that the Sacco is not headed in the right direction.
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When a Sacco is going through some challenging moments, the Sacco management might be tempted to introduce some tricks to cushion the tough times, for instance, by offering low credit, freezing credit, or not allowing credit extensions. When this starts to happen, it indicates that the sacco is struggling, especially regarding cash flow.
In the same breath, they might also introduce very restrictive approval processes to demotivate the members from taking loans. Or they might increase loan interest rates to levels that members do not feel comfortable taking loans.
All these are ways a struggling sacco might try to manipulate its loan terms and conditions for self-preservation. Still, it indicates that the circle might be headed to the gutters since such measures can be self-perpetuating and send the Sacco on a downward spiral.
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Picture this: walking into a house of a family that is well taken care of and everybody is satisfied. Most likely, the family is happy and jovial. Flip the script and walk into a struggling family. People are hungry, children are crying, and the environment is less pleasant than the first family.
This tends to happen to organizations, too, including Saccos. When the employees of the Sacco are being well provided for, they treat the Sacco members well. However, if you find that the customer service has taken a nose dive, it is most likely because the people giving the services have been neglected to an extent. They express their frustrations by giving mediocre service or not serving at all.
Poor customer service starts showing the cracks on the walls and should be taken seriously. A Sacco is a service business, if customer service is not streamlined, it hurts Sacco's growth prospects and even pushes away the current customers, making it a huge red flag.
A Sacco is a member-centric organization. Communication is the only thing that keeps a group of people in agreement and working towards a common goal. The communication has to be accurate, transparent, and regular and according to the Sacco by-laws.
Most Saccos have a yearly general meeting where all the members are briefed on how the Sacco is performing, and they get to ask as many questions as they want.
However, it is alarming when a Sacco starts having inconsistencies in communicating about the financial performance. Most of the time, when a Sacco is doing well, they want to announce it to their members, but when it is on the verge of going under, they fail to communicate. Therefore, if you notice the unwillingness of Sacco to share financial performance, it is probably because the performance is probably negative.
Technology has become the bare minimum for business efficiency. Businesses that embrace technology thrive, while those that adapt slowly struggle to survive. Suppose a Sacco is not investing in the latest technology in the financial industry. In that case, it might indicate that the Sacco is not prepping itself for the future, and the underlying notion could be because the Sacco does not see itself in the future, unfortunately.
The outdated technology makes accessing your account or even conducting transactions difficult. For instance, mobile money is a revolutionary technology that is prevalent. A Sacco not integrating such technology could be a point of concern.
Because it would mean that the members have to travel to the Sacco outlet to deposit or process any transaction, which is inconvenient for most people these days, it also does not help in selling the Sacco to new members, which curtails growth and accelerates decline.
This is a clear red flag to watch out for. Management wrangles indicate that there are varied interests in the Sacco, and the Sacco is not clear on the direction it ought to take. These wrangles lead to divisions. Each camp tries to sabotage the other and take over.
Unfortunately, when this happens, members' savings are being gambled with. This wrangling might destabilize the Sacco, leading to losses and theft within the Sacco as everyone tries to salvage their losses and others as they try to capitalize on the instability.
Having learned the red flags that you are saving in the wrong Sacco, remember not all scenarios are similar. The best you can do to safeguard your money is to be attentive to how the Sacco is being run and the decisions being made.
Attend Sacco meetings, ask questions, and ensure you understand the financial statements offered during the meetings. Understanding how your money is being invested is the best defense against suffering a bitter end if, unfortunately, your Sacco goes down.