Kenya is a leading country in the global Sacco movement with Saccos being key players in the country’s financial industry. With the Sacco movement expanding, it creates a need to have a Sacco account in Kenya to avoid missing its benefits.
Saccos are Savings and Credit Cooperative Societies formed by members with a specific common interest. As the names define, their key role is to promote saving and offer credit to members conveniently and affordably.
Today, SACCOs have expanded their scope and are competing with other financial institutions such as the banks enabling them to fit in the 21st-century financial system.
Having a Sacco account in Kenya has its benefits and challenges as below.
Benefits of Having a Sacco Account in Kenya
· Saving Enabler
One of the key reasons for Sacco’s existence is to enable and promote a savings culture. Kenya, just like many developing countries experience a low savings culture. As a key element in the growth and development of an individual, Saccos actively encourage members to save by offering them rewards in form of dividends.
Saccos use different approaches to grow to ensure members are saving regularly such as collecting deposits through check-offs. They also tie the access of credit to a member on the amount of savings. Majority of savings Normally, it is given as a multiplier.
· Access to Cheaper Loans
Giving credit to members is among the core roles for a Sacco. As a member, you get loans cheaply and conveniently in comparison to other credit service providers such as banks and shylocks.
Sacco loans mostly depend on your savings level. Normally, you get the loan as a multiplier of your savings. A key example is a multiplier of 3 or 4. If you have savings worth 1 million shillings, you can receive a loan of up to 3 million or 4 million shillings.
The reduction in the cost of loans is a key competitive advantage if you are in business. This helps reduce the operating costs giving the business a faster growth rate.
· Dividend payments
The majority of Saccos normally pay dividends to members after the end of every financial year. The dividend is a percentage of income that you get from your savings. The amount of dividends differs with the Sacco. Those that perform well normally pay higher while those undergoing mismanagement pay lower rates.
When deciding to join a Sacco, this is one of the key elements that you should evaluate. The average dividend rate in the market currently ranges between 10-15%.
Another advantage of Sacco’s dividend is that they attract low tax rates of 5%. In comparison, listed companies’ dividends attract a 15% tax rate.
There are two types of dividends paid by SACCOs.
Rebates are paid on the saving deposits while dividends are paid to the shareholders. Normally the shareholder deposits attract higher dividend payments than deposits. However, the savings deposits are withdrawable while shares are not.
In case of poor performance by Sacco, the share deposit holders also take a bigger loss than that of saving deposits.
As a member, you should only settle for a Sacco that offers the best returns on your savings in form of dividends.
· Access to specialized products and services
Saccos are institutions formed by members with similar economic interests. As an example, there are
- Teachers saccos
- Accountants saccos
- Engineers saccos
- Bankers saccos
This specialization enables them to offer services and products that are suited to the members. For example, a doctor’s SACCOs would have products that support the medical industry. An example of such products is loans meant to fund starting a medical clinic.
It is different from commercial banks that service a diverse market clientele. This limits them from specializing as SACCOs do.
Hence, it is advisable to join a Sacco that specializes in your areas of interest when opening a Sacco account in Kenya.
· Ability to choose the management team
The Sacco management team is normally elected by the members. As a member, this allows you to choose the ideal person to manage your funds.
The success of a Sacco correlates with the quality of its leadership. Hence, you should strive to get good leaders for the well-being of the Sacco.
Members also have a right to change management if they are not delivering on their mandate. Some of the factors that lead to removal include incompetency, fraud, and poor performance.
· Access to bigger loan amounts
The loan size you get from a Sacco is normally based on the savings amount. Hence, the more the savings the loan limit you can access. Mostly, they offer a multiplier of savings. If the amount of savings is X, then, you can access loans amounting to three times 3X or 4X of the savings.
Saccos also allow loan repayment for a longer period making it easier to service big loans comfortably. This happens because the longer the loan tenure, the lower the installments.
· Investment opportunities
Saccos offer investment opportunities to members collectively that would be difficult or impossible for a single individual to achieve. An example is purchasing a big parcel of land then subdividing it into smaller parcels that members can afford.
This also gives Sacco a higher bargaining power and capability to conduct due diligence as opposed to individuals. The key reason is that Saccos can hire professionals specifically to undertake these roles.
· Flexibility in collateral
When you open a Sacco account in Kenya, you can access loans through guarantors. This is convenient for the members that don’t have tangible security such as a loan book or a title deed.
The guarantors usually are members of the Sacco and use their savings to guarantee your loan. In case of a default, the guarantor savings are used to pay the arrears.
Hence, you need to take adequate precautions in ensuring to only guarantee members that have minimal risk of default.
Challenges of Investing in a Sacco
· Challenges in leadership
The process of electing Sacco’s leadership is political. This means that person who gets the most votes get the position. This process could at times result in getting leaders that are politically correct but not professionally competent.
The consequences for poor leadership are bad performance resulting in low dividend payments or extreme cases loss of members’ savings.
· Limitation in services
Saccos have limitations in services offered compared to other financial institutions such as commercial banks. This may limit some of the members who need these services.
There is also a limitation in the loan limit that you can receive. This happens if a member needs more than a savings multiplier can give.
Lack of guarantors to secure your loan could also lead to challenges in accessing loans. These limitations make it a challenge to operate a Sacco account in the long term.
Factors to Consider Before Settling on a Sacco
· Type of the Sacco
I have already highlighted that Saccos are mostly founded by members with similar interests. Hence, it is important to settle for a Sacco that matches your interests.
As an example, if you are a teacher, you should prioritize teachers’ driven SACCOs. The key reason for this is that Sacco has a high chance of providing products and services and solutions that suit your needs. It also comes in handy when you need guarantors.
On the contrary, a teacher joining a doctor Sacco could have a challenge with their solutions because there are suited for a different types of members.
Leadership is a key element to factor whenever you are deciding to join a Sacco. This is because the benefits that come with joining are highly dependent on leadership ability.
Saccos with good leaders normally perform well both in dividend payments and offering services to members.
One of the best approaches to evaluate leadership capabilities is evaluating their past performances. If Sacco has been performing well, it is an indicator of good leadership and the potential for better performance in the future.
· Asset base
Asset base indicates the financial strength of a Sacco. Sacco with a bigger asset base are well placed to perform better. They are also able to withstand financial shocks easily in comparison to those with a lower asset base.
To know the asset base, you need to refer to the financial statements that are published yearly.
· Interest rates
Remember I indicated earlier that the key role of SACCOs is to advance loans to members. Normally Sacco loan interest rates are lower than commercial banks.
You should join a Sacco that offers the best rates for loans. This helps reduce the cost of credit. If you are in business, this translates to better returns due to low financial costs.
Regulation ensures the Sacco you are joining is operating within the law. The regulatory body for Sacco’s in the country is known as the Sacco Societies Regulatory Authority (SASRA). Among its key roles is to ensure the protection of member deposits.
You should only open an account with a Sacco that is operating legally to avoid losing your investments by joining a fraudulent institution.
Conclusion on Opening a Sacco Account in Kenya
Saccos play a critical role in enhancing financial inclusion through offering services to members previously cut out from the financial system. There are numerous benefits that you get by having a Sacco account.
You should carry out adequate to ensure you join a Sacco that is not only operating legally but also has the services that you need.