Sacco'S In Kenya

The Role Sacco’s Play in Kenya, and Why They’re Becoming So Popular

Sacco’s in Kenya have been gaining popularity for the past two decades. However, young people are yet to fully embrace them as a way to save money because most of us are not familiar with the concept of Sacco’s in Kenya, exactly how they work and why are they so beneficial. Sacco’s are the perfect option for young people who are looking to empower themselves financially.


What is a Sacco

A Sacco (Savings and Credit Cooperative Organization) is a group of people with similar interests who come together to form a credit union. They register the union with the Ministry of Cooperatives, which in turn authorizes the Sacco’s in Kenya to receive deposits and provide loans to its members. A Sacco is run by members who are selected by the other members.

The emergence of Sacco’s in Kenya was a response to the long bureaucratic processes associated with Kenyan banks. They have become increasingly popular, particularly with people who have had little success procuring credit from banks.

What makes a SACCO different:

  1. How you save: Sacco’s accumulate the savings and provide loans or invest in financial securities and/or real estate. Saving with a Sacco is different from a bank because:
  2. They are no charges attached to the savings
  3. A member cannot access their savings unless they terminate their membership or obtain credit
  4. The paid interest on your accumulated savings
  5. The way they provide credit: A member is allowed to borrow up to three times their savings, as long as they can provide collateral or get another member to give them a guarantee.
  6. The investment projects they are involved in: Sacco’s pull together their members’ savings and invest them in joint projects. Sacco’s are generally development-oriented due to their roots in the cooperative movement. Usually, they invest in projects such as real estate that members can purchase at reduced rates.

Sacco’s in Kenya are important because:

  • They encourage you to save– Sacco’s in Kenya require you to save consistently and this, in turn, enables you to cultivate the discipline of saving frequently.
  • They are a sure investment– Sacco’s pay dividends on the savings of their members. Compared to other investments, saving in a Sacco has a more guaranteed return.
  • They have limited liability– Typically, the liabilities of the society members are limited to the amount of capital they contributed. Therefore, if society goes bankrupt, the personal property of the members is safe.
  • Emergency loans– Some Sacco’s offer developmental and school fees loans that can be processed within a day, depending on the borrower’s urgency.

You should join a Sacco because it will come in handy when you need to get a line of credit. Most importantly, when you do need this line of credit, you will have access to some of the lowest interest rates in the country.

The interest rates charged by Sacco’s are usually not subject to change. A majority of Sacco’s lend at 12% annually, which is below anything banks have charged even when base rates were at their lowest.

Do not wait for tomorrow, save now and try to save as much as you can in a Sacco. The benefits you will reap later in life are worth the effort it will take you today.

Are you a Sacco member? Have you considered joining one before? Contact us today at Eagle’s Eye Sacco if you are interested to join our Sacco


How Can You Join a Sacco?

Joining a Sacco essentially means that you will be contributing to a communal savings and loan fund. You will need to find a local Sacco to join, like Eagle’s Eye Sacco. Before joining a Sacco, it’s important to understand what happens if you default on your loan repayments. Sacco’s have the authority to collect bad debts from members, though the details and rules of each Sacco are different. In some cases, Sacco’s have been reported to repossess members’ property as collateral.


Why Are Sacco’s in Kenya Becoming so Popular?

Reasons why Saccos are so popular in Kenya.

1) Cheaper source of funds and loans. Sacco interest rates on both savings and loans are generally better than rates given by banks and the reason for this is that Sacco’s have very low overheads as compared to banks that pay low interest on savings but charge a lot of interest to cover their overheads. Therefore most Kenyans would rather save in Sacco’s than in commercial banks as doing this is less expensive for them.

2) Sacco’s educate their members on financial matters by teaching prudent handling of money, how to keep track of finances, how to budget and why to keep away from hiring purchases and loan sharks. This helps to inform the financial decisions of the Kenyans and helps them to spend or save their money wisely as opposed to some bigger banks which may not have time to give financial advice to their customers.

3) Sacco’s pay dividends on shares to their members once the Sacco is established and profitable. Members, therefore, take pride in owning their own Sacco and will save more money in their Sacco’s as the more shares they can buy in the Sacco’s, the more their dividends once the Sacco becomes profitable.

4) Sacco loans are insured. Upon the death of a member the estate will not have to repay any loans outstanding to the Sacco. This helps in keeping the financial security of the family of the deceased member as the Sacco does not go after them in trying to recover the loan.

5) Savings are mobilised locally and returned to members in the form of loans. The ideal model invests 80% of mobilised savings to members in the form of loans. The money stays and works within the members as opposed to other forms of financial institutions where depositing funds does not guarantee the qualification for a loan facility from that institution.

6) Sacco’s in Kenya perform a critical and unique function as financial intermediaries. They mobilise significant volumes of personal savings and channel them into small loans for productive and provident purposes at the community level. This resource mobilization leads to general economic growth at the community level as members can access funding for their projects.

7) Accessibility. Sacco’s are formed in different areas even in remote areas where banks are not easily accessible. As such, people with common interests or goals or working in a similar profession may join together and form a Sacco by pulling together their finances to create a source of funding for their projects.

8) Easy Formation. Forming a Sacco does not have a lot of requirements as opposed to registering a bank. The founders need not be people with financial skills or expertise. As most Kenyans fall into this category of persons, it is easier for them to join or form Sacco’s in Kenya rather than other financial institutions.

Problems with Sacco’s in Kenya

The biggest problem with Sacco’s in Kenya is that there is no real oversight of the sector. It’s ultimately a self-regulated industry, and as such, there are few safeguards in place to protect members from fraud. Sacco’s are largely unregulated and are not monitored by financial authorities. This means that Sacco’s operate with very little government oversight.

Unfortunately, this leads to some Sacco’s being less than reputable. There have been reports of Sacco’s running scams, taking members’ money and not returning it.

This is why it’s important to do your research before joining a Sacco.


Final Words

Sacco’s have helped countless people in Kenya become financially independent. They’ve provided access to credit, savings and insurance for millions of people who otherwise wouldn’t have had it. They’ve also allowed people to support one another financially through difficult times. Unfortunately, like all industries, there are also some fraudulent Sacco’s out there. It’s important to do your research and choose a reputable Sacco to join if you want to reap the benefits of this great service.

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