Everything You Need to Know About Investing in Saccos in Kenya

Investing in a Sacco (Savings and Credit Cooperative Organization) in Kenya can be a smart move for those looking to save and access credit. Here’s a comprehensive guide to help you understand the ins and outs of Saccos.

What Are Saccos?

Saccos are financial institutions that take deposits from registered members and lend funds to them as loans. They offer interest on savings and lower interest rates on loans compared to traditional banks. Saccos in Kenya are regulated by the Sacco Societies Regulatory Authority (SASRA) and their own bylaws.

Most Saccos cater to specific sectors or industries. For example, Mwalimu Sacco caters primarily for teachers and Kenya Police Sacco is for the police officers. However, some Saccos are open to members from the different sectors of the economy such as Stima Sacco, Unaitas, Tower Sacco and Hazina Sacco among others.

Savings vs. Share Capital Accounts

Savings Account

The primary purpose of this account is regular savings to build your funds over time. The savings account earn interest depending on the Sacco performance and the prevailing interest rates. The amount you save in this account influence your ability to qualify for a loan since you can only borrow against your savings.

You need to focus towards growing your savings account if your intention is to take a loan, as more savings equates to higher loan limits.

Share Capital Account

This account means that you are buying a part of Sacco ownership. Shares grant a member voting rights and the ability to influence the Sacco decisions.

Also, members can earn dividends from the Sacco profits when declared according to the number of shares they hold. Dividends are usually paid annually and at a lucrative rate compared to the interests on savings account. ?

Majority of Saccos require members to maintain a minimum share capital balance to access benefits such as higher loan limits. Shares can also be used as collateral for a loan.

Factors to Consider Before Investing

1. Regulation: Ensure the Sacco is regulated by SASRA. You can find a list of regulated Saccos on the SASRA website here.
2. Minimum Investment: Understand the initial deposit and monthly contribution requirements for both savings and share capital accounts.
3. Loan Access: If you need credit for an investment such as starting a business or purchasing property, consider that Saccos can offer loans at least three times your savings without collateral, provided you have guarantors.
4. Guarantors: Know at least three Sacco members who can act as guarantors for your loan applications. Although some Saccos accept self-guarantee if you have a large sum in your share capital account or can provide security such as title deed or log book, still, it is crucial to know people already in the Sacco you intend to join.
5. Dividends: Research the Sacco’s history of paying dividends and their rates. If your focus is earning dividends, consider directing more of your contributions to growing your share capital account.
6. Interest Rates: Check the interest rates that the Sacco pays on savings. Saccos may not be ideal if your goal is to earn interests because the rates are usually low compared to other avenues such as money market fund or treasury bills.
7. Goal Alignment: Choose a Sacco that aligns with your financial goals.

Benefits of Joining a Sacco

• Encourages a disciplined saving culture.
• Earns interest on savings.
• Access to credit without collateral if you have guarantors.
• Lower interest rates on loans compared to traditional banks.

How to Become a Sacco Member

1. Application: Fill out an application form from the Sacco’s website or visit their nearest branch.
2. Documentation: Provide the necessary documents such as your ID, KRA PIN certificate, passport photos, and a payslip or bank statement.
3. Investment: Pay the required minimum investment to open an account.
4. Shares: Purchase the required shares to become a member.
5. Contributions: Make monthly contributions according to the Sacco’s guidelines.

Exiting a Sacco

• Savings

In case you want to exit a Sacco, savings are refundable net of liabilities. This means that you can get your money back less any loans you have plus the amount you signed for another member as a guarantor.

This is where some people get negative experiences with a Sacco. One need to understand the repercussions of being a guarantor and know that you are liable in case the member defaults on loan repayment. Ideally, you should sign for members you personally know and can follow up in case of default and not merely strangers.

• Shares

Unlike savings, shares are non-refundable in case you want to exit a Sacco. In such a situation, one may have to leave the shares and earn dividends if any or sell to new or existing members of the Sacco.?

Key Takeaways

• Understand the minimum investment and monthly contribution requirements.
• Consider the interest rates on savings and loans.
• Check the Sacco’s history of paying dividends.
• Saccos are ideal for long-term investments, such as buying property or starting a business.
• They may not be suitable if you do not intend to take credit.
• Always perform due diligence to assess the Sacco’s reputation, stability, and customer service.

Investing in a Sacco in Kenya can be a beneficial financial strategy if approached with the right knowledge and preparation. Ensure you align your investment with your financial goals and perform thorough research before making a decision.