Saving while you are still energetic and productive is a smart financial move. A Sacco is a good option to explore if you have a regular income and are looking for a way to save money.
Sacco’s have been steadily gaining popularity in Kenya but still unpopular among young generation. It could be because of a lack of knowledge of what a Sacco is, how it works and also may be due to the fact that it’s easily comparable to a bank’s savings and credit initiative.
SACCO is an acronym for Savings and Credit Co-Operative. It’s an association of like-minded individuals, registered under the Ministry of Cooperatives (In Kenya), and authorized to take deposits from and lend to its members.
Simply put, it’s a self-help organization where groups of people pool their resources and lend to one another. The fundamental goal of establishing SACCOs was to help the financially limited (poor) learn how to make the most use of their limited resources.
SACCOs are governed by the SACCO bylaws set by SASRA (SACCO SOCIETIES REGULATORY AUTHORITY) which state the objectives, membership, share capital, organization structure, management, and lending regulations. It’s run, owned, and managed by its members who have a common link, such as being members of a labor union, working for the same job, belonging to the same church, social fraternity, or living in the same neighborhood.
Sacco’s are a great tool to channel your savings. SACCO pools savings and lends them out or invests them in allowed securities such as shares, Treasury bills and bonds, and in some cases, real estate, as permitted by the bylaws. For a member, the returns on these funds can be as high as 10%, and this is a slightly better channel than banks mainly because:
- SACCO savings don’t attract charges at all.
- SACCOs require members to make a minimum monthly contribution. This instills a habit of saving.
- The interest rates paid on these savings are frequently higher than those offered by banks.
- Unless the member chooses to withdraw money from the SACCO or take out a loan, the money is unavailable to them. This safeguards your funds and avoids hasty spending of your hard-earned money.
Once you are a member of a SACCO, You can borrow amount equivalent to savings. A member can borrow up to three times their savings as long as other members act as their guarantors. In a SACCOs there different types of loans, which includes; same-day emergency loans, school fees loans, and development loans.
There are various advantages to borrowing from a SACCO:
- A member is expected to maintain the same level of monthly savings while repaying a SACCO loan as they did before. This instills a habit of saving and aids in the accumulation of a sizable savings account.
- Interest rates on SACCOs are low and rarely change. Even when market rates were at their lowest, most SACCOs in Kenya were lending at a rate of 12% per year, which was lower than what banks were offering.
- You earn interest on your savings, which are part of what you have borrowed, as a member of the SACCO, cutting your borrowing costs even more.
Saving in a SACCO is a basic tenet of wealth accumulation. It is part of putting up the foundation that will propel you from financial insecurity towards financial freedom.
I’d recommend that one joins a SACCO even if it’s for a minimum contribution, and enjoy the benefits of the cooperative movement.