Money Talks: What they don’t tell you about Saccos

Unless you have been living in a cave since the 1980s, then you must be aware of Saccos. 

Saccos are sound financial partners. They offer the services you can get in a bank, with a little cherry on top. With personal loans, for example, Saccos offer a friendlier interest rate (Saccos offer a fixed rate of 12 per cent versus banks with their swinging on-average rate of 16 per cent).

Saccos are quite popular here in Kenya. According to SASRA (Sacco Societies Regulatory Authority), there are about 200 registered and licensed Saccos in 2021. This means you have about 200 options when you’re shopping for one.

No matter if you are looking to join one or if you are a veteran, here are some pointers to take to mind:

You sign up to become a member and…

When you sign up for a Sacco membership, you become a registered member of that Sacco. They even give you a unique membership number. And access to their online portal, where you will find your statements for your financial positions and whatnot.

By signing up to a Sacco you are also buying shares in that Sacco – consider this your signup fee, your share capital. 

Different Saccos have different amounts for this signup fee/share capital. Some have a minimum share capital of Sh10,000. Others, Sh30,000. 

Make sure to ask about this figure before you sign up. There is also an option of owning more than the minimum number of shares. 

Ask about this, and what it means for you as a member.

You are saving while…

 Putting your money in a Sacco extends you the opportunity to save while investing. Your savings are considered deposits. These deposits plus your share capital are an investment opportunity because this cash grows and births more cash, through dividends. 

Dividends are paid out in cash every single year. (In my personal experience, I have not heard of a Sacco that does not pay its members dividends. If your Sacco doesn’t do so, that’s a red flag that they are having cash flow issues.)

So yes, dividend income every single year. Not too shabby, hey?

You can opt to have this money sent to your bank account or your phone via Mpesa. Or you can use it to pay a loan you may be servicing. Alternatively, you can top up on your deposits. 

The choice is all yours, dear reader.

You will earn dividends but…

 Getting a cash dividend is just about guaranteed as a Sacco member. Here is the catch, though: your ‘old’ money in the Sacco earns more dividends than ‘new’ money.

Say, you currently have Sh300,000 in savings at the start of 2020. During the year, you deposit to your savings Sh60,000. Your share capital is Sh10,000.

Say your Sacco gives dividends at a rate of 8 per cent.

Illustration

 Start of the 2020: Sh300,000 (Earns dividends of Sh23,655)

 Deposits in the year: Sh60,000 (Earns dividends of Sh2,430)

 Share capital: Sh10,000 (Earns dividends of Sh1,425)

 Total dividends for the year: Sh27,510

In the next year, 2021, they will compute dividends on the ‘old’ Sh360,000 plus any more deposits made in that year. Say you made deposits of Sh60,000

  Start of the 2020: Sh360,000 (Earns dividends of Sh28,386)

 Deposits in the year: Sh60,000 (Earns dividends of Sh2,430)

 Share capital: Sh10,000 (Earns dividends of Sh1,425)

 Total dividends for the year: Sh32,241

Folk try to get smart by depositing lump sum figures closer to the end of the year; they deposit in the wild hope that they will make a quick buck off the Sacco. 

You can’t beat the system, dear reader. This is one investment that thrives on time. 

On another day, we will go into the details of the whats, the wheres and the hows. 

You can’t get your money out unless…

 Once your money has gone into your Sacco, there are only two ways to get it out: you either take a loan or you exit the Sacco altogether. 

Borrowing your own money is one of the ironies of a Sacco. You borrow your own money and you use that money to guarantee yourself. It’s a tad twisted, no?

When you exit the Sacco, you will leave behind your shares – the signup share capital I talked about earlier. It also takes about six to nine months for your exit to be processed. 

So don’t go there on a Tuesday saying you need your money by Friday. It doesn’t work that way.

You can be a member of more than one Sacco but…

 Being a member of more than one Sacco is a smart move to consider. Because, you know, of all the four items I’ve talked about. 

Make sure to read the fine print of your Sacco before you sign up to others, though. Especially when it comes to taking loans.

There are some Saccos whose bylaws state that you cannot borrow from theirs if you are an active member of another Sacco. They say that you will have to exit that other Sacco first.

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