FINANCIAL CHALLENGES FACING SACCOS

COMMON CHALLENGES

• Liquidity/cash flow problems
• Loan backlog
• Delayed refunds of members deposits
• Competition between Saccos
• Competition from banks and micro finance institutions
• Short visa-vis long term lending
• Poor member loyalty

USE OF CREDIT POLICY AS A TOOL OF FINANCIAL MANAGEMENT

1. Introduction.

• Developed to serve as a guide to the action or decision making process in the credit section of the Sacco.
• Provides procedures and guidelines on handling or management of all Sacco loans
• Addresses loan processing, approval, disbursement, administration, monitoring and delinquency
• Formulated as a separate document or form part of the By-laws
• Formulated by the management committee for approval and adoption by the general meeting

2. Purpose of the credit policy

• Ensure that the society does not get into financial difficulties by approving loans to members in access of fluids available
• Facilitates efficient and effective loans processing, approval and recoveries
• Ensure fairness in loan granting
• Minimize loan defaulting
• Improve society liquid position

3. Control Objectives 

The control objectives of the credit policy is to ensure that:-

• Loans are granted to bonafide members only
• Loans are properly appraised and approved
• Loans are properly guaranteed and approved
• Loans disbursement are done as per the approved terms and conditions
• Proper records of loans are maintained
• There is effective monitoring and control
• Delinquent loans are detected for action

4. Administration of Credit Policy

The credit policy is normally administered by the credit committee on behalf of the management committee.

The credit committee may delegate defined authority and functions in writing to an employee or elected official of the society to facilitate the efficient processing of loans.

5. Features of the Credit Policy

The main features of the credit policy include:-

• Lending requirements-period of active membership, minimum deposits, waiting period after clearance of loans before maturity, waiting period after boosting of deposits
• Types of loans and products-development, education/school fees, emergency, instant, express, okoa jahazi
• Loan entitlement
• Loan limits
• Repayment periods for loans
• Cash reserves (15%)

Lasting Liquidity Improvement Options

• Increase minimum contribution across the board
• Introduce special saving schemes e.g. Save As You Earn (SAYE), cluster method, Save As You Borrow (SAYB), saving scheme, holiday saving scheme, withdrawable saving account
• Non withdrawal deposits
• Withdrawal and rejoining conditions

Hard Liquidity Improvement Options

• Increase membership incubation period
• Reduce multiplier
• Reduce repayment period
• Fix limits for loans
• Adhere to rules for boosting of deposits
• Adhere to rules for pre-mature loan clearance