EFFECTIVE CREDIT UTILIZATION IN SACCO SOCIETIES

Credit is a facility offered to be repaid later. Credit can be extended to the co-operative society as an entity, normally from other institutions. it can also be extended to individual co-operators by their co-operative organization.  Credit in financial form has a cost attached to it. This is in form of interest charged by the lender.

Money can't buy happiness, however it can rent it :-)

SACCO societies should as much as possible utilize the members savings for issuing loans to them. When there is effective and efficient loan administration, members funds are adequate to form a revolving fund that ensures member’s demands are fully satisfied.

Should it become absolutely necessary for a SACCO society to borrow for purposes of on lending to members, then the interest rate charged by the lender should be less than what the members are going to be charged. The loan should then be used solely for the purpose that it was intended for.   Since societies are not allowed to invest their funds in non core business, no society should borrow for such ventures.

Any credit from other institutions should be repaid as per terms of agreement. There should be no accumulated installments as these attract penalties and eventually the loan becomes a burden for the society.

Credit to Individual SACCO Society Members

Members of SACCO societies should have savings in their societies as the first priority.   Members should save as much as possible since this is their money refundable on ceasing membership.  It is the first financial investment that is normally available to a member on leaving formal employment.

As members continue saving with their SACCO societies, it becomes necessary for them to get loans for investment in worthy purposes. These purposes include investing in projects that will ensure a member a source of continuous income even after retirement.

Before applying for loan, a member should ensure that he has planned well for utilization of the funds.   It is no prudent to apply for and get loan money and then start planning for it.   in such instances, the money is normally not used for purposes which will benefit the member in the long run.  it ends up being for consumption.

It is important to identify the project or projects that funds will be invested in before making application. Even if the money is to be used for consumption, it is better to plan for that purposes. It is not easy to plan for money when it is already with a member. It normally leads to impulse buying.

As a member, do not overburden yourself with unnecessary loans.  SACCO societies offer to members various loan products. Utilize the products only when it is necessary and when you actually require the funds.  Do not involve yourself in loans just because you qualify for them.  You should be able to trace how each loan product that you took was utilized and be able to identify the results and benefits. Emergency loans should be for actual emergencies and school fees loan for actual fees.

After getting loan and effectively and efficiently utilizing it, repay the installments as per repayment agreement in the application form.  never start defaulting because any defaulted amount becomes a burden and eventually distorts your development plans.

Sometimes a member may wish to enter into a project but the funds he qualifies for as a loan do not allow.  Like minded members can come together, with each borrowing from his society, to raise enough funds and acquire the project.   The members can later decide on effective and efficient utilization of the project.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

LOAN POLICY

The purpose of Loan Policy is: 

•   to ensure that the society does not get into financial difficulties by approving loans in excess of funds available. (loan approved beyond capacity to issue is a major policy)

•   to ensure that there is fairness in loan granting by the society.

•   to minimize loan delinquency in the society.

The fastest way to lose friends, is simple just lend them money.

Lending Requirements 

•   the society must have been in existence and active for a period of not less than six months from the date of registration.

•   A member must have completed at least six months membership and contributed any amount to the SACCO society in shares/deposits.

•   A member who withdraws from the society and rejoins later will be treated as a new member for the purpose of this Loan Policy.

•    Lump sum amount (a one-time payment of money, as opposed to a series of payments made over time) of share/deposit paid to the society outside the regular monthly contributions shall remain in the society for at least six months before qualifying for a loan.

•    the society’s books of accounts have to be up-to-date in accordance with the Co-operative Societies Act.

•    All loans shall be restricted to members and shall be approved by the full management committee or the credit committee subject to final approval by the full management committee.

•   no member of the loan approving committee shall be present when his loan is being considered.

•    Employees of the society shall be eligible for membership but are not eligible to become members of the management committee or any other sub-committee in the society.

•    An employee or official who tampers with his regular share/deposit contribution and loan repayment shall be liable to prosecution under section 94 of the Co-operative Societies Act.

•    the rate of interest on all loans shall be determined by the management committee from time to time and approved by members in a general meeting.

•   All loans shall be insured by a reputable insurance company identified by the officials of the society.

•    All applications for loans shall be made on prescribed forms provided by the society and shall in each case set out the amount applied for, the purpose of the loan, terms of repayment and the type of security provided. the loan application form must be fully completed and must be guaranteed by at least three members.

•    the society shall maintain a loans’ register where all applications for loans received are
systematically recorded according to the date received, and which shall be used during loan granting.

•    it shall be an offence for an applicant, society employee or book keeping service employee to give false information regarding shares/deposits, loans and guarantees.

•    Loan applications shall be considered in the order in which they are received, provided that whenever there are more applications for loans than there are funds available, preference shall be given, in all cases, to smaller loans.

•    However, where amounts applied for are approximately the same, preference shall be given to loans for shorter periods. Within the foregoing preferences, priority shall be given in the following order:

»   Members who have never had loans

»   new members who have qualified for loans

»   Members who have cleared their first loans and have applied for fresh loans

•    the maximum amount of loan granted to a member shall not exceed three times a member’s  savings with the society but subject to a maximum of 5% of the society’s total share capital/deposits and reserves.

•    For purposes of eligibility for loans, a member’s total shares and deposits will be considered.

•    the maximum repayment period for development loans shall be as per the SACCo.

•    the society shall maintain 10% cash reserve of the total members’ savings. At least 50% of the cash reserve shall be kept in a deposit account and will not be available for granting loans.  the reserve shall be up-dated monthly.

•   in addition to development loans, the society my issue emergency loans and school fees loans.

•   Emergencies shall include sudden hospitalization, funeral expense, court fines and other unforeseen circumstances beyond the member’s control. the member will be required to provide documentary evidence of the emergency

•   the maximum repayment period for emergency loans will be 12 (twelve) months.

•   School fees loan may be granted to a member even though he has an outstanding loan on the following conditions:

•   the total outstanding loans, including school fees, must not exceed three times a members savings

•   only one school fees loan may be granted to a member in one calendar year.

•   the member will be required to provide documentary evidence of the school fees required

•   School fees loans shall be repaid within one calendar year

•   Emergency and school fees loans shall be given within a member’s entitlement

•   the society committee may introduce special savings and credit products as shall be required and approved by members from time to time.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

SECURITY FOR LOANS

Unless the loan applied for is equal or less than a member’s total savings, it must be secured by guarantors. The total shares and deposits of the borrower and those of the guarantors must be equal to or more than the loan applied for.

Why don't we take this relationship to the next level and you lend me some money? :-)

•   The society may still require a member to have his loan application secured by guarantors even though what is applied for may be less than or equal to his savings if those savings have been pledged as security for other members loans.

•   No member will be allowed to guarantee more than three loans. All guarantors must be members of the society.

•   Members of the management and supervisory committee shall not guarantee loans among themselves.

•   The obligation of the previous guarantors shall cease upon change of guarantors subject to the new guarantors being accepted by the society.   the obligation of the guarantors shall also cease when loans guaranteed have been reduced to less than the members total savings.

•   The society shall maintain a record of all guarantors in each members file.

Other Security

•   The society officials approving loans may ask for such additional security as it deems
necessary.    Pledges in the form of articles like share certificates, land title deeds, vehicle log books and insurance policy up to surrender value may be accepted as security.

•   Confirmation as regards the validity of the articles so pledged has to be obtained from the issuing authority before such documents can be accepted as security for a loan.

•   All expenses related to valuation and charging of security shall be met by the applicant.

Procedure for Recovery of Defaulted Loans

In case a loan is not repaid for a month, the society shall inform the borrower/loanee     immediately in writing with copy to each of the guarantors. if no repayment is effected
during the second month, the guarantors shall be informed of this fact and notified that
they will be called upon to honour their obligations if no repayments are effected at the end of three months.  However, the society will still maintain efforts to recover the defaulted loan from the loanee.

Withdrawal from Membership

•   Where a member wishes to withdraw from the society’s membership he may be required to give the society at least 60 (sixty) days written notice of his intention to withdraw.

•   No member shall be allowed to withdraw from the society membership unless the member’s loan is repaid in full or the loan balance can be fully offset by the member’s savings. Such member will also have to satisfy that all loans guaranteed have been paid in full or the balance does not exceed the savings of the members whose loans were guaranteed.

•   A member who voluntarily withdraws from the society membership and wishes to rejoin later will be required to pay a rejoining fee of 2,000.00 to the society.

Amendment

•   the loan policy may be amended by the management committee from time to time, provided that such amendments are communicated to all members before taking effect.

•   Any difficulties encountered in the implementation of this loan policy shall be referred to the management committee for clarification or interpretation.

EXCERPT FROM: Savings and Credit Co-operative Societies; Start-up Kit (Swiss Contact and Department of Co-operatives).

WE ARE 386 ON OUR FACEBOOK PAGE!!

Thanks for joining this page and for visiting the main site. Now we are 386. That's is incredible. We can form a co-operative society a savings and credit type (Sacco), and the law requires only ten people. Only ten!!

CAN WE REGISTER IT?

Lets assume we all want to form a co-operative. We call it Facebook Sacco. Our area of operation is Republic of Kenya. We all agree on postal and physical address of our society. Our common bond is Facebook users who have liked "Co-operative Movement in Kenya" (am sure commissioner won't buy that!!!). The entrance fee/registration fee we all agree to set it at Ksh. 500. We also agree that one share is Ksh. 20 (i.e. nominal value of one share) and the minimum number of shares is 100 and therefore the non-withdwable share is Ksh. 2000 and we set transfer of share fee at Ksh. 200. We all unanimously agree also that our minimum monthly contribution (deposits) should be Ksh. 2000.

If we all pay the entrance fees, we will have Ksh. 193,000. This is more than enough for registration and buying few stationary for our society and also remain with some cash that we can loan to our members! Saccos don't give loans until they are six months old, also members don't qualify for loans until they are six months old and have been contributing consecutively. We are all contributing Ksh. 2000 per month so every month our account will be reading Ksh. 772,000. In six months, we shall have savings of  Ksh. 4,632,000! Now after six months we can loan to few of our members. Of course by then we will have a loan policy that will control loan granting, repayment terms, etc.

Who is not feeling all nice now? Questions?

WHEN AND HOW DO YOU CEASE BEING A MEMBER OF A SACCO?

When do you cease/stop being a member of a Sacco/Co-operative? Many By-Laws state that membership in the society shall cease or deemed to have ceased in regard to any member from the date of:

DON'T STOP BELIEVING IN SACCOs!!

(i) Death

(ii) Withdrawal

(iii) Expulsion

(iv) Being certified to be of unsound mind.

(v) Transfer of shares to another member.

(vi) Failure to remit share contributions and loan repayments for a continuous period of six months without valid reasons or leave of the society.

(vii) Ceasing to hold qualification for membership as specified in these by-laws provided that members who have lost the common bond may retain their membership.

DUTIES AND POWERS OF THE MANAGEMENT COMMITTEE/BOARD OF DIRECTORS

The Committee of the society subject to any directions from the General Meeting generally direct the affairs of

BOARD OF DIRECTOS

the society. Its procedures, powers and duties are prescribed by the Co-operative Societies Act Cap 490, Co-operative Rules and the By-Laws of the society. In particular the management committees or board of directors shall:

a) Observe in all its transactions the Act, the Rules, the by-laws and prudent business practices.

b) Act upon all applications for membership.

c) Make provision for sufficient funds for loans.

d) Ensure that true and accurate records and accounts of the society’s money, properties, capital reserves, liabilities, income and expenditure are kept and maintained;

e) Prepare and develop long-term management plans and budgets for presentation at the General Meeting;

f) Propose to the General Meeting the amount and kind of surety bond, or other security, which shall be given by the member of the committee or employee having custody of or handling funds or property of the society;

g) Determine and recommend to the General Meeting the interest rates on loans, the maximum maturities and terms of payment or amortization of loans from time to time and the maximum amount that may be loaned with or without security to any member;

h) Cause the audited accounts to be displayed in a conspicuous place at its registered office and branches at least two weeks before presentation of accounts to its members at the general meeting;

i) Lay before the General Meeting audited accounts, together with proposals for the disposal of net surplus, if any;

j) Recommend to the General Meeting the dividend rate to be paid on shares, if any, and interest to be paid on deposits;

k) Fill through co–option, vacancies occurring in the committee between General Meetings;

INVESTMENT

l) Recommend investments of the society;

m) Authorize the conveyance of properties;

n) Authorize borrowing and lending operations of the society in accordance to the Act and the Rules;

o) Designate a depository or depositories for the funds of the society;

p) Employ and fix the remuneration of the employees in accordance with the terms and conditions of service as approved by the Commissioner;

q) Impose fines as provided for under these by-laws;

r) Approve transfer of shares;

s) Supervise the recovery and collection of loans from members and recommend to the General Meeting the write off of bad debts.

t) Perform or authorize any actions consistent with the Act, the Rules and these by-laws, unless specifically reserved for the General Meeting;

u) Provide adequate budget for education and training of members, the committee and staff; and

v) Perform such other duties as the General meeting may from time to time direct.

START SAVING AS SOON AS YOU START MAKING MONEY!

Guys this is important. If you have started earning, this is the right time to start saving or is the right time to increase your savings. The longer you wait the difficult it will become as your life will probably become comfortable and you might have many responsibilities soon afterwards!!

Let me tell you the boiling frog story that I love to tell my fellow cooperators: If you drop a frog in a pot of boiling water, it will of course frantically try to clamber out. But if you place it gently in a pot of tepid water and turn the heat on low, it will float there quite placidly. As the water gradually heats up, the frog will sink into a tranquil stupor, exactly like one of us in a hot bath, and before long, with a smile on its face, it will unresistingly allow itself to be boiled to death. The boiling frog story is generally told in a metaphorical context, with the upshot being that people should make themselves aware of gradual change lest they suffer eventual undesirable consequences (Wikipedia).

See yourself as a frog and of course like the frog dropped in boiling water, you will automatically clamber out like we do in uncomfortable/unpleasant situations. But if you were to be dropped in tepid water and the water be gradually heated, you will rarely notice change in temperature until probably it is too late. Life happens like that!! Change sometimes will find you still trying to adjust to it despite it being constant!!! Life has a way of sneaking onto you and gives you a surprise though most probably you saw this surprise miles away and you told yourself you had all the time. Living life without considerable savings is like water that is being gradually boiled with you in!!!

When you leave collage with your degree or diploma certificate and you get a job, do not wait to start saving. It is likely that at this time you are still single and you have a few financial obligations. So immediately you get a job, you should start saving and save as much as possible. This is so because once you start a family, your expenses will automatically go up or if you delay, you will get used to the pay you get and therefore it will become hard to adjust. You will have established a comfort zone. We all know getting out of a comfort zone is the hardest of things to do.

Saccos have a minimum savings per month that is allowed. So if you are in a Sacco DO NOT start saving the minimum allowed. It is thought wise that one should at least save 10% of his/her income. If possible when you have just been employed, save more than the 10%. It is also wise to save with a Sacco as they pay better dividends and interest on deposit than most financial institutions. Ask around the interest paid by banks on savings accounts then ask what Saccos pay! Saccos pay way better .

So my friends, start saving now for a better future.

THE DEPARTMENT OF CO-OPERATIVE DEVELOPMENT AND MARKETING – RANGE OF SERVICES AT SUB-COUNTY (DISTRICTS)

(i) Education and Training

We will conduct education and training to members, management committees and staff of the movement in collaboration with stakeholders. We shall use resources allocated by the Government and the movement will chip in from education budgeted resources. We shall give other extension services pertaining to administration and management of Co-operatives.

(ii) Co-operative Policy and Implementation

We will attend leaders meetings, Special/Annual general meeting of Co-operative Societies and shall at all times give appropriate advice. We shall also articulate the Government policy on Co-operative management.

(iii) Co-operative Financial Policy

We will at all time advice the societies in prudent financing, Credit and Banking Services policy aimed at improving the welfare and interests of the members of the movement.

(iv) Co-operative Governance

We through Co-operative Education and Training will endeavor to insist on good management practices among the Co-operative leaders aimed at good Co-operate Governance. We shall also annually ask the Co-operative leaders to declare their assets and liabilities and file indemnity bonds as required by law.

(v) Settlement of Disputes

We will at all times arbitrate on co-operative disputes outside the court system and for those cases beyond, we will advice complainants to file disputes in the Co-operative Tribunal. The clients will be advised on the filing fees.

(vi) Co-operative College

We will advise the movement on courses offered by the Co-operative College and update them on regular basis.

(vii) Co-operative Marketing Including Value Addition Processing.

We will at all times articulate the Government Policy on Marketing of Agricultural produce, value addition and other Co-operative ventures.

(viii) Promotion of Co-operative Ventures.

We will at all times advice the Co-operative movement on general aspects of investments to create wealth in Co-operatives.

(ix) Inquiries and Inspections.

We will advise on inquiry/inspection processes where necessary and we shall conduct inspections within the Sub-County as need arises. The inspections will be presented to management committee for appropriate action in accordance with the law.

(x) Surcharge

We will undertake to enforce surcharges and inquiry report as recommended by inquiry officers.

(xi) Rule of Law

We will at all times operate within the provisions of the Co-operative Societies Act, the Rules and the By-Laws of co-operative societies and policy documents issued from time to time by the Commissioner of Co-operative Development.

(xii) Audits

We shall ensure that audits are carried out and presented as stipulated in the Act in accordance with International Accounting Standards and Co-operative Societies Act.

(xiii) Monitoring and Evaluation.

To monitor and evaluate all Co-operative activities in the Sub-County.

(xiv) The Sub-County Co-Operative Officer will Advise and Support Co-Operative Officers.

To give advisory services to Co-operative officers and others staffs to enable them perform their duties efficiently.

(xv) Financial Resources

A thief broke into my house last night looking for money, so I woke up and started searching with him :-)

To ensure that all financial resources allocated to the Sub-County are utilized for intended purposes and in accordance with the Government accounting procedures and procurement regulations.

(xvi) Visitors and Delegations

To ensure that all delegations to the Sub-County Co-operative Office are attended to promptly.

THE FUNDS OF THE SACCO SOCIETY

Sources of funds consist of:

(i)    An admission fee which may be reviewed from time to time by the General Meeting.

(ii)    A re-admission fee which is payable by individuals who withdraw and reapply for admission and which may be reviewed from time to time by the General Meeting.

(iii)  An unlimited number of shares whose value and minimum amount may be revised from time to time by the General Meeting.

(iv)  Deposits or loans from members and/or non-members.

(v)   Any surplus resulting from operation of the Society.

(vi)  A reserve fund as provided under the Act, and any other reserve approved by the management.

(vii)  Any donations grant or gifts from other bodies, organizations or individuals.

(viii) Deposit Protection Funds.

(ix)  Funds obtained from fines and/or penalties as may be prescribed by the management from time to time as authorised by the Authority.

(x)   Funds obtained from other lawful miscellaneous sources.

(xi)  Income from interest, fees and charges and commissions as authorized.

(xii)  Liabilities, which include deposits from members and borrowings from other sources.

SHORT HISTORY OF THE CO-OPERATIVE MOVEMENT IN KENYA

The co-operative movement in Kenya was found in the beginning of 20th Century. Africans were allowed to form co-operative societies in the 1950's when they were permitted to grow cash crops. The attainment of independence in 1963 became the turning point in the movement. It has ever since grown in terms of societies membership and share capital/member deposits.

The firs Kenya co-operative society, Lumbwa Co-operative Society, was formed in 1908 by the European farmers with the main objective of purchasing fertilizer, chemicals, seeds and other farm inputs and then market their produce to take advantage of economies of scale. In 1930, Kenya Farmers Association was registered as a co-operative society to take over the role of supply of farm input played by Lumbwa Co-operative Society. The African smallholder farmers fought for formation of their own co-operatives and later in 1950's they were allowed to promote and register co-operatives for cash crops like coffee and pyrethrum. Consequently at independence in 1963, there were 1,030 co-operatives societies with 655 being active with a total membership of 355,000.