Factors to be considered when borrowing a loan

1.       Business concept
It is the duty of member to put together details of the investment to be undertaken- the purpose of the loan i.e. the loan for increasing stock, purchase of machine, purchase of building materials, purchase of land, etc.

2.       Character of borrower

Assess your character- how do you behave when you have money and when you don’t?

-put in safety measures to ensure you use the loan for the purpose intended/wisely.

-why are you borrowing? Is it because you need the loan or is it because the money is available?

-are you a trustworthy applicant? Hardworking?

3.       Capacity to pay

This is the ability to repay credit if extended. Assess your own ability to repay the loan in line with society’s loan policy and your personal financial position.

Consider your capital standing or financial strength i.e. monthly financial obligations not on the palsy that may hinder you from repaying the loan or make you suffer pecuniary embarrassment.

4.       Own contribution

This is the amount of funds borrower is willing to invest in the business. Do not expect your society to finance your project 100%

5.       Collateral for loan

These are details on security put forward by the borrower in good faith as a guarantee that money borrowed will be repaid.

In co-operatives this is basically a guarantor. However, members should use other forms of security e.g. share certificates and insurance policy, in case the society loan policy allows.

6.       Interest rate

Consider the interest rate of the loan to be borrowed and its effect on your income for the whole period of the loan repayment.

Members should concentrate on development loans for their own development and take school fees loan where necessary.

They should avoid unnecessary emergency loans at all cost because mostly one cannot do much and they reduce member’s ability to take a development loan.

RULES GOVERNING LOAN APPLICATION

An applicant shall be considered or accepted for the processing upon a members meeting the following conditions:

1.       Must have been an active member of the society for a period f not less than six months

2.       Must be consistent saver with the society for a period of not less than six months

3.       Must be willing to conform to all rules, by laws and co-operative societies act

4.       Must be a Kenyan citizen with a valid identity card and be a person of sound mind who has not been declared bankrupt or barred to contract for any reasons

5.       Must be earning regular income either from business or employment

6.       The loan application must be for prudent purposes and application must justify its legality by stating its purpose

7.       Must be willing to make all necessary disclosures of information necessary to facilitate loan processing and guarantorship

STEPS TO FOLLOW WHEN FILING A SUIT AT THE CO-OPERATIVE TRIBUNAL

The customer or the claimant reports the problem at the Tribunal Registry. If the problem is a dispute, the customer is advised and shown how to prepare a statement of claim or plaint as it is called in other courts.

NB:   The customer is advised to produce 7 (seven) copies of the plaint and 3 copies of the summons.

After the customer has prepared the plaint or statement of claim, the claim is accessed depending on the following.

1. Amount of the money claimed
2. Number of prayers in the claim

NB: the formula used to calculate the filing fees is shown below;
P- Principle amount claimed.
(P-6,000) x 2/100 + 780 + 100 = F/Fs

Amount charged per prayer is ksh. 1,000/= ( one thousand only.)

The following are the common charges at our registry:-

1. Defence                                -50/=
2. Memo of appearance         -50/=
3. All affidavits                        -50/=
4. Chamber summons            -300/=
5. Decrees                                -300/=
6. Warrant of execution         -875/=
7. Notice to show cause          -275/=
8. Adjournment fee                 -300/=
9. Appointment of advocate   -50/=
10. Filing of a document           -100/=

After the document is assessed, the customer is shown the cash office for
payment. In cash office the customer is served quickly in less than 5 minutes and given a receipt to confirm payment.

After payment, the claim/plaint is returned to the registry for stamping and filing where the summons is taken to the authorized officer to sign. i.e. Chairman, Deputy Chairman or the Secretary to the Co-operative tribunal. This does not take long. The customer is advised to serve the Respondent or a Court process server on an agreed fees to serve the summons on behalf of the Claimant. In return the court process server will return an affidavit of service to the court. The Claimant is advised to wait for 15 working days to see whether there will be any response from the Respondent.

After the expiry of 15 days, the customer returns to the registry for further advice.

1. If the Respondent has filed a defence, the customer is advised to call the
   Respondent with a letter to come to court together to get a suitable date for them to settle the claim.
2. If the Respondent has filed a memo of appearance the Claimant is advised to wait for another 15 days.
3. If the Respondent has not responded, the Claimant can request for judgement with a fee of kshs.150.00

When all of this has been done the cases are heard and judgement entered a
decree is drawn for a fee of kshs.300.00. After the decree has been signed, the Claimant further pays kshs. 875.00 for warrants of execution.

NB: When the Respondent does not have assets to be attached, the Claimant can be advised to request for notice to show cause why the Respondent cannot be put in a Civil Jail. Currently warrants of arrest and warrants to the officer in charge of prison are signed and the Claimant commits him/herself to pay kshs. 1,800.00 per month for the upkeep of the Respondent at the
prison.

If the Claimant or the customer or Respondent is not satisfied with the ruling or judgement, he/she can appeal in High Court.

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

OBEJECTIVES OF SACCO SOCIETIES

The objects for which the society is established are to organize and promote the welfare and economic interests of its members.

In particular, the society undertake:

a) To promote thrift among its members by affording them an opportunity for accumulating their savings and deposits and create thereby a source of funds from which loans can be given to them exclusively for provident and productive purposes, at fair and reasonable rates of interest; thereby enabling them to use and control their money for their mutual benefit.

b) To ensure personal growth through the introduction of new products and services that will promote the economic base of the members.

c) To ensure progress of members and society through continuous education programs on proper use of credit, reduction of poverty, human dignity and co-operation.

d) To apply the co-operative principle of co-operation among co-operatives in order to promote members’ interests. In furtherance to the objects the society shall affiliate to the relevant National Co-operative Union and the Apex society.

For the attainment of the above objects, the society may do acts and things that are permissible under the Act, rules and these By- laws including but not limited to acquire property and chattels and doing all such other things as are incidental or consequential to the economic enhancement of its members interests provided such act is approved by the members in a general meeting.

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.