How Saccos Can Help You Invest and Save Better

Some years back, my financial advisor tried to encourage me to join a Sacco. But I kept ignoring his advice because I thought that they were only good for getting loans at a cheaper rate than banks.

At that time, I was trying to live with as little debt as possible. So I saw no need to join one.

After some time, I decided to follow his advice and joined one thinking that I may need a loan one day. And if I did take one, I might as well take one with a lower interest rate.

But as I became more active, my thinking changed. I started to understand just how powerful it can be in helping me on my journey to financial freedom.

But before I get into that, let me explain what Saccos are and how they work.

What are Saccos

A Sacco is an abbreviation for Savings and Credit Co-Operative Society. It is a financial association that offers both savings and credit services to its members. It is owned, governed and managed by its members who share a common goal or vision. This goal is to empower its members financially.

Most of the bigger ones are managed by a professional management team, which reports to a committee elected by members at the annual general meeting (AGM) or according to the by-laws of the Sacco.

How Saccos work

To make it easier for you to understand how they work, let me explain from the point of view of a member. Before you join, there are certain things you need to know.

Shares

When you join, you are required to buy shares. This enables you to become a part-owner of the Sacco. Saccos use the money from shares to cover their expenses.

Some things to note about shares:

• Minimum Shares. Each member is required to buy a minimum amount of shares. This amount varies between Saccos. One cannot be eligible to borrow without meeting the minimum share capital. Also, any dividend earned from existing shares is used to buy more shares until you meet the minimum requirement.
• Non-refundable. Your shares are non-refundable even upon leaving. They can only be transferred to other members
• Higher dividends. You earn dividends on your shares. The rate of return on dividends tends to be higher than that of deposits.
• Loans. They cannot be used to guarantee a loan

Monthly contributions

You are required to make a monthly contribution. This is your savings or deposits.

Saccos pool the savings of all members and use it as capital to lend out to members at lower interest rates. The profit earned from the loans is used to pay dividends to the members.

Some things to note about savings:

• Minimum amount. You are required to save a minimum amount every month. This amount varies between Saccos
• Not accessible. You can only access your savings upon leaving.
• Dividends. Your Savings earn you dividends. This rate is dependant upon how much profit the Saccos makes.

Loans

Once you have saved regularly for a set period, you will be eligible to take out a loan. They have a lower interest rate than those charged by banks and most other lending institutions.

Some things to note about loans:

• Lucky number 3. For the most part, you can take loans that are up to 3 times your savings
• Guarantors. For any amount above your savings, you will need guarantors. These guarantors are other Sacco members. The guarantors’ accumulated savings should be equal to the amount of the loan. In case of default, the guarantor bears the debt burden as the Sacco will seize his savings until you settle the debt.
• Regular contribution. You are still are required to continue paying your monthly contribution as you repay your loan

How they can help you save better

For a lot of people, saving is a huge challenge. And this is where Saccos can be of great help. Because they require you to save a fixed amount regularly, you will be able to save a lot of money over time.

As time passes, you will also find that you have developed the financial discipline to save. This will help you in the long run as you seek other avenues to save for different things.

Another benefit is that you don’t have access to your savings until you choose to leave. This helps you resist the temptations of taking your money prematurely. For this reason, Saccos are great for long term savings.

How they can help you invest better

Saccos let you earn dividends from your savings and shares. And this rate can vary between 7% – 15% depending on the Sacco and the profit it made.

These rates of returns are great for a low-risk investment and beat the inflation rate. This makes it a great choice for anyone who is starting to invest or looking to diversify their investments

The other benefit is that you have access to loans. If you are a wise investor, you could take a loan to buy assets such as land or houses or start a business that would bring that extra income or great returns.

Choosing a Sacco

In the past, some SACCOs were in the news for mismanaging their members’ funds. So before joining one, here are some things to look out for:

• Registered. If you are in Kenya, make sure it is registered by Sacco Societies Regulatory Authority (SASRA)
• Reputation. What are people saying about it? What are the reviews? How long has it been operating? Taking your time to do this research will save you a lot of pain in the future
• Convenience. Look for one that uses modern technology in its operations. This includes having a mobile or web application to save you a trip to the Sacco every time you need to complete something.
• Returns. Look at the rate of returns on dividends and shares. Most pay between 7%-15%. If the returns are far higher than this, then you need to be careful. It could be a Ponzi scheme disguised as a Sacco.

To help guide you, here is a list of some good Saccos you can consider joining.

Final Note

To become financially free, you need to have both the right amount of savings and investments.

Saccos are a great tool to help you consistently save and give you good low-risk returns on those savings. They also offer you a chance to diversify your investments through access to cheaper lending.

Because of this, they are a great option for those seeking to start their journey to financial freedom or wishing to diversify their investment portfolio.