Explain reasons why SACCOS are becoming popular in Kenya?
Sacco is short for savings and credits co-operative organisation. A co-operative society is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. It pools together human resources in the spirit of self and mutual help with the object of providing services and support to members.
Reasons why Saccos are so popular in Kenya.
1) Cheaper source of funds and loans. SACCO interest rates on both savings and loans are generally better than rates given by banks and the reason for this is that SACCOs have very low overheads as compared to banks that pay low interest on savings but charge a lot of interest to cover their overheads. Therefore most Kenyans would rather save in SACCOs than in commercial banks as doing this is less expensive for them.
2) SACCOs educate their members on financial matters by teaching prudent handling of money, how to keep track of finances, how to budget and why to keep away from hire purchases and loan sharks. This helps to inform financial decisions of the Kenyans and helps them to spend or save their money wisely as opposed to some bigger banks which may not have time to give financial advice to its customers.
3) SACCOs pay dividends on shares to their members once the SACCO is established and profitable. Members therefore take pride in owning their own SACC and will save more money in their SACCOs as the more shares they are able to buy in the SACCOs, the more their dividends once the SACCO becomes profitable.
4) SACCO loans are insured. Upon the death of a member the estate will not have to repay any loans outstanding to the SACCO. This helps in keeping the financial security of the family of the deceased member as the SACCO does not go after them in trying to recover the loan.
5) Savings are mobilised locally and returned to members in the form of loans. The ideal model invests 80% of mobilised savings to members in the form of loans. The money stays and works within the members as opposed to other forms of financial institutions where depositing funds does not guarantee the qualification for a loan facility from that institution.
6) SACCOs perform a critical and unique function as financial intermediaries. They mobilise significant volumes of personal savings and channel them into small loans for productive and provident purposes at the community level. This resource mobilization leads to general economic growth at the community level as members can access funding for their projects.
7) Accessibility. SACCOs are formed in different areas even in remote areas where banks are not easily accessible. As such, people with common interests or goals or working in a similar profession may join together and form a SACCO by pulling together their own finances to create a source of funding for their own projects.
8) Easy Formation. Forming a SACCO does not have a lot of requirements as opposed to registering a bank. The founders need not be people with financial skills or expertise. As most Kenyans fall into this category of persons, it is easier for them to join or form SACCOs rather than other financial institutions.