Top 8 Misconceptions About the Sacco Industry?
- May 19, 2020
What misconceptions have you heard about Sacco?
Despite the recent spate of events, there are legitimate Saccos that have helped many Kenyans in accessing loans at cheaper interest rates to achieve their personal and business endeavors.
1. Without a Guarantor, Don't Join
Having guarantors was and still is the surest way Saccos can ensure their loans are secured. But that’s not the only option available to get a secured loan. If this has been your stumbling block then it shouldn’t be anymore, because there are options such as self-guarantee and use of collateral, leaving the use of guarantor savings as the last resort.
Mombo Sacco encourages the use of self-guaranteeship, guarantors, or collateral as loan security. For every loan request, every borrower is evaluated based on their ability to repay the loan, rather than the amount of outstanding savings, available collateral value, or guarantors. This method protects guarantors and ensures that members receive amicable loans they can afford to pay and consequently reducing credit risk.
In case you’re worried about loan recovery, the Mombo management team is of the belief that repayment should be the borrower’s responsibility and has also employed several loan recovery methods besides guarantors savings such as loan restructures, loan moratoriums, and debt collection. Guarantors’ savings will be used when there’s nothing else left.
The best thing about Mombo Sacco is that we also created a fraternal group called the M-Community, where small groups of people can interact and learn more about each other. Therefore, allowing you, the member to secure a guarantor.
2. You Need a Regular Income
Employed individuals have a standard and regular source of income, yes! However, this doesn’t disqualify those without a regular salary. Saccos require each member to contribute a specific amount of money monthly to ensure the activity of your account with them.
Depending on which Sacco you join, the contribution can be as low as 500 shillings a month. Wherever or however you earn is no issue, as long as you contribute as needed or as agreed. Moreover, failure to contribute doesn’t necessarily mean you will be exited from the Sacco, you can always talk to your Sacco about downgrading your saving plan to suit your needs.
Mombo Sacco has savings plans that clearly outline how much you need to contribute every month from as low as Ksh 500 in the Bronze plan, to Ksh 10,000 in the Platinum plan. As long as you can reach the threshold amount, you can join the Sacco (employed or not).
3. Loans Take a Long Time to Process
Well, financial matters are not a walk in the park. Saccos offer secured loans and this means before loans are disbursed, they have to be assured of repayment. Therefore, you may have to wait, unless it’s an instant loan where approval time is one or two days.
The process of getting a high-value loan may be longer. You may need a guarantor, collateral, sufficient savings, a good credit history among others. This means Saccos have to evaluate the credibility of your guarantors, assess your collateral for financial value, and your creditworthiness; enabling them to make a repayment plan suitable for both you and the Sacco.
Luckily, that’s not the case for all Saccos. What’s great about Mombo Sacco is that we offer you a chance to have your loan request handled in under one hour. Yes! Our credit committee reviews loan requests in real-time, so as a member you’re assured of speed and efficiency.
4. Once Registered, You Can't Leave
Whatever reason you may have to withdraw from a Sacco, it is vital to understand that you can leave whatever time you want, as long as you present notice beforehand.
Before registration into a Sacco is complete, you are mandated to read the terms and conditions of the organization. There in you will know all about about your membership requirements such as monthly contributions, the amount needed to buy share capital for the Sacco, the benefits like interest and dividends gained from your savings and shares respectively; and information regarding withdrawals or the unfortunate death of a member.
Upon a withdrawal request issued with a 60 days notice, in line with Sacco regulations, most Saccos will give you back your total savings, but they can’t give you back your shares worth. This is because Sacco’s capital is dependent on your shares.
To permanently withdraw from a Sacco, they ask you to sell or transfer your shares to another individual if you wish to leave.
“A member may transfer shares to other members on leaving membership of a Sacco Society, but the Sacco Society shall not refund shares.”
Unfortunately, in some cases, you may not find someone to sell your shares to. Hence, you will be forced to let them be and instead, earn dividends from them.
With Mombo Sacco, any withdrawing member can easily transfer their shares to an existing member to ensure they get a full refund of their contributions. Upon an independent request using the Mombo App, the full refund shall be paid on or before the expiry of the notice period. It doesn’t get any easier than that.
5. Youngsters Shouldn't Invest in this Industry
Millennials prefer to be informed, updated, guided, and would rather embrace the fintech industry. It’s a fact! Saccos have been available for the longest time, but they too have revolutionized; allowing for digitization, transparency, and inclusivity.
A good example is Mombo Sacco, working 24/7 to attend to its customers, espousing the best financial practices that would attract not only the elderly but millennials as well.
They have;
- E-receipts of all electronic payments done
- Ready to download statements of loans, savings, shares, earnings, guarantees, and quarterly management reports to members.
- Access to breaking news and all you need information.
Saccos have proven that there are better ways of being involved with cooperatives that don’t involve long queues, redundancy, and tedious paperwork. Tech innovation that sees people handle their money more efficiently than before.
6. To Gain, You Should Already Earn High Income
To be financially independent, you have to create financial goals in line with your life objectives and work towards them. High-end schools are not only meant for children with a wealthy background as that would be discrimination. Just the same way, Saccos are not only for high-income earners.
The goal of joining a Sacco is to save, gain collateral for a loan, gain capital, earn from interest or dividends, and eventually create wealth. If you have the motivation to save towards your goals then you can join any Sacco and enjoy these benefits.
There are no limitations to being a part of a cooperative society regardless of being a high or low-income earner. The idea is to save diligently to achieve your objectives. So whether you’re saving Ksh 100 or Ksh 10,000 a day. The goal is to achieve financial independence and Saccos can aid with that.
7. Loans are Dependent on Your Shares
- Share capital
- Non-withdrawable deposits
Share Capital
To join a Sacco you have to buy shares worth a stipulated amount. This way you also become a shareholder earning dividends annually. In some Saccos, you can also buy equity shares additionally to the share capital that will earn you a bonus. Both shares are non-refundable but transferable to your next of kin or another member. Moreover, they can’t be assigned as collateral for a loan.Non-withdrawable Deposits
These are your savings that are only withdrawable upon exiting the Sacco. They are collateral when and if you borrow a loan. Depending on your Sacco regulations, you can acquire loans from three to even five times your savings. Hence, with a saving of Ksh 500,000, you can get up to 5×500,000 = Ksh 2.5 million. This, therefore, explains that loans are not dependent on your shares but savings. Moreover, more factors come into play during loan consideration including your creditworthiness and guarantors.8. Withholding Tax is Deducted on Savings
Back in 2018, a proposal was tabled to change the withholding tax from 5% to 10%. It was passed and considered by many as a double tax. This discouraged people from saving with Saccos as others went ahead to buy more shares and reduce their savings. What many failed to understand is that the tax didn’t directly affect your savings.
Instead, withholding tax affected returns on shares, what you know as dividends.
“Amendments to the Income Tax Act through the Finance Act 2018 doubled the withholding tax rate applicable to the dividends payable by a Sacco from five to 10 percent.”
To make it clear, the government announcement on taxing Sacco earnings only affects your dividends and not savings nor interest on savings. In fact, the move directly and negatively affected Saccos as many now reduced their share capital to reduce taxation on dividends, leaving Sacco capital thinly stretched.
Savings and earnings on savings remain the same as before and are not affected in any way. Therefore, your savings are safe!
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