Understanding how Sacco dividends and rebates are calculated 

When a Savings and Credit Co-operative Organization (SACCO) declares an annual surplus, members typically receive returns in two main forms: dividends on share capital and rebates on deposits.

Dividends on Share Capital

Dividends are payments made to members based on the number of shares they hold in the SACCO. These payments are made from the net surplus generated at the end of the financial year.

At the end of each financial year, the SACCO calculates its total income, which includes interest from loans, fees, and other revenue streams.  SACCO deducts all operational costs such as salaries, administrative expenses, loan loss provisions, taxes, and mandatory reserves. What remains is the net surplus, which is available for distribution to members as dividends.

Dividends are subject to withholding tax at 5% for residents and 15% for non-residents. The gross dividend is calculated by multiplying the share capital by the declared dividend rate. For example, if a Sacco member has a share capital balance of Ksh 20,000 and the declared dividend rate is 20%, the gross dividend is Ksh 4,000. After withholding tax of Ksh 200, the net dividend payable is Ksh 3,800.

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Rebates on Deposits

Rebates, or interest on deposits, are calculated on a pro-rata time basis, meaning the amount earned depends on how long each deposit remains with the SACCO during the financial year. Deposits made earlier in the year earn more because they are invested for longer, while deposits made later in the year earn less. Deposits made at the very end of the year may not earn any rebate.

For example, if a member deposits Ksh 4,000 monthly and the rebate rate is 13% per annum, deposits made consistently from January to December will earn rebates based on the number of full months they are held. The financial year runs from January to December, so each deposit earns for the months it is invested.

The Ministry of Co-operatives and MSME directed Saccos to observe prudence in the determination of dividends, bonus, honoraria, and interest paid to members. Payment must be commensurate to their performance.

By Obegi Malack

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