A Sacco is a member-owned financial cooperative society whose purpose is to pool savings from members and use the funds to provide them with affordable credits.
The process of acquiring loans has been simplified and digitized in many Saccos through mobile banking, a process that has made the loans easily accessible to members.
Saccos offer members loans regardless of their employment status and their interest rates are low.
Since Saccos are more accommodating in their debt collection, they are always the best option for the public during harsh economic times. When members take loans, they do so with high hopes of meeting their proposed projects.
With the high appetite for credits, there has also been a rise on non-performing loans which has become a big challenge for Saccos.
One of the causes of poor loan repayment is improper appraisal by credit officers.
The credit officers have a role to review loan requests and assess clients’ financial status by analyzing their pay lips and bank statements. The officers should thoroughly evaluate creditworthiness and risks to make predictions on member loan repayment.
After loan approval the officers should calculate financial ratios and set up payment plans which should be communicated to the loan applicant. If the loan is wrongly appraised, there is likelihood of payment problems.
Unwillingness to repay loans by the loanee also contributes to Saccos have non performing loan accounts. There are people who take loans but do not repay despite the issuance of repayment schedule or constant reminders for payments.
Most Saccos have no monitoring systems of evaluating the usages of received loans. Members may seek loans from Saccos to fund projects and end up using the money for other activities.
It is therefore the responsibility of the Sacco to follow up and ensure the lent-out money has been used for the intended use. If the Sacco does not monitor the activities they’ve funded through loans, the loanees will end up misusing the money and fail to repay hence giving the Saccos a hard time to manage their non performing accounts.
With the rise of non-performing accounts, Saccos may not grow as expected. Normal operations will not be possible because loan repayment is the main income generating activity for Saccos hence it has an effect on the financial stability of the Sacco.
Saccos should come up with recovery measures to deal with these set of members. They may require a debt collection agency to assist them recover the non-performing loans or work with institutions like Credit Reference Bureau to bar these members from accessing other credits elsewhere and finally get back to Sacco to repay their liabilities for clearance.
CCOP Dorcas Nyambura Ndegwa is a co-operator based in Nairobi.