Saccos open dividend advances window as Covid-19 bites

By Sammy Chivanga

Savings and Credit Cooperative Societies (Saccos) have started issuing dividend advances to their members amid Covid-19 disruption that has resulted in a cash crunch for families and businesses. 

The payouts come with three months left before the end of financial year and are expected to offer the much-needed liquidity boost to Sacco members.

Many Sacco members are reeling from job losses and salary cuts that have punctuated the economy since Kenya reported the first case of Covid-19 on March 13.

The advance payouts will be crucial especially for parents after the government made a surprise decision to recall Grade Four, Class Eight and Form Four learners ahead of March 2021 national exams.

The Kenya Police Sacco is among the first to open up dividend advance payouts, saying that its operations have remained stable despite the Covid-19 disruptions.

“Dear member, dividend advance will be available beginning 1st October 2020. You can access up to 50 per cent of last year’s (2019) dividends,” read Kenya Police Sacco communique to members.

Kenya Police Sacco chairman David Mategwa confirmed the development to the Sacco Review saying the board made a decision factoring in the stability of the giant Sacco.

“We started giving out the dividends on October 1. By the evening of 5th October, members had already taken around Sh400 million. We are liquid and hence able to give dividends and loans,” said Mategwa.

The Sacco had, against the 2019 performance, paid Sh345.9 million as dividends on share capital, Sh1.94 billion as interest on deposits, meaning that members can take advances up to Sh1.14 billion.

The advance payout is, however, not open to members who have defaulted on loans.

The official dividend payout period for Saccos usually happens after holding annual delegates meetings, which falls after January for many Saccos.

However, the demand for money to support members meet their needs has seen many Saccos introduce dividend advances.

Nation Sacco, whose core membership is journalists, is also gearing for dividend advances to offer relief to its members.

“Dear member, it has been a tough year. But you will not walk alone. We got your dividend advance loading,” said the Sacco in a message to its members.

The payouts look set to defy the trend in the financial sector where a number of big players such as banks have frozen dividend payouts citing the need to preserve cash and capital.

Central Bank of Kenya, which regulates banks, recently directed that any dividend payment decision will first have to get nod from the regulator.

However, for Saccos, the regulators look set to allow each Sacco to make its own decision as it has always been the case for as long as there is a surplus at the end of the year.

The acting commissioner of cooperative societies Geoffrey Njang’ombe told the Sacco Review that the societies are justified to make the advance payouts as long it is within their internal policies.

“Accessing dividend in advance is an internal policy within the societies. The payout is okay as long as it is within the approved policies of the cooperative as a product,” said Njang’ombe.

The commissioner as well as the Sacco Societies Regulatory Authority have been lenient in supporting continuity of Sacco movement since Covid-19 set in.

The two allowed Saccos to pay dividends on approved books of accounts without having to hold annual general meetings, which were scuttled by Covid-19 social distancing rules.

The rate of dividends on the shares and interests on deposits is normally as proposed by the Board of Directors.

Accessing dividends in advance, however, comes at a cost to members since Saccos deduct part of it as interest for the special window.

Saccos such as Stima Sacco usually charge about five percent interest on the dividend advances. The interest is usually deducted from the undrawn dividends and the balance given to members.

The interest rates translate to revenue to cooperatives and this has seen some Saccos craft unique products around dividend advances.

In July, Shirika Sacco Society Limited introduced Tarajia loan to salaried members who get paid via FOSA.

The Tarajia loan is capped at 50 per cent of interest on deposits that members earned last year and does not require guarantors.

Some Saccos are, however, taking a cautious approach when it comes to dividend advance decisions.

Imarika Sacco CEO Daniel Masha says that the Sacco is monitoring how the Covid-19 pandemic evolves.

“We are monitoring the situation. Things are very uncertain. Depending on how things evolve, if we are to give divided advances, then we will have to do it very cautiously,” said Masha.

“You obtain dividends from surplus and if revenue goes down, surplus also goes down. So this calls for proper monitoring first.”

But for some Saccos, the payout is being based on the stability of their capital positions.

This may see savers in small Saccos miss out for fear of weakening their capital and reserve positions through dividend payouts.

Mategwa says that Kenya Police Sacco is not afraid to pay dividend advances now despite the tough operating environment that is expected to hurt surpluses.

“It is not a concern on our side. Over the years, we have been capitalising and making a lot of retention on the reserves,” said Mategwa.

“When you do capitalisation and retention, it means that in the event of financial recession or meltdown, the two help an institution to remain stable.”

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