Saccos shift to issuing loans against personal security


Savings and Credit Cooperative Societies (Saccos) are increasingly following in the footsteps of commercial banks by using personal security such as title deeds and log books instead of guarantors when issuing loans.

An analysis by Sacco Review indicates that the number of Saccos giving members the option is on the rise and that the new approach is seen as a strategy to increase youth membership in Saccos.

Many have opted not to join Saccos as they need to save first before qualifying for loans. They have therefore opted to seek bank loans hence the latest development by Saccos might attract more membership.

The traditional model of relying on guarantors has left a sour taste on the guarantors who have to repay loans when those benefiting have defaulted on the same.

Other than the use of assets as collaterals, Saccos are also giving out loans if a member’s savings are more than the loan sought.

Fred Sitati, a consultant in the Sacco movement, noted that with Saccos opening the common bond, the idea of using guarantors is outdated.

“Guarantors work well when majority of Sacco members are civil servants but this is slowly changing as some have retired,” he said.

Rather than chase members to sign forms when seeking a loan, a retired civil servant can use their security to get loans, he reasoned.

“The use of self-security such as title deeds is in order and what needs to be done is to make a policy on the same,” he said.

The bottom-line, he argued, is that all loans must be secured and the need to change the same is long overdue.

Simba Chai CEO Wesley Ng’eno agrees with Sitati, terming it a good idea as it allows customers to freely choose their loan securities.

He pointed out that there is no clear framework on how to liquidate the security and who should do it and noted that there is need for a framework that reflects on the change.

Simba Chai Sacco CEO Wesley Ng’eno

However, Ng’eno pointed out that a shift in the approach might water down the true spirit of the cooperative movement which Saccos epitomise.

“The essence of a Sacco is to pool resources where we need each other but the standalone arrangement might water down the same,” he explained.

He went on to add that seeking a loan using personal security means that one cannot guarantee others loans and the change in the rules of the game will see Saccos lose meaning.

He said Sacco members exist to mutually assist each other.

“The change is thus moving away from the model, which is its strength and the core mandate of the movement.  To change that, we need to start from the framework of the model to accommodate the changes,” he said.

PCEA Kayole NWDT Sacco Special Board Chair Julius Kagema said the use of title deeds is emerging as the best security option given the visible mistrust on the issue of guarantors.

However, he noted that through the new approach, if one fails to repay the loan and the Sacco is forced to sell or auction the member’s assets to recover the loan, it will be difficult to determine the correct value of the assets.

“Chances are high that the piece of land might be sold at a lower price than its correct market value as the Sacco will only be concerned about getting the loan back,” he noted.

 Shoppers Sacco CEO Mr Protus Senda said they have no problem with members using their security such as title deeds to get loans.

“We give loans to members using their security and in case a valuation has to be done, the member has to meet the cost,” he said.

Other than the title deed, he stated that Shoppers Sacco is flexible as they give loans to members whose savings are more than the loan they want.

“In case a member wants a loan of Ksh500,000 against their savings of Ksh1 million, we have no problem with that.” He said.

By our reporter

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