Savings and Credit Co-operative Society (Sacco) members have been urged to make good use of the loans they take from their respective Saccos for the intended purpose for their growth.
According to Ufanisi Deposit Taking (DT) Sacco Society Chief Executive Officer (CEO) CPA Frederick Abuyabo, Sacco members should be trained about the loans’ intended purpose since Sacco Society Regulatory Authority (SASRA) being the regulator for Sacco’s implements loan coding system to facilitate data capture for the industry and to assist the government plan for its citizen’s requirements and demands.
“Members of Saccos should be trained to apply for loans and ensure that they utilize the loans for the intended purpose for their growth, to avoid long term loans acting as consumption loans due to the balance that remains after recovering the outstanding balances,” Abuyabo told Sacco Review in the recent interview.
Abuyabo notes that many members do not utilize the funds as per loan purpose thus defeating the intended purpose of loan codes; and since members are given credit as per repayment capacity, it is not possible to confirm that the amount disbursed has been applied as per stated purpose.
“The main challenge is on top up loans whereby the balance loan amount is not usually sufficient to purchase the intended purpose. Some members do refinance their loans (merge) to reduce their monthly repayment for their net pay to increase,” added Abuyabo.
He further states that the youth should be encouraged to have the saving culture and apply the credit facility for the disclosed purposes, to enable the data captured to be beneficial to the Co-operative movement and nation for planning purpose.
Initially, Abuyabo notes that members’ loans were paid to the institution the loan was applied for. If it was for School fees for instance, cheques were written in schools names for various students; medical loan cheque was written to the hospital institution among others. The main advantage was that at least the loans applied for, served the intended purpose.
According to the annual Sacco Supervisory report 2021 released by SASRA in August this year 2022 the proportion of gross loans held by DT-SACCOs in the subsector constituted 85.79 per cent in 2021, while the gross loans held by Non-Withdrawable Deposit Taking (NWDT) SACCOs constituted 14.71 per cent.
On the other hand, the proportion of net loans and advances held by DT-Saccos accounted for 85.25 per cent of the total net loans and advances in the Sacco subsector, while the portfolio held by NWDT-Saccos accounted for 14.75 per cent of the total net loans and advances.
The Non-performing Loans (NPL) as per December 2021 according to the report shows that on average, the loans stood at 8.99 per cent whereby DT-Saccos had the lowest NPL ratio at 8.86 per cent compared to an NPL ratio of 8.39 per cent recorded by DT-SACCOs for the period ended December 2020 while NWDT-Saccos had their NPL ratio at 9.78 per cent during their first year of regulations.
The report reveals further that the highest proportion of loans advanced by Saccos in 2021 went toward the land and housing sectors of the economy which accounted for 26.98 per cent of the total credit facilities advanced; while education sector accounted for the second highest proportion of the credit facilities at 20.83 per cent of all the credit advanced in 2021, with the agricultural sector coming third with a proportion of credit advanced in the same period accounting for 17.47 per cent.
This implied that majority of Sacco members borrowed principally to buy or purchase land or housing, fund educational needs, and lastly for agricultural purposes.
By Roy Hezron
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