The primary purpose of a Sacco is to serve the community in which it operates. This is based on the understanding that co-operatives are not-for-profit enterprises, as the majority of the profit goes toward fulfilling the social, economic, and cultural needs of the community in which they operate.
It is obvious that when a co-operative does well, it automatically benefits the community as a whole.
A successful co-operative business model strives to provide employment, investment opportunities, collaborative growth, and the even distribution of wealth, among other things.
Co-operatives are exclusively controlled by members who shop at and use the business regularly, so it will always exist to better its community.
And since members of the community own and operate a co-operative business, they will always have the incentive to benefit one another. The members will want the co-operative to help the community because they are a part of it.
In this case, the community will always want to support the co-operative because it invests in the betterment of the community.
It is against this background that Savings and Credit Co-operative Societies (SACCOs) have been developed to meet the fundamental human need for saving and borrowing methods to promote the economic interests of their members and the communities they operate in.
They achieve this co-operative principle through the co-operative model of a savings culture among members. The culture encourages the promotion of thrift among co-operative members by providing them an opportunity to accumulate savings and pay reasonable interest without risk on such savings.
SACCOs create sources of funds from which they can offer relief to their members in need by lending loans for productive and provident purposes at fair and reasonable interest rates, backed by easy terms of repayment.
SACCOs do not raise equity from outside sources; instead, all money lent to members is mobilized by the members themselves, and members are committed to repaying their loans, as they are drawn from members’ funds.
The SACCOs’ principle of a co-operative model savings culture has numerous benefits for the members, which include, but are not limited to, encouraging members to save. SACCOs are readily accessible, and interest rates on saving and lending are better compared to commercial banks.
SACCOs’ interest rates on both savings and loans are generally better than those offered by commercial banks, since SACCOs have low overheads compared to commercial banks, which pay low interest on savings but charge high interest on loans to cover their overheads.
Unlike in commercial banks, under the SACCOs’ co-operative model savings culture, members are taught how to handle their finances responsibly when they effectively and economically patronize their SACCOs.
Contrary to commercial banks, the co-operative model savings culture ensures that members’ loans are insured. So, if a member dies, the outstanding balance is settled. Upon the death of a member, the estate will not have to repay any loans outstanding to the SACCO.
The co-operative model savings culture and mobilization serve as members’ insurance against emergencies, social obligations, and future investments.
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This model confirms that one of the objectives of SACCOs is to promote a saving culture among their members, as savings are closely related to wealth creation.
It is important that SACCO members embrace a saving culture in order to increase their low incomes, leading to improved living standards. The role of financial markets in mobilizing savings and channeling funds into productive investment is integral to a successful strategy for economic and human development in the country.
SACCOs could be viable vehicles for the country’s achievement of productive investment, since they are the only formal financial institutions able to provide financial services through the co-operative model savings culture.
To mobilize savings and enhance their operations in a competitive financial market economy, SACCOs have engaged in membership recruitment drives to expand their client base and broaden their loan portfolios. This has encouraged members to save, as they are assured of loans from their savings mobilization.
SACCO members, under the co-operative model savings culture, are encouraged to purchase shares, contributing to the automatic increase in savings with the growth of membership.
SACCOs pay dividends on shares to their members once a SACCO is established and realizes profits. Hence, members proudly own and patronize their SACCO and its products and services.
By Ben Oroko.
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