The most common reason why many people do not join SACCOs in Kenya is lack guarantors or aversion to the idea of guaranteeing other people’s borrowing. The principle behind loan guarantors is that should you fail to repay your loan, the SACCO can recover their money from the people who have signed up as your guarantors in addition to your shares. Different SACCOs approach this in a number of ways:
- They have a minimum number of guarantors that should sign your loan application, and it does not matter how much each of the guarantors has saved up. For example, they may require you to have at least 4 guarantors.
- You must get guarantors whose savings make up for the difference between your loan and your savings. For example, if you have saved KSh 40,000 and want to borrow Ksh 100,000, they will need that your guarantors’ total savings to come to at least Ksh 60,000. The number does not matter, the amount of security is what they look at.
- The most stringent ones will need your guarantors to only guarantee you to the extent of their free shares. In the above example, if you need KSh 60,000 guarantee, you will need to get guarantors who have neither borrowed, nor guaranteed other members. These SACCOs look at the amount of “free security” that no one else has borrowed against, including the guarantor – I find this almost impossible to achieve in the long term.
There are obvious risks to guaranteeing other peoples’ borrowing and as much as possible we should avoid it, but this is life. We need each other. There are a few things you can do to minimize this risk.
Familiarise yourself with the SACCO’s guarantor policy
Before joining a SACCO, request for the bylaws and read what they say about guarantors and security. Most SACCOs now have sales agents, I urge you to do your research beyond what your sales agent tells you about this. Sales agents are paid to recruit you as a member, they will tell you what they figure you want to hear. Knowing the policy helps you prepare best for future borrowing.
Join together with family members (especially your mother) and trusted friends
Many people say that you should never mix relationships with money issues, but considering how integral money is to our lives, I usually urge us to instead build relationships that are based on integrity and shared values where money is concerned. If your friend cannot guarantee your borrowing, I doubt a stranger will be able to and maybe SACCO borrowing is not for you, a bank might be better. SACCOs thrive on shared values, relationships, and networks, and if you are able to then bring your network in, borrowing becomes much easier.
I am a member of two SACCOs, and my trick was to join my mom’s SACCOs. One is a teachers’ SACCO and it works great because if I need to borrow, she has her trusted network of friends who are happy to sign for me against her word and relationship. I usually advise people to join their mothers’ SACCOs because we will do anything to not cause them financial loss, and vice versa – unless of course, the relationship is a toxic co-dependent one.
Build an asset base against which you can borrow
Some SACCOs will allow you to borrow against your assets, especially cars, listed shares, government bonds, and title deeds. If you have a steady income, do not have any assets, and you have an appetite for debt, a workaround would be to first take an unsecured bank loan, acquire the asset then use it to guarantee the SACCO loan. In my quick guide to debt, I introduced the most important consideration when borrowing – the ability to repay.
This method eliminates the need for a guarantor, but remember to check how the SACCO values these assets and how much borrowing you can do against them.
Use your SACCO saving as a retirement fund and emergency fund
Most of the good SACCOs pay interest and dividends of about 10-12%, which is higher than bank rates and some of the government instruments. It, therefore, makes sense to invest your long-term fund and your emergency fund in a SACCO. In a previous article, I explained how my SACCO savings act as my emergency fund – I have access only when I really really need it. However to grow your SACCO fund to grow, you must take advantage of the power of compounding, by re-investing all your dividend every year.
The only caveat here is that you must do your due diligence to make sure that the SACCO is managed prudently and your money is safe. Read the annual accounts, attend AGMs and ask questions.