One of the fundamental objectives of a Sacco is to provide credit to its members. Indeed the continued survival of the Sacco is highly dependent on the fulfilment of this mission. That being the case it is important for each Sacco to endeavour to formulate lending policies that address members varied needs. In other words Saccos should no longer rely on the standard loaning policy.

creditA dynamic lending policy can be described as one that strives to satisfy members credit demands taking into account the society’s liquidity position and the security of the loans so granted. It should also ensure that loans are promptly processed and recovered at liberalised rates of interest. In addition a dynamic lending policy provides incentives for members to increase their savings thereby availing more loanable funds.

  1. A.      Lending requirements

i) Budgeting for loan should be a pre-requisite to granting of loans. Adequate plans should be made for periods of excessive loan demands.

ii) Books of accounts should be accurate and up to date.

iii) The society should operate for a number of months before granting of loans (six months or more).

iv)  Minimum period of membership and minimum amount of shares/deposits before granting of loans should be part of the loan policy.

v) The member should undertake to pay the loan with interest until it is cleared.

vi) All applications for loans should be on prescribed forms showing savings, amount applied for, purpose, terms of repayment and type of security provided, proof of members repayment ability is also required.

vii) Once a loan is granted it should be recorded in the relevant books of accounts and documents.

viii) Disbursement of funds should be done as soon as possible to avoid any inconvenience to the member and to ensure prompt recovery.

  1. B.      Loan repayments

Sacco loans are normally classified as normal, school fees and emergency. Normal loans should be recovered within 48 months. School fees should be recovered within a calendar year and emergency should be recovered within 12 months.

To ensure prompt repayment t of loans, the member should not suffer total deductions in excess of 2/3 of his/her basic salary. The employer should be advised to make the necessary deductions in good time on a monthly basis to avoid liquidity problems for the Sacco.

  1. C.      Loan delinquency

One of the major setbacks for the Sacco lending activity is loan defaulting. Among the major causes are:-


i)  Overburdening of loanee with credit

ii) Ignoring the loaning policy

iii) Death of a member

iv) Bad investment by a member

v) Redundancies

vi) Non-remittance of society funds by the employer

vii) Misuse of loan funds

viii)  Inadequate security

ix) Delays in reviver of loans

x) Interference with recoveries

The majority of these problems can be solved by management if proper safeguards are put in place. These includes:-

a)      Ensuring that correct lending procedures are adhered to

b)      Educating the ,members on loan policy and the need to borrow wisely

c)       Inform the guarantors on their obligation to pay in case of defaults

  1. Additional safeguards

For a Sacco to maintain liquidity it should practice the following financial disciplines:-


a)      Loan granted should not exceed 90% of members savings

b)      No member should be given a loan in excess of 5% of share capital and deposits

c)       The balance sheet should show the following ratios

Cash 2% Members deposits 80%
Liquidity 18% Share capital 10%
Loans to members 75% Reserves 10%
Fixed assets 5%
100% 100%

d)      The society should always ensure that delinquent loans do not exceed 2% of the toal outstanding loan. This is known as the delinquent measure.

e)      Provision for bad loans should be based on duration for example

100% for delinquent loans over 1 year

75% between 9-12 months

50% between 6-8 months

25% between 3-5 months

f)       Ensuring that the members loans are ensured by a comprehensive risk management programme.

As a result of liberalization and other global changes, Sacco societies are finding it increasingly difficult to satisfy their members ‘financial needs and maintain adequate liquidity levels. This kind of scenario calls for dynamic lending policies to be formulated by the Sacco leadership. The following strategic approaches are recommended:-

i) Introduction of Front Office Services to provide more loaning facilities to members especially short term advances

ii) Liberalise the interest rates

iii) Introduce micro-enterprise culture to members

iv) Reward both the saver and the borrower alike

v) Encourage corporate membership


A sound credit policy should at all times aim at a Sacco’s own funds rather than borrowing.

It must address carefully the issue of credit collection and formulate policies for the same. Finally a good credit policy must endeavour to practice fairness in granting of loans.


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