The Usual Sacco vs Bank rant

Business
1

I was having this discussion with my mum based on a loan she decided to take up against her Sacco. Which is better, Sacco or Banm

Loans
I would say that in terms of loan payment saccos are definitely more expensive than banks but return more on deposits.

Let’s take it this way, saccos will lend usually upto 3x your current savings. Say I have 1million, I can get upto 3m as a loan. I am sure that savings is untouchable until you pay back the loan. So in essence, you have borrowed 2m at 12% simple interest per annum but the interest is calculated on 3m. If payment period is 5yrs, that means you pay at total of 3,000,000(1+0.12*5)=4,800,000.

So you have paid 4.8mirrions for a 2mirrion shilling loan over a duration of 72months

With the bank, if you qualify for the 3m loan, you get a full 3m at 14% interest per annum.
Of course qualification for this is harder since to qualify for a 3m unsecured loan at a bank, you have to have a monthly net income of not less around 200k

Bank 3,000,000(1+0.14*5)=5,100,000

For a bank, you get AN ACTUAL 3m shilling loan and a total payable amount of 5,100,000

For a 2million shilling loan which is equivalent to what we GOT from the sacco in reality the bank will ask for a total payable amount of Kshs 3,400,000 against the Sacco’s Kshs 4,800,000

Qualification

  1. Stima Sacco requires that you have 4 guarantors to borrow a loan.
  2. Loan approval is very simple since loans are just pegged against outstanding savings. This makes it very good if you want to start a business or buy a piece of land and you make good money on the side rather than as a salary.

Banks Disadvantages

  1. Very hard to obtain a loan if you are not employed
  2. Banks will only give you upto 0.5x of your current asset worth as a loan if you secure against an asset. Not sure about a Sacco.

Bank Advantages

  1. If you are employed by a reputable employer getting a loan is very quick
  2. Lower interest over the long term

Returns
Based on a call I places to Stima Sacco, dividends attracted a 14% interest and deposits 11% interest.

Banks return about 7% interest annually on savings accounts.

My question is, how easy is it to liquidate Sacco dividends to cash from those that belong in a sacco. I gather I have to find a buyer personally or talk to the sacco finance Dept to find a buyer for you.

2
3

If on payslip and pnp you belong to a sacco not a bank .

4

Depends. Only makes any sense if you are employed on an irregular job or are earning little income. 50k or less.

If you work for a larger corporation banks are way better. You even get subsidies on top of the 14% so you probably pay even at 12-13%

5

Hapa ndio naona kama umejikanganya boss. If you are planning to repay the loan, the sacco way is better. Because, a loan is a loan regardless of the savings you have. You may have saved a million shillings and need 3m to do something. So it means nataka 2m juu. Nikienda mahali they give me the loan of kshs. 3m because i have saved 1m with them, then niko biashara. If at the end of the day, I pay the loan, I still have kshs.1m in my account which acted as security.
If I do not repay the loan, nimewapeleka loss ya kshs. 2m na mimi nimeenda loss ya kshs. 1m, if at all ile 3m yao haijanisaidia. So in any way, as long as unataka kuchukua loan na unaplan kulipa the sacco way seems better.

6

Hapo kwa 12% per annum interest ndio umeanguka coz interest kwa SACCO is on a reducing balance therefore interest comes to on average 8%.

7

I thought SACCOs charge lower interest rates. Hiyo 12% is it real ama just a random percentage? Ama that is how things are currently?

8

Saccos interest rates are way lower

Banks usually charge very high esp on mortgages and stuff

9

. Dividends/Interest on member deposits are paid in cash to you upon the deceleration of that financial year’s rate.The one from share capital and the one from member deposits which most people call shares. Interest on member deposits is paid in cash(credited to your acc minus the withholding tax). You can withdraw your deposits upon giving your sacco a 60day notice with two condition: (1) You are not a guarantor to anybody (2) You got no Loan.
Share Capital: This is part of the Sacco’s. core capital and will always remain in the Sacco. It is not refundable, only transferrable. You have to put word around that you seek to sell (your shares) and hopefully you’ll get someone to trade with. But until then it remains with the. Sacco.
Quick question: Out that 1M, what amount is Member deposit? have it checked out. That is the amount that is refundable by the sacco.

10

Sacco interest is 1% per month. Most call it 12% per annum by multiplying by the number of months but it is actually less coz it is charged on the reducing balance.

11

Touche.
Apologies for my mathogothanio mathematics but yeah, even banks calculate using simple interest on reducing balance.

12

Enda uchukue, utarudi hapa ukilia. I worked in a sacco and banks are what i can recommended, in sacco there are so msny hidden charges, and the interest is not a reducing as they claim

13

What I hate kwa Sacco in processing fee ya 1% of the principle. Wizi mtupu

14

Na appraisal fee ya 5.2% of the principal, 1% insurance fee

15

Hii ni sacco gani. Where I bank is 1.5% processing fee and 2% insurance and services are instant. Hii yenu ni ya wizi.

16

Yea na watu huambiwa interest ni 18 but huwa 22 na sio reducing

17

Mathematically speaking. It will be much lower to the 12% when paying monthly. Plus kitu watu hua hawaoni, the surplus amounts you pay back is what the sacco makes as profit and this is ploughed back to your savings + shares with the sacco yearly. Once umechukua loan kwa bank jiulize ka io pesa unawalipa inakusaidia ama inaingia kwa mfuko ya bank yote.
My advice, chukua kwa sacco. Atleast kuna tushilingi tunarudi plus loan yenyewe utaipata in 1-4 days depending on your sacco unlike bank utafanya several back and forth trips before uipate.

18

Following… Quite enlightening

19

A loan of 2m at KCB bank (14% p.a) will attract total interest of 833,383 which 41% of the principal amount.
This is the same for all Sacco’s in the country.
They loan you 1m ( + your 1m) of which you will pay 800k as interest.
Only peasants get sacco loans, but any businessman worth his salt knows the cost of finance is cheaper at the Bank than a Sacco.

20

Get your facts right. Interest of 833,383, only if umechukua 5 years plus. Plus that is not the same for saccos which offer at 1% monthly thus lower than 12% annually on reducing balance