Beyond sacco savings, master your money game

The recent challenges faced by the Kenya Union of Savings and Credit Co-operatives (Kuscco) serve as a stark reminder that relying solely on the perceived security of large savings within one financial institution can be risky.

For many Kenyans, savings and credit co-operative societies (Saccos) offer a vital pathway to financial empowerment, but the challenge lies in maximising the benefits of Sacco membership without risking your hard-earned savings.

Many members believe that huge savings provide a golden opportunity for substantial loans. However, arguably more strategic approaches exist. One such approach is leveraging collective savings.

I hold the unpopular opinion that borrowing against collective savings is more cost-effective than taking a loan against your savings. This view may be unpopular because one may argue that the more you contribute, the more you impact a Sacco’s ability to serve members.

Each Sacco has a loan collective borrowing pool, meaning you can borrow a multiple of your savings. For example, if your Sacco borrowing multiple is three times, you only need to save a third of the loan amount you require.

Ostensibly, higher savings automatically translate to higher loans. This is not always the case. Most saccos cap borrowing at a set multiple of income.

Members with similar income may therefore qualify for the same loan amount regardless of the difference in their savings balances, which sometimes may be huge.

Read: Windfall as Saccos open double-digit dividend purses

Provided you manage your sources of income, existing debt and ability to pay, it is a more prudent approach to rely more on other people’s savings while freeing up your funds for other investments.

Beyond collective savings, members can also leverage collateral. While savings often play a significant role in Sacco loan eligibility, collateral offers a powerful alternative.

Collateral, essentially assets such as land, titles and vehicles pledged as security, allow you to access loans without accumulating large savings balances while providing saccos with assurance that the loan will be repaid. When you borrow against collateral, you qualify for a bigger loan while keeping more of your money free for other investments and business ventures.

Moreover, it is a given fact that you need to spread your risks. While disciplined saving is essential for financial stability, relying solely on a Sacco may not be enough to grow your wealth.

Although recent reports indicate a period of relative stability in Kenya's inflation rates, the financial landscape remains dynamic and requires prudent planning. Inflation, as we know, gradually erodes the value of money.

It goes without saying that no institution can fully shield your savings from its impact. What Sh500 can buy today could be more expensive in a year or so, diminishing the purchasing power of your savings. I am a strong proponent of savings.

However, to safeguard wealth, it is crucial to move beyond mere savings and explore avenues for growth. Although saccos provide dividends, they may not always outpace inflation.

This makes it essential to consider investment options such as money market funds, short-term bond funds and annuities which offer liquidity and flexibility, allowing you to withdraw or reinvest your money easily in response to inflationary changes.

Your wealth should not be entirely dependent on one institution’s performance. Diversifying your investments ensures that your money not only remains secure but also continues to grow despite economic fluctuations.

Most importantly, participate in decision making. As the popular adage goes, ‘You cannot save your way to prosperity’, reflecting the idea that you cannot grow your wealth without a loan. As members, therefore, the need to protect your interest in sacco and ensure their long-term stability cannot be overemphasised.

One critical lesson from Kuscco’s experience is that members’ understanding of the intricacies of Sacco operations, loan terms, and investment strategies is paramount for safeguarding their savings and investments.

Remember, financial wisdom lies in understanding the tools at your disposal and using them strategically to build a resilient financial future, all while keeping the lessons of Kuscco firmly in mind.

Grace Omondi is a Communications officer at a financial institution