SACCO members often look forward to one thing at the end of the financial year: dividends.
For many members, dividends provide an important return on their investment in the cooperative. But the size of the payout is not determined by luck.
A SACCO’s ability to pay competitive dividends depends on several factors, including profitability, the quality of its loan book, operating costs, investment income and the strength of its capital base.
Members also play an important role.
If you want higher SACCO dividends, there are practical steps you can take to help your SACCO grow while improving your own financial position.
Understand how SACCO dividends work
Before looking for higher dividends, members should understand where the money comes from.
SACCOs generate income from activities such as lending to members, investments and other financial services.
After meeting operating expenses, loan-loss provisions, taxes and other obligations, the SACCO may distribute part of its surplus to members in accordance with its rules and applicable regulations.
This means a SACCO cannot sustainably pay high dividends if its income is weak or its expenses are rising rapidly.
Members should therefore look beyond the dividend rate and pay attention to the overall financial health of the SACCO.
Increase your share capital
One of the most direct ways to increase your potential dividend income is to build your share capital, where the SACCO’s rules allow additional shares.
Dividends are generally linked to the member’s shareholding rather than simply the amount held in ordinary savings.
For example, a member with a larger qualifying shareholding may receive a larger dividend than another member with fewer shares, assuming the same dividend rate applies.
However, members should first understand their SACCO’s share-capital requirements, limits and dividend policy.
Keep saving consistently
Regular savings can strengthen both your personal finances and the SACCO’s ability to mobilise funds.
Members who save consistently help the SACCO build a stronger financial base.
Depending on the type of savings account, however, ordinary savings may not directly qualify for dividends.
Members should therefore understand the difference between shares, deposits and savings.
Shares represent ownership in the SACCO, while deposits are generally member funds that can be withdrawn according to the SACCO’s rules.
Knowing this distinction helps members make better decisions about where to put their money.
Use your SACCO loans responsibly
SACCOs rely heavily on lending as a source of income.
When members borrow and repay their loans on time, the SACCO earns interest income that can contribute to its surplus.
Responsible borrowing can therefore benefit both the member and the cooperative.
Before taking a loan, ensure that you can comfortably meet the repayment obligations.
Avoid borrowing simply because you qualify for a larger amount.
A member who takes a manageable loan and maintains a strong repayment record contributes to the quality of the SACCO’s loan portfolio.
Pay your loan on time
Loan repayment is one of the most important ways members can influence SACCO performance.
When members default, the SACCO may have to make provisions for potential losses. High levels of non-performing loans can reduce the surplus available for distribution.
Late repayments can also increase collection costs and put pressure on the SACCO’s cash flow.
By paying instalments on time, members help protect the SACCO’s income.
In simple terms, good borrowers help create a stronger SACCO.
Avoid unnecessary loan defaults
A SACCO with a large number of defaulting borrowers may struggle to generate the surplus needed to reward members.
Members should therefore communicate with the SACCO early if they anticipate difficulties meeting their repayment obligations.
Ignoring a financial problem can make it worse.
Instead, a member should engage the SACCO and find out whether restructuring or another approved solution is available under its policies.
Use more SACCO products
Members can also support SACCO growth by using products and services offered by their cooperative.
These may include loans, savings products, insurance services, payment services, investment products and other financial solutions.
Higher member participation can increase income and improve economies of scale.
However, members should never use a product simply to help the SACCO earn money. The product should also make financial sense for them.
Reduce the SACCO’s operating costs
Members should pay attention to how efficiently their SACCO is being run.
High administrative costs can reduce the surplus available to members.
Members can raise questions during annual general meetings about major expenses, procurement, technology investments, staffing costs and other operational issues.
The objective should not simply be to demand that the SACCO spend less.
The goal should be value for money.
Cutting essential investment in technology, staff or security could weaken the SACCO in the long run.
Attend the AGM
The Annual General Meeting is one of the most important platforms for SACCO members.
Members should attend and participate in discussions about the cooperative’s financial performance.
The AGM provides an opportunity to understand:
- How much surplus the SACCO generated
- How the loan portfolio performed
- The level of loan defaults
- Operating expenses
- Investment performance
- Capital adequacy
- Dividend proposals
- Future business plans
Members should not wait until dividends are declared to become interested in the SACCO’s financial affairs.
Ask questions about the financial statements
A member does not need to be an accountant to ask important questions.
You can ask how much the SACCO earned from loans, how much it spent on operations and how much money was lost through bad loans.
You can also ask how investments performed and whether the SACCO has sufficient reserves.
Understanding these numbers can help members determine whether a dividend payout is sustainable.
A very high dividend in one year does not necessarily mean the SACCO is financially strong.
Support good governance
Strong governance is critical to SACCO profitability.
Members elect representatives and leaders who are expected to safeguard the interests of the cooperative.
Members should therefore take elections seriously.
Leadership positions should not be treated simply as rewards for popularity or personal relationships.
Members should consider candidates’ experience, integrity, understanding of cooperative principles and ability to provide effective oversight.
Poor governance can result in weak financial decisions, unnecessary expenditure and other problems that eventually affect members.
Protect the SACCO from fraud
Fraud can directly reduce the money available to members.
Members should report suspicious transactions, conflicts of interest and other irregularities through the appropriate channels.
SACCOs should also invest in strong internal controls, cybersecurity, audits and effective risk-management systems.
Every shilling lost through fraud is money that could otherwise strengthen the cooperative.
Encourage new members to join
A growing membership base can provide a SACCO with more savings, shares, loan demand and business opportunities.
Existing members can help their SACCO grow by encouraging eligible people within the common bond or membership criteria to join.
However, growth should be accompanied by strong systems.
Rapid membership growth without adequate controls, capital and risk management can create new problems.
Do not chase dividends at the expense of safety
Members should be careful about demanding extremely high dividends every year.
A SACCO may sometimes choose to retain more of its surplus to strengthen reserves, invest in technology, expand services or protect itself against future risks.
That can benefit members in the long term.
A sustainable SACCO is more valuable than one that pays an unusually high dividend one year and struggles financially the next.
Members should therefore consider long-term sustainability rather than short-term payouts alone.
Compare dividend rates carefully
A member looking for better returns should also compare SACCOs before making major financial decisions.
Do not look at the dividend percentage alone.
Consider the SACCO’s financial strength, share requirements, savings products, loan pricing, liquidity, governance, investment performance and member services.
Two SACCOs can announce the same dividend rate while offering very different overall value to members.
Encourage the SACCO to invest wisely
Investment income can supplement income generated from loans.
Members should therefore take an interest in how their SACCO invests its funds.
The objective should be to balance returns with safety and liquidity.
Members can ask whether investments are generating reasonable returns and whether the SACCO has adequate risk controls.
Build a culture of member participation
Ultimately, higher SACCO dividends are not created by management alone.
They are influenced by the behaviour of thousands of members.
Members who save consistently, borrow responsibly, repay loans on time, participate in governance and protect the SACCO from fraud contribute to a stronger cooperative.
Management, meanwhile, must maintain prudent lending, control operating costs, invest responsibly and uphold good governance.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. Email: [email protected]
