How SACCOs award loans

Savings and Credit Cooperative Societies (SACCOs) have become an essential part of Kenya’s financial system, providing millions of members with affordable credit and financial empowerment. Unlike banks, SACCOs are member-owned institutions that prioritize the welfare of their members over profits. One of their core services is offering loans at relatively low interest rates. But how exactly do SACCOs award loans? This article breaks down the process — from application to approval — to help members understand how these cooperative institutions determine eligibility and disburse funds.

Before awarding any loan, a SACCO must ensure that the applicant meets specific requirements set out in its loan policy. The goal is to safeguard members’ savings while ensuring that only qualified individuals receive loans they can repay. SACCO loans are typically financed using members’ savings and shares, meaning that every loan issued must be backed by existing member contributions.

Most SACCOs provide different types of loans, including development loans, emergency loans, school fees loans, and asset financing, among others. The type of loan a member applies for often determines the terms, repayment period, and interest rate.

Step 1: Loan Application

The loan process begins when a member fills out a loan application form, either physically or online. This form captures essential details such as:

The member’s personal information
Amount of loan requested
Purpose of the loan
Repayment period
Details of guarantors (if applicable)

Along with the form, the member must attach relevant documents, such as recent payslips, bank statements, or proof of business income, depending on the SACCO’s requirements.

Step 2: Eligibility and Membership Duration

Most SACCOs require members to have contributed consistently for a specific period — usually six months to one year — before qualifying for a loan. This ensures that the SACCO can assess the member’s savings history, commitment, and creditworthiness.

In many cases, the loan amount a member can access depends on their share capital and deposits. SACCOs often lend up to three times a member’s savings, though this ratio may vary depending on the SACCO’s policy and liquidity levels.

Step 3: The Role of Guarantors

Unlike banks that rely heavily on collateral, SACCOs use a guarantorship system. Under this system, other members guarantee the applicant’s loan using their own savings.

Guarantors serve as security for the loan and commit to repaying it if the borrower defaults. This system reinforces the cooperative spirit, where members support one another while maintaining financial discipline.

The number and type of guarantors required depend on the loan size and the SACCO’s regulations. Before the loan is approved, guarantors must sign the loan application form to confirm their consent.

Step 4: Loan Appraisal and Credit Evaluation

After receiving the application, the SACCO’s credit or loans committee conducts an in-depth appraisal. This step involves assessing:

The member’s repayment ability based on income and existing obligations.
The member’s savings history and consistency of contributions.
The sufficiency of guarantors’ savings.
The purpose of the loan — whether it aligns with the SACCO’s lending objectives.

If necessary, the SACCO may request additional documentation or conduct a background check to verify the information provided.

Step 5: Approval by the Loans Committee

Once the loan appraisal is complete, the loans committee meets to deliberate and make final decisions. The committee evaluates whether the loan meets all requirements and whether the SACCO has adequate liquidity to disburse the funds.

Approval is granted only if the member meets all the set conditions. In some cases, the committee may adjust the loan amount, extend the repayment period, or reject the application if the risk level is deemed too high.

Step 6: Communication of the Decision

After the committee’s decision, the SACCO officially communicates the outcome to the applicant. Successful applicants receive an approval letter outlining:

The amount approved
The repayment period
The interest rate
The terms and conditions of repayment

If the loan is rejected, the SACCO provides reasons and may advise the member on how to improve eligibility for future applications.

Step 7: Loan Disbursement

Once all approvals are complete, the loan is disbursed into the member’s account. The disbursement can be made through bank transfer, mobile money, or SACCO cheque, depending on the SACCO’s systems.

The member also signs a loan agreement, binding them to repay the loan in equal monthly installments, which include both principal and interest. Loan repayment begins as stipulated in the agreement, usually in the following month after disbursement.

Step 8: Loan Repayment and Monitoring

After the loan is issued, the SACCO continues to monitor the borrower’s repayment behavior. Regular deductions are made through check-off systems for employed members or through direct deposits for self-employed members.

If a borrower experiences financial difficulty, they can request a loan rescheduling or restructuring, subject to the SACCO’s approval. However, persistent default may lead to penalties, recovery action, or forfeiture of guarantors’ deposits.

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Factors That Influence Loan Approval

SACCOs consider several factors when awarding loans, including:

Member’s savings history – Consistent deposits demonstrate reliability.
Debt-to-income ratio – Ensures the borrower can comfortably repay the loan.
Guarantor credibility – Strong guarantors improve approval chances.
Loan purpose – SACCOs prioritize development-oriented loans.
SACCO liquidity – Availability of funds can affect loan issuance.

The SACCO lending system thrives on trust, transparency, and accountability. Every loan issued represents members’ collective savings, which must be managed prudently. Members are encouraged to borrow responsibly and repay promptly to sustain the revolving nature of SACCO funds.