Many Sacco members often ask why some Saccos pay a higher percentage on share capital compared to others. While dividends on deposits may vary slightly, returns on share capital can differ widely from one Sacco to another. Understanding the reasons behind these differences helps members make informed financial decisions and manage expectations.
Below are the key factors that determine why some Saccos pay more on share capital than others.
Financial Performance of the Sacco
The most important factor is profitability.
Saccos that generate higher surplus from loans, investments, and other income sources are able to reward members better. If a Sacco performs well financially, it has more funds available to distribute as dividends and share capital returns.
On the other hand, a Sacco with low profits or losses will pay a lower percentage or none at all.
Size of Share Capital Base
Saccos with lower total share capital may pay a higher percentage because the surplus is shared among fewer shares.
In contrast, large Saccos with a huge share capital base must spread profits across many members, which may result in a lower percentage rate—even if the total payout is higher in value.
Sacco Dividend Policy
Each Sacco has its own dividend and share capital policy, approved by members during Annual General Meetings (AGMs).
Some Saccos prioritize:
- High returns on share capital
- Strong member incentives
- Faster share capital growth
Others focus more on:
- Retained earnings
- Institutional capital
- Long-term stability
These policy choices directly affect the percentage paid on share capital.
Regulatory Requirements and Capital Adequacy
Saccos are regulated by SASRA and must meet capital adequacy requirements.
Some Saccos retain more earnings to strengthen institutional capital and comply with regulations. This reduces the amount available for payout, resulting in a lower percentage on share capital.
Saccos that are already financially stable may afford to pay a higher percentage.
Loan Performance and Default Rates
Saccos with low loan default rates perform better financially.
When members repay loans on time, interest income remains strong, allowing the Sacco to pay higher returns. High loan defaults reduce surplus and limit payouts on share capital.
Cost of Operations
Operational efficiency matters.
Saccos with:
- Low administrative costs
- Efficient management
- Strong use of technology
retain more surplus for distribution. High operating expenses reduce net income and affect how much can be paid to members.
Investment Strategy
Some Saccos invest surplus funds in:
- Government securities
- Real estate
- Fixed deposits
- Strategic business ventures
Well-managed investments increase income, allowing higher returns on share capital. Poor investment decisions, however, reduce profits and payouts.
Age and Growth Stage of the Sacco
Younger or fast-growing Saccos may pay higher percentages to attract new members and grow share capital.
Older, established Saccos may pay moderate rates while focusing on long-term sustainability rather than aggressive payouts.
Risk Appetite of the Sacco
Saccos that take higher investment risks may earn more and pay higher percentages—but with greater uncertainty.
Conservative Saccos prefer steady but lower returns to protect member funds.
Members should remember that higher returns may also mean higher risk.
AGM Decisions by Members
Ultimately, the percentage paid on share capital is approved by members at the AGM.
Members vote on how much surplus is distributed and how much is retained. Active participation in AGMs directly influences returns.
Should You Choose a Sacco Based Only on Share Capital Percentage?
Financial experts advise members not to focus only on high percentages.
Before joining or investing more, consider:
- Financial stability
- Governance and transparency
- Loan access and interest rates
- Long-term growth
A slightly lower percentage from a strong Sacco may be safer than very high returns from an unstable one.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. Email: [email protected]
