Difference between SACCOs and microfinance institutions

In the realm of financial services tailored to low-income individuals, two prominent entities often emerge: Savings and Credit Co-operatives (SACCOs) and Microfinance Institutions (MFIs). While both play pivotal roles in providing access to credit for underserved communities, understanding the nuances between them is crucial.
Difference between SACCOs and microfinance
Governance
SACCOs: SACCOs elect a volunteer board of directors from their membership, ensuring democratic representation. Each member has equal voting rights in board elections.
Microfinance Institutions: MFIs are governed either by an appointed board of directors or salaried staff, with decision-making authority concentrated among a select few.
Structure
SACCOs: SACCOs are member-owned financial cooperatives where membership is voluntary and open to individuals who share a common bond, such as profession or locality. These entities are democratically managed by their members and aim to provide a platform for savings accumulation and affordable loans.
Microfinance Institutions: MFIs, on the other hand, are designed to offer financial services to low-income individuals, primarily women, and aspiring entrepreneurs. They are typically funded by external sources like loans, grants, or investors and target clients seeking to generate income, build assets, and manage risks.
Utilization of Profits
SACCOs: Profits earned by SACCOs are reinvested to benefit members, including lowering loan interest rates, increasing savings interest rates, or developing new products and services.
Microfinance Institutions: Profits generated by MFIs may be allocated for cash reserves or distributed among investors.
Products and Services
SACCOs: SACCOs primarily offer low-cost loans to members who first invest in a membership and savings account. Loans are typically guaranteed by fellow members, with collateral often based on individual and collective savings.
Microfinance Institutions: MFIs focus on microcredit, where small groups of individuals form savings and borrowing collectives. Loans are backed by the group, acting as collateral, and are tailored to support entrepreneurial endeavors.
Benefits
SACCOs: Members of SACCOs enjoy low-interest rate loans, high returns on savings, and simplified loan application processes. SACCOs also provide opportunities for asset ownership and annual dividends on shares.
Microfinance Institutions: Microfinance clients benefit from business support services, including training and mentorship, to help grow their enterprises. MFIs offer a stepping stone for entrepreneurs to access commercial bank loans as their businesses expand.