How borrowing influences SACCO dividends

Many SACCO members borrow loans without fully understanding how borrowing affects their dividends. While SACCO loans are a key benefit of membership, borrowing can either increase or reduce your final dividend payout depending on how the SACCO’s policies are structured. Knowing this relationship helps you borrow wisely and plan your finances better. Below is a detailed explanation of how borrowing influences SACCO dividends.

SACCO Dividends

Dividends are paid from a SACCO’s surplus after expenses, loan defaults, and operational costs are covered. The amount a member earns is usually based on:

• Share capital held
• Member savings
• Interest earned on loans issued

Because loan interest is the main source of SACCO income, borrowing plays a major role in determining dividend levels.

Borrowing Increases SACCO Income

When members borrow, they pay interest on their loans. This interest is pooled as SACCO income and later shared among members as dividends.

This means:

• More borrowing increases SACCO revenue
• Strong loan repayment boosts annual surplus
• Higher surplus allows for better dividend payouts

Responsible borrowing benefits both individual members and the entire SACCO.

How Borrowing Can Increase Your Personal Dividends

In many SACCOs, dividend allocation favors members with higher share capital and active participation. Borrowing can indirectly help you earn more dividends by:

• Encouraging you to increase savings for loan eligibility
• Strengthening your membership profile
• Supporting SACCO profitability

Some SACCOs also pay interest rebates or patronage refunds to members based on loan interest paid.

Loan Interest Does Not Automatically Cancel Dividends

A common misconception is that borrowing cancels out dividends. In most SACCOs:

• Loan interest is a cost of borrowing, not a penalty
• Dividends are paid separately based on shares and savings

You can still earn dividends even if you have an active loan, as long as you meet SACCO requirements.

When Borrowing Reduces Dividends

Borrowing can reduce dividends in certain situations:

• Loan defaults reduce SACCO profits
• Late payments attract penalties
• High non-performing loans lower surplus

If many members default, the SACCO earns less income, leading to lower dividends for everyone.

Excessive Borrowing Can Hurt Members

When borrowing exceeds savings capacity:

• Members struggle with repayments
• SACCO liquidity becomes strained
• Profits decline

This ultimately results in reduced dividends and weaker SACCO performance.

Loan Guarantees and Dividend Deductions

In some SACCOs:

• Dividends are used to offset loan balances
• Dividends may be withheld for members in arrears
• Guarantors’ dividends may be affected if borrowers default

Understanding your SACCO’s policies is essential before borrowing or guaranteeing a loan.

Responsible Borrowing Benefits Everyone

Borrowing for productive purposes such as education, business, or asset acquisition strengthens both the borrower and the SACCO.

Members who borrow responsibly help:

• Increase SACCO income
• Stabilize dividend payments
• Improve long-term growth

What Members Should Do

To protect your dividends:

• Borrow within your repayment capacity
• Pay loans on time
• Understand dividend and loan policies
• Avoid guaranteeing risky loans

Author: Andrew Walyaula

Andrew Walyaula is a seasoned multimedia journalist. Email: waliaulaandrew0@gmail.com