How SACCOs calculate dividends

SACCOs (Savings and Credit Cooperative Organizations) play a pivotal role in providing financial services to their members. One of the most significant benefits that members receive from being part of a SACCO is the annual dividend payout, which is typically based on the shares and savings they have in the cooperative. Understanding how SACCOs calculate dividends is crucial for members to make informed decisions about their investments. In this article, we will delve deep into how SACCOs calculate dividends and the factors that influence these calculations.
What Are SACCO Dividends?
SACCO dividends refer to the profits that SACCOs distribute to their members at the end of the financial year. These are typically given in the form of cash or added to a member’s share account. The amount a member receives as a dividend is directly tied to the number of shares they hold and the amount of savings they have contributed to the SACCO.
The SACCO dividend is distinct from interest on savings, as it is calculated based on the overall profitability of the SACCO and the number of shares a member holds.
The Basic Formula for Calculating SACCO Dividends
Dividends in SACCOs are generally calculated using the following formula:
Dividend = (Member’s Shares x Dividend Rate) + (Member’s Savings x Dividend Rate)
Here’s a breakdown of the components:
- Member’s Shares: This refers to the number of shares a member holds in the SACCO. The more shares a member owns, the higher the potential dividend payout.
- Dividend Rate: This is the rate at which the SACCO declares dividends for the year. This rate is usually determined by the board of directors based on the SACCO’s financial performance.
- Member’s Savings: This refers to the savings that a member has contributed to the SACCO over the course of the year. SACCOs may also include savings in the dividend calculation, especially if the SACCO operates on a share-based system where savings are considered part of the shares.
The dividend rate is typically a percentage, and the SACCO will apply this rate to both the shares and savings to determine the total dividend payout.
Step-by-Step Process of Dividend Calculation
- Assessing the SACCO’s Profitability: At the end of the financial year, SACCOs assess their financial performance by evaluating the total income generated from interest on loans, investments, and other sources of revenue. After accounting for operational expenses, the SACCO determines its profits.
- Establishing the Dividend Rate: The board of directors will then decide on a dividend rate based on the SACCO’s profits. This rate is generally communicated to the members in an annual general meeting (AGM). The rate can vary depending on the SACCO’s profitability and the economic conditions of the year.
- Calculating the Member’s Dividend: Once the dividend rate is set, the SACCO will calculate how much each member will receive. This calculation is done by multiplying the member’s shares and savings by the agreed dividend rate. For example, if a SACCO declares a 10% dividend rate, and a member has shares worth KSh 100,000 and savings of KSh 50,000, the dividend calculation would be:
- For shares: KSh 100,000 x 10% = KSh 10,000
- For savings: KSh 50,000 x 10% = KSh 5,000
Total dividend = KSh 10,000 (from shares) + KSh 5,000 (from savings) = KSh 15,000
- Distributing the Dividend: After calculating the dividends, SACCOs distribute them to the members. This can either be done in cash, credited to the members’ savings accounts, or reinvested in the form of additional shares, depending on the SACCO’s policies.