Limitations on selling or transferring SACCO shares

Savings and Credit Cooperative Organizations (SACCOs) play a key role in promoting financial inclusion and member empowerment in Kenya. They allow members to pool resources, access affordable loans, and earn dividends from their shares. However, while SACCO shares represent ownership and investment, members cannot freely sell or transfer them as they would with company stocks. SACCOs operate under cooperative principles and legal frameworks that place specific restrictions on how shares can be sold or transferred.

SACCO shares are units of ownership that members buy when joining the cooperative. They give members the right to participate in decision-making, vote during annual general meetings, and earn dividends from the SACCO’s surplus. Shares also determine a member’s level of commitment and eligibility for certain financial benefits, such as loan access.

Unlike ordinary deposits, SACCO shares are non-withdrawable but can be transferred or sold under specific conditions set by the SACCO’s by-laws and the Cooperative Societies Act (Cap 490) of Kenya.

Shares Can Only Be Transferred to Existing Members

One of the main limitations is that SACCO shares can only be transferred to another registered member of the same SACCO. This means a member cannot sell their shares to an outsider who is not part of the cooperative.

The rationale behind this rule is to maintain the integrity of the SACCO’s membership and ensure that ownership remains among people who share common goals and values.

Before such a transfer is approved, the SACCO must verify that the receiving member meets all membership requirements and agrees to accept the transferred shares.

Board Approval Is Required Before Any Transfer

Even when both the seller and buyer are members of the SACCO, a transfer of shares cannot occur automatically. The SACCO’s management committee or board of directors must first approve the transaction.

The board reviews factors such as:

The financial standing of both members
Any outstanding obligations (especially unpaid loans)
The SACCO’s by-laws and shareholding policies

Only after receiving written approval can the transaction proceed. This ensures transparency and protects the SACCO from possible financial disruptions.

Shares Cannot Be Transferred if the Member Has an Outstanding Loan

Members who still owe money to the SACCO are not allowed to sell or transfer their shares. This is because shares act as security or collateral for SACCO loans.

A member must first clear all debts and ensure their financial obligations are settled before requesting a transfer. This rule protects the SACCO from losses and ensures the cooperative’s capital remains stable.

SACCO By-Laws Determine the Conditions of Transfer

Every SACCO operates under its own by-laws, which provide detailed rules on shareholding and transfer procedures. These by-laws may include:

Minimum and maximum shareholding limits
The process for applying for a share transfer
Timeframes for approval
Fees associated with the transfer

For example, some SACCOs require a written request addressed to the board secretary, while others may demand a waiting period before the transfer is finalized.

Members are encouraged to read their SACCO’s by-laws carefully before initiating any share-related transaction.

Transfers Are Subject to Membership Termination Rules

If a member wishes to leave the SACCO, they cannot simply sell or withdraw their shares immediately. The SACCO must first verify that the member has no pending obligations.

Once clearance is granted, the SACCO can either:

Refund the member’s share capital (if permitted by its policies), or
Allow transfer to another active member.

However, such processes may take several months, as the SACCO must protect its liquidity and operational stability.

Shares Cannot Be Sold for Speculation or Profit

Unlike company shares traded on the stock exchange, SACCO shares are not investment instruments for speculation. Their value remains constant — typically at the par value stated in the by-laws.

Members are therefore discouraged from buying or selling shares for profit-making purposes. The intent of SACCO shareholding is participation in cooperative growth, not capital gains.

Death or Inheritance May Affect Share Transfer

In the event of a member’s death, their shares do not automatically pass to another person. The SACCO follows a formal process guided by succession laws and the by-laws.

Usually, the shares are transferred to the next of kin or nominee indicated during registration. The nominee must either join the SACCO as a member or, if not eligible, request payment equivalent to the share value after due diligence.

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Why These Limitations Exist

The restrictions on selling or transferring SACCO shares are not meant to inconvenience members but to protect the cooperative’s values and sustainability. The limitations ensure:

Stability: Prevents financial instability from rapid share movement.
Equity: Ensures fair treatment of all members.
Control: Keeps ownership within committed members who understand the SACCO’s mission.
Accountability: Protects the SACCO from members trying to avoid financial obligations.