Understanding dividends declaration in SACCOs

Dividends declaration is one of the most anticipated moments for members of Savings and Credit Cooperative Organizations (SACCOs). This process represents the culmination of a SACCO’s financial year, highlighting the fruits of collective saving, lending, and investment efforts. For many members, dividends not only signify a return on investment but also reinforce their confidence in the SACCO model as a powerful tool for financial empowerment.

This article delves into the essentials of dividend declarations in SACCOs, exploring what they entail, how they are calculated, and why they matter to members.

What Are Dividends in SACCOs?

Dividends in SACCOs refer to the portion of a SACCO’s net surplus (profit) distributed to members based on their shareholding. SACCOs operate on cooperative principles, meaning that profits are not only reinvested to enhance services but also shared among members who own the institution. Dividends provide members with a direct financial benefit, making membership both rewarding and sustainable.

The Dividend Declaration Process

1. End-of-Year Financial Review

At the close of the financial year, a SACCO conducts a comprehensive review of its operations. This includes auditing income streams, operational costs, loan performance, and investment returns. The result of this process determines the SACCO’s net surplus.

2. Approval by the Board and Members

Once the net surplus is established, the SACCO’s board of directors proposes how it should be allocated. Typically, this involves setting aside portions for:

• Reserves: To comply with regulatory requirements and ensure financial stability.
• Development Funds: To finance future projects such as IT upgrades or branch expansions.
• Dividends and Rebates: To be shared among members.

This proposal is then presented to members during the Annual General Meeting (AGM), where they have the final say. Members vote to approve or adjust the proposal, ensuring transparency and inclusivity in the decision-making process.

3. Dividend Calculation

Dividends are calculated based on the number of shares a member holds in the SACCO. For example, if the SACCO declares a dividend rate of 10% and a member owns 1,000 shares valued at Sh20 each, their dividend would be:
Dividend=Shares× Share Value× Dividend Rate
Dividend=1,000×20×0.10=Sh2,000

4. Disbursement of Dividends

Once approved, dividends are disbursed to members. Payment methods may include:

• Direct Transfer: Deposited into a member’s SACCO savings account.
• Cash Payouts: Available for members who prefer physical cash.
• Reinvestment Options: Members can choose to reinvest their dividends into additional shares or savings.

Factors Influencing Dividend Rates

1. Financial Performance: A SACCO’s profitability directly impacts its ability to declare dividends.
2. Loan Repayment Rates: High default rates can reduce surplus profits, affecting dividends.
3. Regulatory Guidelines: SACCOs must allocate a portion of their surplus to reserves, which can limit the dividend pool.
4. Membership Growth: An expanding membership base often leads to higher collective investments and increased dividend potential.

Benefits of SACCO Dividends

• Encourage Member Loyalty: Dividends reward members for their commitment and encourage continued participation in the SACCO.
• Promote Financial Growth: Members can use dividends to reinvest, pay off loans, or meet personal financial goals.
• Boost SACCO Reputation: A strong dividend record attracts new members and enhances trust in the SACCO.

Challenges in Dividend Declaration

1. Loan Defaults: Unpaid loans can shrink the surplus, reducing dividends.
2. Economic Downturns: Poor economic conditions may lower investment returns.
3. Member Discontent: Disparities in dividend payouts can lead to dissatisfaction among members.
4. Regulatory Compliance: SACCOs must balance dividend payouts with legal reserve requirements.

Author: Andrew Walyaula

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