Why Sacco loans are cheaper and more accessible

Kenyan individuals and households are increasingly turning to Saving and Credit Cooperative Organisations (Saccos) and microfinance banks for loans, rather than commercial banks.
This shift is driven by the desire for loans with lower interest rates and more favorable terms, according to data from the Central Bank of Kenya (CBK).
In 2023, loans issued by Saccos and microfinance banks to private households totaled Sh600.70 billion out of Sh1.12 trillion issued to the sector by financial institutions.
This accounts for 53.8 percent of the net credit disbursed to individuals and households. The preference for Saccos and microfinance banks is attributed to their lower interest rates and quicker access to loan facilities for members.
Why Sacco loans are cheaper
Philip Oyuko, chairman of Kimisitu Sacco, highlights the stability of Sacco interest rates, which do not fluctuate based on changes in the central bank rate (CBR) like those of commercial banks. Saccos typically charge an average of 12 percent on reducing balance, translating to a lower effective annual interest rate compared to banks.
“Commercial banks’ interest rates can change depending on how CBK dictates, whereas Saccos do not change. Saccos are also charging an average of 12 percent on reducing balance which will mean six percent to seven percent annually at the end of the loan serving,” Oyuko told Business Daily.
Saccos also offer additional benefits such as the acquisition of real assets for members, flexible payment terms, and payment of dividends on deposits. Unlike banks, which prioritize profit maximization, Saccos distribute dividends to their members and offer more lenient loan terms due to their strong connection with members.
Another advantage of Sacco loans is their accessibility. While banks often require extensive documentation for loan approval, Saccos typically only need contribution records or payslips. Additionally, Saccos are more inclusive, providing loans even to those who are not formally employed.
Furthermore, Sacco interest rates remain consistently lower than those of banks, providing a more cost-effective option for borrowers, especially during emergencies. This stability in interest rates contributes to the attractiveness of Saccos for individuals and households seeking affordable financing options.