Advantages and Disadvantages of joining a Sacco
The Advantages of joining a Sacco
1. A Sacco allows you to save money and you can borrow three times of the money saved, so the amount you can borrow is pegged on your savings.
2. Saccos are regulated under the Cooperatives Act so there are regulations that govern the conduct of Saccos to protect members' funds.
3. Saccos often have a predictable interest rate on the loans which for the most part is around 12% on reducing balance. This is lower than bank interest rate on loans.
4. Saccos offer a wide variety of loan products so you may be able to access different loan products.
5. Since Saccos make a profit through interest income, they share the interest earned once they have deducted expenses to the members by way of divindeds. Depending on how well a Sacco is managed, the divinded could be more than 10% which is higher than Treasury bills or what you would get from the money markets which often range from around 8 to 10% for the most part.
6. You can exit a Sacco and get your money less any loans you owe to the Sacco. If you choose to wait for the whole period, it takes about 60 days to get back your money for most Saccos. However, if you want it quick like me when I was taking my money to the gullows, then you will be deducted a % of your savings usually around 5%, depending on the Sacco.
7. Management costs for Saccos are often lower especially the smaller ones because members elect the board from the members and maintain a lean sectrariat to run the day today operations of the Sacco.
The Disadvantages of joining a Sacco
1. You need to have guarantors to sign for you in order to qualify for a loan unless you just want to borrow the exact amount that you have saved and provided you have not guaranteed any one else.
2. Should those you guarantee default, you run the risk of loosing the amount for which you guaranteed them.
3. If you want a huge loan facility, you have to go round pursuading guarantors to sign for you who often have a common song...aki nimeguarantee maximum...
4. You cannot liquidate your money easily and when you want to do that in a short time, you will have to contend with loss of some of your savings
5. Even though Saccos are regulated under law, they are not immune to mismanagement. It is possible to still loose your savings on account of mismanagement.
6. I will say this and I know you will look at me badly and that is Ok. Saccos give you an illusion of many loan products...car loan, school fees loan, emergency loan, holiday loan etc. All these look great on the face but what they do to you is entrap you into someone who pays more for what you could have otherwise planned for. For example, when you know you can access an emergency loan, you don't bother setting up your emergency fund because after all you will get from the Sacco..Unfortunately, no one knows how many emergencies you might get and how much you might need yet the Sacco allows you to get an emergency loan only if you do not have another existing emergency loan. When you take the first emegency loan and another emergency shows up before you finish paying the one you have....what do you do? You run to mobile money lenders or those other ones that tell you...hurry hurry loans against log book etc...before you know it you get into a serioua debt trap!
Remember for your emergeny loans, your school fees loans, your holiday loans, all these come at an interest. This means if you take a school fees loan and you pay an in interest of 12% for the year...it means you spent more on school fees by a whole 12%! Same case with the emergency, the holiday loan etc. If you are taking a loan for consumption and not for investment or for protection such as owning a home, then surely you are not being wise in the 2nd pillar of managing money.
You have to learn an important ingridient in pillar 2 of money called discipline. You have to make correct choices. The choices you make in pillar 2 of managing money is what will determime if you are going to proceed to pillar 3 of multiplying money.
I know what you are saying....ati oh even if I pay higher interest I am growing my sacco and the money will still come back to me. I gerrit but I know one thing, you will get that dividend cheque and eat that money tau tau...because you do not know this thing called discipline in pillar 2.
I will never get tired of speaking about the 4Ms of money. Now was this helpful....or you rolled your eyes and said huyu naye pesa kila saa...eeeeh..that is my gospel and I do it with passion because I have been in a space of poor money management and I landed in a ditch. I know right now women and men who are high income earners, occupying high positions and they are depressed because of money issues. I speak so much about money because I had my damascus moment on my 47th birthday. I will be celebrating my 49th birthday in a week's time and God has been gracious to me. Like Paul, I was in a state of persecuting money and not taking care of it....then I saw the light and now I preach the gospel of the 4Ms of money. I know I will win souls with this my phone, my fingers and my mouth.
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