What is a SACCO? The Equivalent of an American 401K

A SACCO is the equivalent of an American 401K. This type of savings and investment program is very popular in Kenya and has been for a long time. A SACCO is formed by a group of people who are saving money together, typically within the same company or industry. It’s important to note that not all countries have SACCOs because this type of plan can only work if there are enough employees to make it viable.

A Savings and Credit Cooperative (SACCO)society is a financial cooperative society, usually a savings and credit association (SACA) or an industrial bank that primarily engages in the business of taking deposits from members to provide loans for members.

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A Savings & Credit Cooperative Society is the Kenyan equivalent of an American 401K. It’s very popular in Kenya because banks don’t offer many savings accounts anymore. The formation of the SACCO is done by a group of people working in the same company or industry.

A savings and credit cooperative society (SACCO) can be formed either as an industrial bank if it primarily engages in banking activities, or as a savings and credit association (SACA) if its primary purpose is to provide loans for members.

Importance of SACCOs

Saccos are very important financial cooperatives in Kenya for the following reasons:

  • They inspire a saving culture
  • Saccos provide emergency loans to members
  • They provide loans for businesses or home improvement projects
  • Saccos offer interest on savings equivalent to inflation rates in Kenya
  • They have cheap interest rates on loans
  • Investment opportunity

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They Inspire a Saving culture

Saccos are a place for people to save money without worrying about losing it. A Sacco is formed by people with the same goals from a given institution. In most cases, the people who come together to form a sacco know each other. Therefore, chances of getting the money lost are minimal.

A Sacco is formed by people who have the same interests. One good example to elaborate this is Mwalimu Sacco which is mainly for Kenyan teachers. These are teachers who came together to save money for a given reason. In such a set-up, it is easy for these people to save because they share many things in common. Thus, in case of any issue, it is easy to handle it with their employer, who, in most cases is the Teacher Service Commission (TSC).

Increase in Income and Savings

Saccos increase income and savings for Kenyan’s by giving them affordable financial options that they previously didn’t have. When you are in a Sacco, the financial services you receive are better than those given by most financial institutions in Kenya.

A Sacco entitles you to a loan with low interests rates compared to banks. When you take a loan from a bank, the payback period is also long. Therefore, you don’t have to get worried about the time you have to complete repaying your loan. With such a loan, you can start up a business which in turn, increases your income.

Increase in Employment

Saccos have helped to increase employment because they offer a place for people with savings and business ideas that don’t have the money to start their project. With SACCOS people can borrow from them at low interest rates so they are better equipped to open their own businesses or get work done on their homes.

With the low employment rates in Kenya, many people are joining Saccos to get funds to start businesses. This is seen especially among the youth who are much interested in business around the country.

Investment opportunity

SACCOS also provides a great investment opportunity for Kenyan’s. A SACCO is a great place to save money and make more interest on your savings, so if you want to invest in the long-term this is perfect because it offers low rates of return; which are equivalent to inflation rates in Kenya.

Compared to other investment options in Kenya like buying shares, Saccos are easy to join. People earning low income in Kenya can comfortably join a Sacco as it does not need a lot of money to join. For instance, there are Saccos whose members make monthly contributions of Ksh. 300.

They provide loans for businesses or home improvement projects

A SACCO is a good option because it offers loans for members and improved credit options. When you are in a Sacco, you can easily get a loan because your deposit in the Sacco serves as collateral.

Moreover, Saccos provide loans of up to 3 times your deposit. In this case, the money can boost your business a lot f you have good savings in a given Sacco. For instance, let’s say you have deposited Ksh. 500,000 in a Sacco. With this amount, you are entitled to a loan of up to Ksh. 1,500,000. Thus, if you want to grow quickly, joining a Sacco is one of the best financial decisions to make.

Expert Advice

Con artists are everywhere including in the Sacco sector. We have heard in the past people losing money in Saccos. Therefore, before joining a Sacco, please do your research about the Sacco. You can look at the date when the Sacco started. You should join a Sacco that has been in existence for long, at least 10 years. Additionally, check the membership of a Sacco before joining it. A good Sacco should have more than 20,000 registered members. We are telling you this to ensure your money is safe if you decide to join a Sacco.

Final Words

SACCOs are very popular in Kenya because they help the economy grow by providing a safe place for people to save money and improved credit. The formation of a SACCO is done through a group of employees from the same company or industry. Therefore, this type of plan can only work if there are enough members to make it viable.

Many Kenyans have started using SACCOS because of their affordability and safety. Compared to banks, SACCOs are a great option for people who wish to invest in the long-term and prefer low rates of return. Saccos are also important financial cooperatives because they help increase employment. They provide loans for small business owners or home improvement projects.

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