University of Washington days: Micro Finance and SACCOs in Kenya

During my stay in Nakuru, I happily had opportunities to visit several micro loan organizations/cooperatives.

My studying micro finance personally, It was so much meaningful for me to visit the place where Microfinance is put into practice and the people who are take advantage of it.

However, after I came here I found financial cooperatives called “Saving And Credit Co-Operative (SACCO)” is much more prevailing in Kenya than Micro finance.

SACCOs offer banking and loaning service.

They provide members with small amount of loans at affordable rate to create the opportunities such as starting their own business, building family homes, and educating children.

Vision Africa SACCO

SACCOs require members to save certain amount of money in SACCO account in order to borrow money.

Unlike Micro Finance, SACCOs finance to individuals so people do not have to make a group as long as they have guarantees.

Their interest rate is relatively low (depending on each SACCO though), and pay back late is almost 100%.

Some SACCOs like Genesis arts creation start their loan at as low as 3,000 and mostly people can get three to five times as much amount of loan as their savings.

SACCOs have been in Kenya (Africa) for more than 50 years and there exists Kenya Union of Saving and Credit Co-Operative (KUSCCO).

KUSSCO function as an umbrella of SACCOs in Kenya and

1) pay money instead of SACCOs when they face financial problems (insurer),

2) share know-hows of SACCO management (train), and

3) loan to SACCO so that they can manage their business well (loan).

Some SACCOs implement a group loan like micro finance.

However, according to a manager of Vision Africa SACCO Nakuru brunch, a group loan sometimes causes ineffectiveness and wasting time such as group meetings that are not needed for an individual loan.

On the other hand, micro finance is still easy to use for some informal sectors.

“Historically, SACCOs had been more for formal sectors although many informal sectors like tuk tuk use SACCOs today”,

a owner of a street close shop says.

He has been running his shop for over 10 years and states many of his friends use microfinance to start their own business.

“Microfinance is easy to use because by making a small group and taking a responsibility together, just small amount of savings allow us to be loaned. ”

However, either SACCOs or microfinance still has challenges.

The following is from my personal report I presented to TEARS.

Support for start-up business for youth

As far as I research, people who do not have certain savings cannot use a loan. Both SACCO and microfinance in Kenya are for those who have been employed, have savings, and want to start their own business. Therefore, no financial service exists for people without savings such as new graduates from university. They have to be employed first even if they want to start their own business. However, I have to mention the situation in Kenya where even if job opportunities exist, they are not enough since the number of youth who need a job exceeds them. It is not easy to find a job in this recession.

*First of all, the importance of saving has to be prevailed especially among youth. The amount of savings needed for a loan like SACCO and microfinance is not so large. If people make a conscious effort for saving money during school days, options of their future would spread. Therefore, education on saving is quite important. Since TEARS have such a great means as Magnet Theater to reach community, I suggest an implement of saving is also encouraged through it.

* Since It is risky to loan to those who do not have savings, I suggest new employ system in social enterprise unit in TEARS. (The rest is omitted)

Long-term loan service

Most of the loan service in Kenya seems short-term service. Of course short-term loan service is necessary, but to expand business we need both short and long term strategies. If a business leans only on a short-term loan, the business is always distracted by short-term profit and long-term profit cannot be achieved. This means the business fails to expand its scale and has to keep on running on the line. Therefore, I suggest a need of long-term loan service in Kenya that enables small business to expand their scale. As the matter of fact, expanding business possibly generates job opportunities.

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Anyway, I learned a lot here in Nakuru.