SACCO SLEEPERS
The Dormant Danger: How Saccos Lose in Members’ Dormancy
The high number of inactive members within the SACCO sub-sector is a cause for concern, given the significant power members have in decision-making. According to the International Cooperative Alliance (ICA) definition of cooperative enterprises, SACCOs are member-based financial institutions that strictly serve their members. The Cooperative Societies Act and SACCO Societies Act forbid SACCOs from transacting business with non-members.
The membership of every SACCO is defined by the minimum number of shares that each member must subscribe to, in addition to any initial application fees as stipulated in the SACCO’s By-Laws. SACCOs operate on the trichotomy of member-owned, member-managed, and member-customer concepts. The more members a SACCO has, the more customers it will have.
Commissioner for Cooperative Development David Obonyo has urged SACCOs to be cautious when dealing with inactive members, suggesting that they should be removed from their registers. “The success of a SACCO is about having quality membership who understand where the SACCO is going. This is achievable when the SACCO engages them through education and training programs,” he said.
Mr. Obonyo emphasized that the law clearly states who is a member and that all members are equal. “If a SACCO has more inactive members than active members, and they resolve to make any major decision, that decision will be binding. Cooperatives are about democracy.”
He opined that SACCOs are better off having a few members who add value than a long list of members who have no interest in the SACCO’s affairs. “Inactive members can also be a recipe for corruption. Every year, SACCOs declare dividends on shares to which inactive members are entitled,” he said.
During a Sacco Annual Delegates Meeting in Nairobi, Mr. Obonyo called on SACCO leadership to clean their books and only retain active members by refunding shares and deposits to the dormant members. “What is the benefit of having inactive members?” he posed.
Moreover, Mr. Obonyo urged SACCOs to be cautious when opening common bonds, as this has been a trap that has led to the collapse of some thriving SACCOs. “Always conduct surveys to understand trends and markets better. Embrace technology because it is the future of banking,” he stated.
Mr. Obonyo argued that members join SACCOs to save and access affordable loans, and thus, being inactive should be a concern for the SACCO management.
According to the SACCO Supervision Annual Report 2022, the total number of individual memberships recorded in the registers of the 359-regulated SACCOs was 6.42 million persons, an increase of 7.02% from a total membership of 5.99 million members reported in 2021. The total number of active members, those who transacted with their respective SACCOs during the six-month period for DT-SACCOs and twelve months for NWDT-SACCOs prior to December 2022, was 5.20 million. The number of inactive members who had not made any financial transactions with their respective SACCOs was 1.22 million. The active membership of the regulated SACCOs accounted for over 80%, and the number of inactive members was 19.01% in 2022.
Several reasons have been cited as the cause of members’ inactivity. These include the irrelevance of SACCO’s products if it fails to adapt to meet the evolving requirements of members. Better offers from competitors entice members to other financial institutions and a limited product range offered by the SACCO.
Inefficient service delivery, such as long processing times for loan applications, delays in fund transfers, or inadequate customer support, can frustrate members and push them to discontinue their use of SACCO’s products and services.
Therefore, it is crucial for SACCOs to use effective strategies to retain high levels of active members, such as training and mentoring members on financial literacy, having loyalty programs and incentives, and embracing transparency in governance. SACCOs should also add value to their services by diversifying their product and service portfolio, enabling them to cater to the evolving needs of their members. SACCOs exist to support members in saving and accessing loans to improve their socio-economic status. Offering high dividends can be self-destructive in the long run.
“Inactive members can also be a recipe for corruption. Every year, SACCOs declare dividends on shares to which inactive members are entitle.” – Mr Obonyo.
