The hard times of the past few years have been a blessing in disguise for many people in Kenya with more individuals becoming financially self aware. This in turn has raised awareness and need for people to keep themselves financially secure by saving and investing through different vehicles. Savings and Credit Cooperatives (SACCOs) have gained popularity as saving and investment vehicles and as credit facilities for members, their families and friends especially in cases of short term loans.

Since October 2011, interest rates on loans from banks shot through the roof hitting an average of 25% in December 2011 up from about 14% 6 months earlier. This pushed borrowers to start weighing other options of getting credit, especially short term loans. SACCOs have been in the lead for offering loans to their members in this hard financial times.

Difference between SACCO and Bank Loans

 SACCO Loans

•  SACCOs mostly lend to their members only. However in exceptional cases, a non member can directly access loans but they must be fully guaranteed by a member whose share equals the required security for the said loan.
• SACCOs lend to members up to 3 times the value of the members savings.
• SACCO loans mostly have a shorter repayment period of between a month and 12 months.
• Currently, SACCOs are allowed to charge a maximum of 12% interest on loans they give out to members.
• SACCO Loans are usually guaranteed by member savings in the lending SACCO.

Bank Loans

• Banks lend to anyone who is proven credit worth as long as they meet the banks credit security requirements
• Banks develop different loan products targeting different kinds of borrowers. All these loan products usually have different repayment periods. For example, some personal loans can be repaid within a year while long term asset loans like mortgages can be repaid over a 30 year period.
• Banks in the country borrow their money from the Central Bank of Kenya or borrow from each other in what is know as overnight inter-bank lending. The market rates they charge are usually determined by the Central Bank's base rate and other factors determined by individual banks. Currently, the average bank rate is at 20.4% with the Central Bank Rate (CBR) at 16.5%.
• Bank loans are guaranteed by valued assets offered by a verified guarantor, who can be the loanee or any other party.