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Difference between SACCOs and Microfinance!!!!

Difference between SACCOs and Microfinance!!!

Do you have an interest in starting a business? Then you need assets, funds, resources, and capital. Then you need to visit your bank and inquire about a loan. While if you successfully received a loan, if you come under the low-income category, the odds are you will be refused. So because of that reason SACCOs and Microfinance Institutions come in. Before you move forward, what is the difference between the SACCOs and Microfinance Institutions? This is a question that will come to mind for many people. Some people will think that SACCOs and Microfinance Institutions are one and both are similar. That they will do the same thing. Provides loans at a low price. Although it’s true that these two institutions give cheap loans, there is a world of difference between them. Let us explain the differences between Sacco and MFIs.

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  • Structure
  • Full form for Sacco is Savings and Credit Co-operative. Saccos are prescribed as a private or cooperative financial intermediary where they have open and voluntary membership. It is an institution developed by a set of people who have a common element, normally a profession, where they live or worship in order to give a satisfying return for their savings as well as authorize their members by giving loans in lower interest. It is a financial institution developed for the members and by the members. It belongs to its members who control it democratically. The intentions of Saccos is help to its members to reach certain common objectives to better their lives that they would ordinarily not be able to reach those objectives individually that are housing, getting assets such as motor vehicles, buying land, funding education, etc.

    On the other hand, Microfinance Institutions (MFIs) are developed to give financial services to low-income people. These entities are sponsored by external loans, grants or investors. They focused on low income clients mainly women. Also these institutions help aspiring entrepreneurs receiving income, build assets, handle risks and managing their household needs. The end purpose of MFIs is to have its users outgrow these smaller loans and become ready for a traditional bank loan.

    • Governance

    SACCOs selects a volunteer board of directors from their membership. Each Sacco member has one vote in board elections, regardless of their amount of savings or shares in the Sacco. For microfinance institutions, they will run by an appointed board of directors or salaried staff.

    • Profits

    Saccos and microfinance institutions' profits are used differently. For instance, profits of Saccos are earned to used to lower interest on loans, for higher interest on a savings account, or for new products and service growth. At microfinance institutions, profits are used for cash reserves or divided between the investors.

    • Products and services

    Saccos give a platform to members to access low-cost loans. First members are required to acquire the membership into the Sacco then deposit their savings there. After some time, they can try to apply for a loan to purchase a property, to pay school fees for their children or they can use it for an individual goal which one they have. After applying for the loan application, the member must look out for other members' needs to give assurance to him. As the loan needs to be assured by other members of Sacco. However, microfinance institutions mainly give focus on micro-credit. Where people from small businesses make groups of 10-15 members who save together and borrow together. The purpose is to help these budding businessmen to access the loan backed by the group model which acts as collateral. There is a difference between the terms from institution to institution. For Saccos you can join individually although for microfinance institutions you join as a group at the same time. Your savings are combined together as a group and group-wise all transactions will be done. While in Saccos you will have an individual account and you need only other members when you need assurance for our loan. At microfinance, you have to do each and every transaction group-wise. Some Saccos provides ATMs, banking halls, digital banking as an individual to help you do your transactions easily. Although for microfinance institutions you must visits the community group regularly for your transactions.

    • Benefits

    So do you know what is the benefit of joining a Sacco? Here, you will get loans for low interest rates, high yearly return on savings understand thorough a divided payment. You will be inspired to your own assets such as land and houses as many SACCOs provides them at a highly discounted rate to its members and there is less bureaucracy in getting a loan.

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