At a recent sacco AGM that I attended, I gathered that the sacco had a trend of sacking its officials every year whenever the dividend payout was declared.
This annual general meeting was not going to be different either. The dividend to be declared for the year would be lower than the previous year.
When the officials stood to read out the sacco performance, I gathered that although the sacco had an improved performance compared to the previous year, the number of borrowers was still insignificant compared to the number of members.
Consequently, the dividend payout declared was not pleasing to members hence they passed a resolution to sack and replace all the sacco officials and management.
Here are lessons for sacco members on how to enhance their dividends:
1. Convert sacco members to investors
A sacco with only members who are saving without borrowing can hardly earn any profit. Saccos only earn profits whenever members borrow and pay interest on loans.
It is from the profits earned that the dividends are paid out. This is a point that members need to be informed every time they join the sacco. Therefore, for saccos to boost their dividend payment, they should aim to convert all their members into investors.
Every time members gather for the AGM, they should be more focused on how much they have earned the sacco in form of interest on loans than the dividend they have earned the sacco.
Saccos should enhance the borrowing appetite of members by coming up with the investment opportunities that members can partake through loans borrowed from the sacco.
2. Rollout financial goal setting outreaches
Many people join saccos without clear financial goals on what they wish to do with their hard-earned contributions after a period of time.
Without financial goals, a sacco member exercises little control over the direction of their financial future, tending to impulse spend.
This explains why emergency loans are the most preferred form of credit facility in saccos. Due to the urge to spend, most sacco members without financial goals rush for these loans on the pretext of addressing an emergency.
To boost the saving spirit and the borrowing appetite, saccos should incorporate a financial goal setting programme as part of their members’ recruitment process.
With a financial goal in place, members will try to stick to the sacco as they work towards achieving their goal. Member turnover will reduce. This will also discourage unnecessary borrowing.
Planned borrowing, especially to achieve the financial goals, will reduce cases of loan delinquency.
3. Educate members on how to use debt to create wealth
Many saccos today are reeling from bad debts arising from high rate of delinquency. This arises from the fact that many members do not know how to use debt to create wealth.
This implies that whenever they borrow, they have no plans on how to repay the loan. Ultimately, they will default on the borrowed loans. E
very time, a member defaults on a loan and it becomes a bad debt, the sacco loses a portion of “potential dividend” from the profits earned inform of provision for bad debts. This erosion reduces the amount of dividend payout.
Even as saccos aim at converting all their members to investors, they should lay emphasis on tapping quality loans by educating members.
4. Offer incentives for members to strengthen the Capital base
Today deposit taking saccos have been compelled to comply with the institutional capital requirement as anchored in law.
Institutional capital refers to the portion of core capital that cannot be claimed by an individual and the threshold is set at a minimum of eight per cent of total assets.
To comply with this capital requirement, the saccos have two options — to compel members to raise their share capital or slash the profit earned by reducing the dividend payout and channel the amount towards building the share capital.
Either of the two options is self extinguishing. Since share capital can never be claimed but only transferred, members are often reluctant to part with any cash towards share capital unless there is a corresponding incentive.
Likewise, reduced dividend payout is a sour grape to members. Therefore, to enhance the dividend payout, saccos should offer incentives to members to raise their share capital by offering higher dividend rates on share capital compared to that on deposits.
This way, more members will be encouraged to increase their share capital and the dividend payout on deposits will remain attractive as no more profits will be slashed towards building the share capital.
Opiyo is a training manager and coach at Tolerance Employee Financial Advisors Ltd. Email: [email protected]