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SME financing by SACCOs; a story of innovation and resilience



By Linda Karimi

“Success is not final; failure is not fatal: it is the courage to continue that counts.” – Winston Churchill.

For many entrepreneurs, these words ring true due to the dynamic and sometimes volatile business environment. Adaptability, innovation and customer satisfaction are key tenets in any business. The dilemma regarding capital and expansion can easily be resolved when one is a member of a SACCO. The SACCO Star team spoke to a business proprietor and member of Dimkes SACCO who shed more light on her journey and learning points in business.

Meet Pauline Njoki Nguri a budding entrepreneur at the heart of the bustling Kiambu town. Pauline first ventured into business with her husband who at the time was selling car spare parts. She took on the management of the shop for a few months and even introduced agency businesses like Mpesa and Equity Bank to bring in customers, but sales were low on most of the spare parts in the shop.

Back to the drawing board

She and her husband then re-strategized on starting another business since the car spare parts business continued to dip in sales. After carrying out a market survey and research, she realized that Kiambu town was populated with Auto rickshaws or ‘Tuk Tuks’ as they are popularly known. These compact vehicles are used both for public and private transport because they are relatively affordable to own and operate. She also learnt that despite the numerous ‘Tuk Tuks’, there was no shop selling spare parts, and most people had to go to Nairobi to buy them.

It is at this point that the idea of ‘Kijo Auto Spares’ was born, a shop selling ‘Tuk Tuk’ spare parts. She continued researching and got assistance from ‘Tuk Tuk’ drivers and owners on how she could start this business. She also got support from a mechanic who guided her on some of the critical spare parts that she could start with. She started the business in 2017, after winding up the car spare parts business.

Joining Dimkes SACCO

Through a friend’s referral, Pauline joined Dimkes SACCO in 2018 where she started saving in order to access affordable credit. The SACCO, which has a branch in Kiambu town, offers loans for Small and Medium Enterprises (SMEs). The loans are disbursed under the lending methodology; Technology and Innovation for Financial Inclusion in partnership with KUSCCO and the World Council of Credit Unions (WOCCU) to benefit SME owners. While Pauline’s friend saved money and took a loan to buy a car, Pauline opted to save KES.500 to KES. 1,000 monthly so that she could take up a loan to buy new stock for the ‘Tuk Tuk’ business. Her first loan was Sh160,000 which she re-payed in about three years.

In 2022, she took another loan of KES.1.5 million to repay in four years. The loaning process from Dimkes SACCO was smooth and she secured the loan using a   title deed for collateral instead of guarantors. She was delighted that the turnaround time for the loan processing took about three weeks considering conveyancing takes longer.

During the appraisal stage, a team from Dimkes SACCO undertook a physical visit to her shop and checked her books of accounts. They were impressed that she has a record-keeping system (Point of Sale) that provided a full view of her financial affairs at a touch of a button. The system maintains up-to-date stock levels as well as tracks daily sales which helps her manage her business better as she is able to track day-to-day performance. The Dimkes team also undertook due diligence on the ‘shamba’ or parcel of land proposed as the collateral for the loan.

When joining a SACCO, Pauline’s advice to other entrepreneurs is that they should believe in themselves. “Jiamini” she quipped. “Many people are scared of loans for fear of repossession or litigation in case of default. However, in my experience, the loans from Dimkes SACCO have assisted me grow my business and even helped me open a second  shop selling ‘Tuk Tuk’ spare parts in Ikinu town, within Kiambu County.” She also stated that loans help people work harder so that one can repay the loan faithfully.  Her advice to the youth is, “Save and borrow responsibly to invest the money and not to use the loan on consumables or unnecessary items.”

A Tuk Tuk outside the spare-parts shop


As is expected, Pauline faced a few ‘teething challenges’ bearing in mind the ‘Tuk Tuk’ spare parts business was the first of its kind in Kiambu town.

In terms of customer satisfaction, Pauline did not accurately know what customers wanted since this business was new to her too. “I didn’t know the items that would meet customer needs and because of this, some items were not sold for almost 2 years,” she said.  Setting the price was also a challenge for Pauline, since the products were new and there was no other shop at the time to compare with.

Pauline also noted that a few people insist on getting items on credit, although as a business owner, she minimizes such cases. “We are happy when our customers buy and pay in cash,” she added with a smile.

Pauline is also in partnership with Newlife SACCO which has 200 members, where some of the members buy spare parts from her shop. Additionally, Pauline also assembles and repairs spoilt ‘Tuk Tuks’ by working with local mechanics.

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Priority areas for the new government on co-operatives



By Mary Kiema

The Co-operative business model has been identified as an appropriate vehicle for inclusion. Sessional paper 10 of 1965 on “African socialism and its application to planning in Kenya’’ a post-independence paper saw this model as a means of reducing poverty. Since then, a lot has changed but the original thought remains that of improving standards of living. Much has been done by the players in this movement in a bid to keep pace with the demands of the ever-changing environment. Co-operative enterprises have to compete with many other models leaving consumers spoilt for choice.

The players charged with the responsibility of overseeing the development of the Co-operative function have continually formulated policies designed to guide the movement. The National Co-operative policy themed ‘Promoting Co-operatives for industrialization.’ is one such policy. Through this policy, Co-operatives are expected to transform into vibrant social and commercial enterprises. Regulation of some SACCOs and review of the Co-operative Society Act are some of the other interventions. Going forward policy formulation will benefit by drawing lessons from the successful and unsuccessful Co-operative Societies. So far there is an indication that there are gaps in understanding the model. Some emerging formations are Co-operatives by name but not by deed. This can be corrected by availing of the appropriate information at the promotion and registration level.

  Since Co-operatives are said to meet the government halfway in the development agenda, the government must level the playing field by providing an enabling environment for the Co-operative societies. As they venture into areas previously occupied by other players, they should be allowed to enjoy some privileges reserved for organizations that benefit the majority of the citizens, especially those that are at the bottom of the pyramid. Importantly, the vetting of associations that opt to operate this model must be exhaustive enough to identify genuine players.

The Co-operatives landscape is dominated by the financial Co-operatives commonly known as SACCOs. The vigour employed in the early 70s to promote SACCO societies should now be employed to protect them and to promote Co-operatives that engage in other activities. Through innovation, Co-operatives can contribute more to the development of the nation than they are doing currently. The National Co-operative Policy prompts enterprises to venture into diverse activities. In response, Co-operatives are expected to engage in productive activities that create employment without losing their identity. These activities include Agriculture, Technology, Housing, and Transport among others. The confusion experienced by the matatu Co-operatives that are erroneously referred to as SACCOs can be avoided by forming the right type of Co-operatives.  Copreneurship, as practised by worker Co-operatives, is an option worth exploring since members have diverse skills that they can contribute to the management of their enterprises. Appropriate policies, Bylaws, and procedures manuals must be formulated to guide some grey areas.

  The Co-operative Societies Act proposes amendments that include those that affect the name of the Act, formation of federations, tiers of the movement, qualification of board members, and share trading, roles of the county and central governments, formation of co-operative court, restriction on the use of the name SACCO and use of virtual meetings among others. These amendments will inform the nature of policies and procedures necessary for operationalization. An enabling environment and stakeholder education are vital for this to succeed.

Previously, the Co-operatives function was in the ministry of social services as a department. In came the Ministry of Co-operative Development (MOCD) as a standalone Ministry. The effort of achieving a lean cabinet has seen the Co-operative function tossed from the Ministry of industrialization, trade, and enterprise development to that of Industry, Trade, and Co-operatives and that of Agriculture, livestock, fisheries, and Co-operatives. The thought line here indicates the challenges of understanding and identifying the nature of the co-operative model. Is it more social than commercial? Is the dominant occupation agriculture or finance? One seems to be asking? This juggling may end by understanding that, the movement is unique and subscribes to principles different from other business units. A Ministry of Co-operatives and SMEs as mentioned by the new administration is a good start if well resourced.

Since the function was devolved to the counties, National and County policies should be harmonized to avoid confusion. Standardization of operations will require a shift from what was previously the norm without disintegrating the Co-operative enterprises.  Where some are formed to serve members across counties, the policies should be pre-emptive enough to support operations.

  Members have become more complex in their expectations. They can be reached and seamlessly served everywhere including the diaspora by use of appropriate technology. This redefines the area of operations and calls for change in policies and procedures.

 The way forward, therefore, is to realign the movement with the unfolding scenario.

The writer is a Certified Co-operative professional, a Consultant on the Co-operative business model, and the founder of the SACCOpreneurs group Facebook .

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Finance and Investment

Limiting loans recovery from Guarantors



By Francis Mungai

In their pursuit to reduce non-performing loans, SACCOs have wielded almost unfettered powers in guarantors’ assets attachment. The ruling from the Cooperative Tribunal case 57 of 2021; Samuel Odhiambo Okope & 2 others (claimants) v Mwalimu National Savings & Credit Co-operative Society Limited & another (respondents), heralds a significant step on departure from this practice.

Securing a SACCO loan

SACCO Loans in Kenya are generally secured or collateralized by the borrower’s assets and on most occasions, a borrower is required to bring in a third party (guarantor) who can stand or use his assets (guarantor) to secure the loan facility.

The Claimants were guarantors to a loan issued to Charles Gwada Sudhe by Mwalimu National SACCO. Charles defaulted on the loan amounting to Sh1,018,916.46 and the SACCO proceeded to attach the assets of the guarantors to recover the loan. The Claimants protested this action, but the SACCO was unbowed. The dispute was then brought before the tribunal.

The SACCO defended its action at the co-operative tribunal by offering the following reasons among others:

  1. That in guaranteeing repayment of the loan, the claimants accepted the liability to repay the loan upon default by the borrower which forms a separate agreement between the claimant and the SACCO.
  2. That the attachment of the Claimant’s assets was done in strict adherence to the law where the SACCO was exercising its right of recovery of the loan advanced to the borrower whom the Claimants guaranteed.

Matters for determination

There were two key issues for determination at the tribunal. The first issue was whether the guarantors had a duty towards the SACCO to repay the borrower’s loan on default and secondly whether the SACCO  was right in attaching the guarantors’ assets upon default of the borrower’s loan. An ancillary matter also for determination was who carries the cost of the suit. We will focus our attention on the two key issues.

An important consideration in this matter is the contractual agreement between the guarantor and the SACCO and indeed the SACCO’s defence was anchored on contract law and more specifically on case law  Fidelity  Commercial  Bank  Limited  – vs-  Kenya  Garage  Vehicle  Industries  Limited  [2017] eKLR. Where the court observed that:

Because a contract  of guarantee  is essentially  a contract,  the following  basic  principles  of contract law  will apply. A contract of guarantee binds the person giving a guarantee  to honour  its terms irrespective  of any dispute  that may  be existing  between  the parties  to the transaction  for which  the guarantee  was given. A guarantee is therefore an accessory contract  by which  the guarantor undertakes  to be answerable  to the provisions  for the debt  or default  of  another  person  whose  primary  liability  to the promise  must exist.

The issue of guarantee is then thrust into centre stage, what then is a guarantee? and are there limitations on its application? In examining this question, we must look at the guarantee from two lenses. Is the guarantee provided to the SACCO by guarantors a pure form (perfect indemnity) or a conditional form (payment subject to specific events occurring?)

Defining a guarantee

A Guarantee is defined as an undertaking to answer for the payment or performance of another person’s debt or obligation, in the event of default by the person primarily responsible for it. A guarantee is a secondary obligation because it is contingent on the obligation of the borrower to the beneficiary of the guarantee (SACCO). On the other hand, an indemnity is a contractual promise to accept liability for another’s loss. It is a primary obligation because it is independent of the obligation of a borrower to the beneficiary of the indemnity (SACCO) under which the loss arose.

This definition did come into play in deciding this case, for example, the claimants argued that the SACCO by-laws explicitly stated that in the event of a default, the SACCO would take up the matter with the borrower through a tribunal mechanism and while the SACCO averred that this was a discretionary measure available to the SACCO and did not limit its powers to attach the guarantors’ assets. The tribunal agreed with the claimants that the SACCO needed to demonstrate that they had pursued all other avenues of collecting the debt (including using a tribunal) before attaching the guarantors’ assets.

In the end, the tribunal ruled in favour of the claimants on all the prayers. The lesson to be picked here is that SACCO management boards must relook their debt enforcement measures. Guarantees can no longer be treated as blanket indemnities; there is a burden placed on SACCOs to ensure that the principal debtor is pursued at his level at length before effecting attachment measures on guarantors. Further, SACCOs will need to review their existing by-laws for any unnecessary burden that may be placed on the SACCO in pursuit of debt collection.

The author is the Audit Partner at FH Consulting, Certified Public Accountants. You can reach him on

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1.     How far can an apex body like KUSCCO Ltd go in assisting a SACCO member get their savings back from an adamant SACCO? Jackline Kweya, Meru

ANSWER: KUSCCO Limited is an umbrella body of member primary SACCOs. Its role is to represent these SACCOs and do advocacy on their behalf. SACCO rules/guidelines apply in the event a member wants their savings back.

2.     Are SACCO members allowed by law to whistle-blow to report gross mismanagement in a SACCO? If yes, which is the right institution to whistle blow to? Onesmus Murutu, Embu

Yes. The authority responsible for oversight of Saccos is SASRA. Should the mismanagement be criminal in nature, you may also report it to the police.

3.     Who is mandated by law to forward unclaimed financial assets to the UFAA and at what point are institutions supposed to forward unclaimed assets to UFAA? Name of SACCO withheld

Any person (this includes both natural and legal persons) holding assets presumed abandoned may forward the same to the custody of the Authority as unclaimed assets. Before remitting the same to the UFAA, the person must try to notify the owner before remitting/surrendering the assets.

4.     Can a SACCO society be placed under receivership? If yes, on what grounds? Name of SACCO withheld

Yes a SACCO can be placed under receivership on grounds of liquidity problems caused by mismanagement of the officials.

5.     In the case of SACCO capital shares held by a member, when one is withdrawing, what happens if a member fails to get someone to sell to since they are non-withdrawable? Kennedy Ouma, Ngong’

MostSACCOs, will on request, agree to transfer your shares to incoming new members. Please talk to your SACCO to reach an agreement.

Jackline Omolo
Advocate of the High Court of Kenya

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