How can monitoring loans minimize financial challenges for SACCOS

How can monitoring loans minimize financial challenges for SACCOS

Savings and credit cooperative societies (SACCOS) play a critical role in the socio-economic development in most African countries. Around 85% of cooperative societies have helped their members to generate more income or profit thus improving their livelihood. It has been also acknowledged that SACCOS make a crucial contribution to sustainable growth by offering savings and loan services. They continue to provide savings, credits, and other financial services to the people, especially in the rural areas. 

However, SACCOS operate in an environment of considerate risks and uncertainty. They have to face various financial issues which affect their overall performance. According to many surveys and research online, here are a few financial challenges that SACCOS have to face.

High loan cost is amongst the biggest challenges that SACCOS face in Africa, according to research conducted by Phylis Waithira Gachau in 2019. Poor costing and decisions related to loan management and asset management add to the issues which severely impact their performance.  

Credit risk refers to the risk that the borrower may fail to repay the loan according to the agreed terms. According to the same survey, a majority of members agree that loan default is a serious problem they face and there is a need to evaluate and review loan policies. One of the reasons for high loan defaults is the poor economic condition amongst members.  

Liquidity problem has remained a significant challenge for SACCOS. This generally happens due to various reasons such as lack of enough capital, delays in loan repayment, and poor management of funds.

Limited financial transparency is a common challenge faced by SACCOS. As cooperatives are majorly dependent on manual records and paperwork, the management of cooperatives fails to get a clear picture of savings and loans amongst the members. 

These are a few of the financial problems that SACCOS face. All these issues combined with poor governance result in low profitability for cooperatives which hinder their performance. Low profitability creates a gap between the efforts they put to help the poor and the end results.  

Monitoring loans through technology

A majority of members feel that SACCOS should monitor their loans, default risk, loan policies and credit management to minimize the risks. Keeping a check on loans can help solve various challenges that have been discussed above. Being a technology-driven company, we believe that technology has the answer to the major financial challenges mentioned above.

Technology can help SACCOS track loan and repayment transactions digitally and solve the issue of lack of transparency. All the financial data will be available to access through the systems. Admins will be able to assess the loan application based on their repayment history and capacity by creating a clear picture. This in turn can reduce the loan default rates or the credit risk. 

Based on the loan data available online, SACCOS will also be able to identify market needs and improve their loan policies accordingly. It will help them to make informed decisions related to their financials:

  • How much loan they can provide
  • What amount should be kept as liquid funds 
  • How to manage savings and loans better

Conclusion

Cooperative societies play a significant role in the African financial sector. Despite the role played by SACCOS, the financial challenges discussed above can hinder their performance. Monitoring loans and the risk related to loans can help them solve various issues they face. 

Technology can help SACCOS achieve greater transparency and ensure informed decisions. Consequently, it will lead to better performance and enable cooperative societies to achieve their goals. 

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