A study on effectiveness of guarantorship in loans recovery in co-operative saccos in Kenya: A case of Mwalimu sacco

Abstract

There are about 5,000 sacco societies in Kenya which by December 2008, had mobilized Kshs

200 billion representing about 31 percent of the country's savings or 1/3 of the countrys GPD. Mwalimu Sacco Society Ltd is situated in Nairobi and established in 1974. It is one of the largest SACCO Societies in the country. Mwalimu Sacco has a branch in Kisumu and Nyeri. Its objective is to mobilize savings and grant loans to members. By December 2008, Mwalimu Sacco Society Ltd had mobilized Kshs 8.8 Billion, which is equivalent to 4.4% of all Sacco Savings in the country. By then the outstanding loans stood at Kshs. 8.2 Billion out of which about Kshs 23.5 Million was delinquent. The securities for the loans are loanees expected future incomeand guarantors.

Granted, that Sacco Societies mobilize large amounts of Savings and consequently give huge loans on the premise that the latter will be paid promptly, a mechanism of compelling loanees to pay such loans from other sources of income in absence of employment income is lacking. Further the retirement benefits authority (RBA) prohibits the use of a loanees's pension in clearing the loan liability. Given the magnitude of funds lent out, there is need to examine factorsthat influence the effectiveness of guarantorship in loan repayment.