How SACCO share capital and dividends work
By the LoanTabs teamPublished Last updated 5 min read
Short answer
In a SACCO, members buy shares that form its share capital, and they also hold savings. At year-end, surplus is shared: dividends are paid on shares held, and interest on savings, at rates the members approve at the annual general meeting. Shares carry ownership and are usually not withdrawable like savings.
Members of a savings and credit cooperative do two different things with their money, and the difference confuses many people: they save, and they buy shares. They are treated differently, earn differently and carry different rights. Understanding how share capital and dividends work is central to running a SACCO and to choosing software for one. This article explains the general model. Rules differ by country and by SACCO bylaws, so treat it as an overview and confirm the details with your cooperative law and bylaws.
Shares vs savings
| Shares (share capital) | Savings (deposits) | |
|---|---|---|
| Purpose | Ownership and capital base | Members' own money held by the SACCO |
| Withdrawable? | Generally not, except on leaving, subject to rules | Yes, subject to the account terms |
| Return | Dividends, when declared | Interest, at the agreed rate |
| Rights | Membership and voting rights | None beyond the account |
| Risk | Can lose value if the SACCO makes losses | Usually protected before shares in a loss |
| Role in lending | Often used to set loan limits and as security | Often used to set loan limits and as security |
Share capital is the SACCO's permanent capital. It funds lending and absorbs losses. Savings are members' deposits, which the SACCO lends out but owes back to members.
What is share capital?
Share capital is the total value of shares held by members. Each member typically buys a minimum number of shares to join and may buy more, up to a limit. Many SACCOs restrict a single member's shareholding so that no one gains disproportionate control. In most cooperatives, voting is one member, one vote, regardless of shares.
Shares usually cannot be freely sold or traded. They are redeemed when the member leaves, at their value, subject to the bylaws and the SACCO's financial position.
Where do dividends come from?
At the end of the financial year, the SACCO calculates its surplus: income (interest on loans, fees, investment income) minus expenses (interest on savings, operating costs, provisions for loan losses). Part of the surplus goes to statutory and general reserves, as the law and bylaws require. The remainder can be distributed to members, mainly as dividends on shares and sometimes as interest on savings or a rebate on interest paid on loans.
The board recommends the distribution and members approve it at the annual general meeting (AGM). Dividends can only be paid if the SACCO has sufficient distributable surplus and meets any capital requirements.
How dividends are calculated
A common method pays a dividend rate on each member's average or weighted share balance over the year, so that a member who bought shares in month 10 does not earn the same as one who held them all year.
Example. A SACCO's AGM approves a dividend of 10% on shares. Three members:
- Amina held 1,000 in shares all 12 months. Dividend = 1,000 × 10% = 100.
- Brian held 1,000 for the first 6 months, then bought another 1,000 and held 2,000 for 6 months. Weighted average = (1,000 × 6 + 2,000 × 6) ÷ 12 = 1,500. Dividend = 1,500 × 10% = 150.
- Chipo bought 1,200 in shares at the start of month 10 and held it for 3 months. Weighted average = 1,200 × 3 ÷ 12 = 300. Dividend = 300 × 10% = 30.
Some SACCOs use the balance at year-end, or monthly balances, instead. The bylaws should say which. The choice matters: an end-of-year balance rewards late purchases, so many cooperatives prefer weighted or monthly balances.
Interest on savings
Interest on savings is usually paid on a schedule set by the bylaws, monthly, quarterly or annually, at a rate the board sets. It is an expense of the SACCO, paid before the surplus is calculated. In some SACCOs a further rebate or bonus is paid from surplus.
How share capital supports lending
Share capital and savings often determine how much a member may borrow. A typical rule allows loans up to a multiple of savings and shares, for example three times. This ties borrowing to the member's stake, which improves repayment discipline and gives the SACCO recourse: if a member defaults, the SACCO may set off the loan against the member's savings and shares, as the bylaws permit. Members also guarantee each other's loans, using their shares as backing.
What records a SACCO needs
- A share register listing each member's shares, purchases, transfers and redemptions.
- Savings ledgers for each member and account type.
- Dividend and interest calculations, with the rate approved and the basis used.
- AGM minutes recording the resolution approving the distribution.
- Reserves and how the surplus was allocated.
- Member statements showing shares, savings, loans and dividends.
Accurate records are essential. Disputes at the AGM usually come from unclear share balances or calculation methods.
Common problems
- Members not understanding the difference between shares and savings.
- Unclear calculation basis for dividends, leading to disputes.
- Distributing dividends without sufficient surplus or before provisions.
- Share balances not reconciled to the ledger.
- Members exiting and the SACCO unable to redeem shares.
- Poor AGM records, with no proof of the approved rate.
Software for shares and dividends
Software for a SACCO should maintain the share register, let you run a dividend calculation on your chosen basis, and post the results to member accounts and the ledger. Many general loan management systems do not include shares or dividends as standard. See SACCO management software: what to look for.
LoanTabs and SACCO shares
LoanTabs handles a SACCO's loan book, accounting and reports as standard. Share capital, share transactions, dividend declarations, member savings and AGM records are delivered as custom implementations on the Custom plan, built to the SACCO's bylaws rather than offered as built-in features. If you need them, contact sales to scope the build. See the SACCO solutions page and SACCO features.
FAQ
What is share capital in a SACCO?
The total value of shares members have bought. It forms the SACCO's capital base and represents members' ownership.
Can members withdraw their shares?
Generally not while they remain members. Shares are usually redeemed when a member leaves, subject to the bylaws and the SACCO's financial position.
What is the difference between a dividend and interest on savings?
A dividend is a share of surplus paid on shares, approved at the AGM. Interest on savings is paid at an agreed rate on deposits, as an expense of the SACCO.
How are SACCO dividends calculated?
Typically as a percentage of each member's share balance, often averaged over the year, at a rate approved by members at the AGM.
Who decides the dividend rate?
The board recommends it and members approve it at the AGM, within the law and the SACCO's financial position.
Talk to sales about share, savings and dividend features built to your SACCO's bylaws.
Key terms in this guide
See how LoanTabs handles this in practice.
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