Are The SACCOS The Infinite Money Glitch Of Kenya?

This article was inspired by Rufas Kamau, a brilliant and Intelligent young man on X (formerly Twitter). He was discussing the true essence of SACCOS and what they are and I thought his views were on point. I asked Grok 3 on X to tell me about him and this is what I was told; @RufasKe is an active user on X (formerly Twitter) who shares insights and opinions on various subjects, predominantly economics, finance, and politics, particularly with a focus on Kenya. He also discusses investment opportunities, showing skepticism towards government statistics by using an analogy about average net worth being skewed by outliers like Mark Zuckerberg. Additionally, he shows interest in cryptocurrency markets.

From these interactions, @RufasKe comes across as someone who uses X to share informed opinions, often with a critical eye on economic practices, government policies, and societal issues. His posts suggest a background or deep interest in finance, economics, or political analysis, aiming to enlighten or provoke thought among his followers. This is why his views on SACCOS caught my attention and the more I thought about it, the more I realized he was right and in a very scary manner.

SACCOs (Savings and Credit Cooperative Organizations) in Kenya have long been hailed as vehicles for financial empowerment, helping members access affordable credit and build savings. But under scrutiny, their business model starts to resemble a carefully structured infinite money glitch.

Read Also: Kenyan MPs: The Greatest Threat To Sacco Stability And The Nation’s Economic Future

The idea behind SACCOs is simple: members pool their money, buy shares, and earn dividends. They can also borrow against their contributions, a benefit that supposedly sets SACCOs apart from traditional banks. However, the rules around borrowing and share ownership make the system resemble an elaborate juggling act.

Start with the notion of shares. SACCOs sell an unlimited number of shares to members but rarely buy them back. If you want to liquidate your shares, you must find another member or recruit a new one to buy them. This creates a closed-loop market where the SACCO controls the narrative about share value. There’s no external regulation or secondary market oversight, so prices are dictated by internal policies, not market forces.

The borrowing model deepens the puzzle. Members can only borrow up to three times the value of their shares, but this borrowing capacity depends on the participation of other members. For instance, if you take a loan at the maximum ratio, two other members may be blocked from accessing funds until your debt is repaid. This prioritization creates a pyramid-like dependency structure.

The problem worsens with marketing. SACCOs target specific groups like long-term employees and women’s savings groups, emphasizing loyalty and community. While this creates a steady influx of new members, it also ensures a continuous supply of fresh capital. The older members, who may be stuck holding shares they cannot liquidate easily, become reliant on new recruits to sustain the cycle.

Read Also: Why Banks Should Fear And Why Every Entrepreneur Needs A Sacco Account

In this setup, the SACCO’s balance sheet benefits immensely. It accumulates deposits and converts them into loans, earning interest while keeping shares as collateral. If a borrower defaults, the SACCO still retains their deposits, effectively reducing risk. Members, however, shoulder the burden of liquidity constraints and potential losses on share value.

The structure mirrors elements of a pyramid scheme. Like pyramid schemes, SACCOs rely heavily on constant growth to sustain operations. New members’ contributions fund existing obligations, and recruitment becomes central to maintaining financial stability. But SACCOs operate under the guise of a cooperative model, masking these dependencies behind legal and community frameworks.

For members, the math often doesn’t add up. If you can only borrow up to the value of your deposits, what’s the point? It feels like a zero-sum game. You’re essentially borrowing your own money while paying interest on it. For those who can borrow three times their share value, the system seems more generous, but this comes at the cost of other members’ access to funds.

SACCOs also boast about paying dividends, but the payouts are often modest, especially when compared to returns from other investment vehicles. Members may feel lock