How SACCO Dividends and Deposit Interest Are Calculated in Kenya

When a SACCO announces a 10% dividend, many members assume the rate applies to all the money in their account. It usually does not.

Most SACCOs calculate two separate returns:

1. Dividend on share capital = share capital × dividend rate

2. Interest on deposits = qualifying deposits × deposit interest rate

Share capital is your ownership in the SACCO. Deposits are the savings you build over time and often use to qualify for loans. The two balances are kept separately and may earn different rates.

A simple member example

Consider Mary, a 48-year-old SACCO member in Nakuru.

At the start of the year, she has:

• Share capital: KES 100,000

• Deposits: KES 300,000

During the year, she does the following:

• In March, she takes a KES 200,000 development loan.

• In July, she adds KES 60,000 to her deposits.

• In September, she takes a KES 100,000 school fees loan.

• In October, she adds another KES 40,000 to her deposits.

• She also guarantees another member's KES 150,000 loan.

At the end of the year, the SACCO declares:

• 10% dividend on share capital

• 8% interest on deposits

The example below assumes the SACCO calculates deposit interest according to the number of months each balance was held. Your SACCO may use a monthly average, minimum monthly balance or another method stated in its by-laws and dividend policy.

Step 1: Calculate the dividend on share capital

Mary held KES 100,000 in share capital throughout the year.

KES 100,000 × 10% = KES 10,000

Her gross dividend on share capital is KES 10,000.

The KES 300,000 deposit balance is not added to this calculation. A dividend is based on share capital, not the total amount in the member's account.

Step 2: Calculate interest on deposits

Mary's deposit balance changed during the year, so each balance is calculated for the period it remained in the account.

January to June: KES 300,000 for 6 months

KES 300,000 × 8% × 6/12 = KES 12,000

July to September: KES 360,000 for 3 months

KES 360,000 × 8% × 3/12 = KES 7,200

October to December: KES 400,000 for 3 months

KES 400,000 × 8% × 3/12 = KES 8,000

Total interest on deposits:

KES 12,000 + KES 7,200 + KES 8,000 = KES 27,200

Step 3: Add the two returns

Dividend on share capital: KES 10,000

Interest on deposits: KES 27,200

Gross annual return: KES 37,200

This is the amount before any tax, authorised deductions, capitalisation or recovery of money owed to the SACCO.

Do the loans reduce her return?

Normally, no.

Mary's KES 200,000 development loan and KES 100,000 school fees loan are separate from her deposits. She pays interest on those loans according to the loan agreements, but the SACCO does not usually calculate her deposit return by subtracting the loans from her deposits.

This would be the wrong calculation:

KES 400,000 deposits - KES 300,000 loans = KES 100,000

Her deposit interest is based on the qualifying deposit balance, not on deposits minus loans.

The position changes if Mary falls into arrears and the SACCO uses part of her deposits or annual return to clear the debt. Once money is taken from the deposit account, future interest would be based on the reduced balance.

What happens when she guarantees another member?

Guaranteeing another member's loan does not automatically reduce Mary's dividend or interest on deposits.

The guarantee means part of her deposits may be committed as security. She may be unable to withdraw or use that committed amount to guarantee another loan while the first loan remains outstanding.

If the borrower continues paying, Mary's return is normally calculated as usual.

If the borrower defaults, the SACCO can recover the unpaid amount from the guarantors according to the guarantee agreement, the SACCO's credit policy and Kenyan law. It may use Mary's deposits, share capital, dividend or interest payable to cover a debt she owes as a guarantor.

For example, suppose the borrower defaults and the SACCO recovers KES 40,000 from Mary's deposits on 1 November. Her deposit balance would fall from KES 400,000 to KES 360,000 for November and December. The SACCO would then calculate the remaining period using the lower balance.

Why your SACCO's figure may be different

The basic idea is simple, but SACCOs do not all use the same timing method. One SACCO may calculate using monthly balances. Another may use the minimum balance for each month. Some may apply a cut-off date.

The rate must also come from the SACCO's financial results. A SACCO pays dividends from its surplus after audited accounts, reserve requirements and regulatory conditions have been dealt with. Members approve the distribution at the annual general meeting.

• Before estimating your return, confirm:

• The balance that earns dividends

• The balance that earns interest on deposits

• The calculation period

• How extra deposits made during the year are treated

• Whether any amount will be capitalised

• Whether arrears or guarantees affect the cash paid to you

Check your member statement, SACCO by-laws, dividend policy and AGM documents before relying on an estimate. The advertised rate is only one part of the calculation. Your qualifying balance and the time the money remained in the SACCO determine the actual amount.