SACCO Guarantorship Explained

Signing as a guarantor is not a favour with no financial cost. You are agreeing that your deposits, and sometimes your future borrowing room, may be used if the borrower fails to repay.

What a guarantor covers

The loan form normally states the amount each guarantor supports. Your exposure may reduce as the borrower repays, but you should confirm how the SACCO allocates repayments and releases guarantors.

How it affects your own plans

The guaranteed amount can reduce the deposits available to secure your own loan. A member who guarantees several colleagues may discover that a personal loan is delayed because too much of the deposit balance is committed.

What happens after default

The SACCO usually follows its recovery process against the borrower and available security. If the balance remains unpaid, it may recover from guarantors according to the loan agreement and bylaws. The deduction can come at the worst possible time because defaults often happen suddenly.

Six questions before signing

How much am I guaranteeing? What is the borrower’s repayment source? What other loans does the borrower have? How will I be informed about arrears? When will I be released? Can the borrower replace me later? Do not sign a blank or incomplete form.

Keep your own records

Retain the signed guarantee page and ask for written confirmation when the guarantee ends. Check your statement regularly. If payroll deductions fail to reach the SACCO, raise the issue early before the account is treated as being in arrears.

Bottom line

Guarantee only an amount you could afford to lose without damaging your own family budget. Friendship does not change the contract.

Editorial note: Read the signed guarantee and the SACCO’s current bylaws before accepting liability.