Share Capital vs Deposits: What Is the Difference?

Joining a SACCO can feel confusing at first. You may be asked to pay a registration fee, purchase shares and make monthly deposits. Although these payments may appear together on your SACCO statement, they do not serve the same purpose.

The simplest difference is this: share capital represents your ownership in the SACCO, while deposits are money you save through the SACCO.

Both contributions may earn returns, but they affect your loans and membership exit differently.

What is share capital?

Share capital is the money you contribute to become a part-owner of the SACCO. A SACCO normally sets a minimum number or value of shares that every member must purchase.

Your contribution becomes part of the SACCO’s capital. The SACCO uses this capital to support its operations, meet regulatory requirements and strengthen its financial position.

Owning more shares does not usually give you more voting power. Under Kenya’s Co-operative Societies Act, each member generally has one vote regardless of the number of shares they hold. This reflects the co-operative principle of equal member participation.

Share capital may earn dividends when the SACCO performs well and declares a distribution to members. However, dividends are not guaranteed. The rate may change from one year to another depending on the SACCO’s performance, reserves and approved distribution of surplus.

Share capital should not be treated like an ordinary savings account. You generally cannot withdraw it whenever you need money. When leaving the SACCO, your shares may need to be transferred or handled according to the SACCO’s registered by-laws.

What are SACCO deposits?

Deposits are the regular amounts you save through your SACCO. Members may contribute monthly through payroll deductions, standing orders, mobile payments or direct deposits.

It is important to understand the type of deposit account you have.

Non-withdrawable deposits are long-term member savings commonly associated with BOSA services. They are not meant for normal day-to-day withdrawals. SASRA explains that these deposits are generally used as security for credit facilities and are refunded when a member exits the SACCO.

A deposit-taking SACCO may also provide withdrawable savings accounts through its FOSA services. These accounts operate more like ordinary savings or transaction accounts. Members can access the money subject to the account’s withdrawal rules, charges and minimum balance requirements.

Deposits may earn interest on deposits, sometimes called a rebate. This return is different from the dividends earned on share capital. SACCO regulations require societies to disclose how dividends and interest are calculated and when they will be paid.

How do they affect your returns?

Suppose Mary has:

• KSh 20,000 in share capital

• KSh 200,000 in non-withdrawable deposits

If her SACCO declares a dividend on share capital, the return will be calculated using the KSh 20,000.

If it also declares interest on deposits, that return will be calculated separately using the applicable deposit balance.

The SACCO does not normally combine the KSh 220,000 and apply one return rate to the entire amount. Members should therefore examine dividend and deposit-interest rates separately when comparing SACCO returns.

Past rates should also not be treated as a guarantee of future returns.

How do shares and deposits affect loans?

Deposits usually have a more direct effect on borrowing.

Many SACCOs use a member’s deposit balance when determining the maximum loan amount. For example, a SACCO may allow members to borrow a certain multiple of their deposits.

However, there is no universal loan multiplier for every SACCO. Approval may also depend on:

• Your income and repayment ability

• How long you have been a member

• The loan product selected

• Available guarantors or collateral

• Your existing loans and credit history

Share capital may affect eligibility because members may be required to meet the minimum share-capital level before applying for certain loans. However, having KSh 50,000 in share capital does not automatically mean that amount will be included when calculating a loan based on deposits.

Deposits used to secure your loan may also be restricted. The same can happen when you use your deposits to guarantee another member.

Kenyan law allows a SACCO to apply a member’s shares, deposits, dividends or other amounts towards an outstanding debt owed to the society.

What happens when you leave the SACCO?

Leaving a SACCO is not the same as making a normal withdrawal.

You will usually need to provide written notice and follow the exit procedure contained in the SACCO’s by-laws. Before releasing your money, the SACCO will check whether you have:

• An outstanding loan

• Unpaid interest, fees or charges

• Active guarantees for other members

• Other financial obligations

Your deposits may first be used to clear these obligations. For specified non-deposit-taking SACCOs, regulations provide for non-withdrawable deposits to be refunded within 60 days after written notice, provided the member has cleared their debts and outstanding guarantees.

Share capital is handled differently because it represents ownership. It may need to be transferred to another eligible member rather than refunded like an ordinary deposit. The exact process depends on the SACCO’s registered by-laws.

Questions to ask before joining

Before contributing money, ask the SACCO:

1. What is the minimum share-capital requirement?

2. Which deposits are withdrawable?

3. How are dividends and deposit interest calculated?

4. How do deposits affect loan qualification?

5. What happens to my shares and deposits when I leave?

6. How long does the exit process take?

Understanding these differences helps you plan your savings, borrowing and eventual exit. Share capital makes you an owner, while deposits build your savings and often determine your borrowing power. Both are important, but they are not interchangeable.