Co-operative Banking KNEC Notes

  1. Purpose and structure of co-op banking
  • Purposes of co-op banking
  • Structure of co-op banking in Kenya
  • Organisation charts of various co-op financial organisation
  • Roles of various financial organisations in the co-op sector.
  1. Credit programmes and policies
  • Definition of the term credit
  • Sources of loaniable funds
  • distinction between production and consumption loan credit programmes
  • conditions for participation in credit programmes
  • criteria for classification of loans
  • credit policy for union banking section and Saccos
  1. Loan package of loan funds
  • what is a loan package
  • preparation of loan package and loan priority list
  • importance of loan package and priority list
  1. Acquisition of loan funds
  • procedure for loan application in co-op bank of Kenya
  • Union banking section
  • member qualification
  • upper loan limit
  • Short term
  • Medium term (phase I)
  • Medium term (phase II)
  • Contents of loan application form
  • Loan granting procedure
  1. loan withdrawal and recording procedure
  • withdrawal procedure
  • loan recording
  • loan reconciliation
  1. loan repayment
  • explanation of loan terms
  • causes of loan default
  • minimisation of loan default
  • consequences of loan default
  1. co-operative saving scheme
  • Meaning of co-op saving scheme
  • Historical background of co-op saving scheme
  • Purpose of co-op saving scheme
  • conditions for participations in co-op savings scheme
  1. Union banking system
  • Factors necessary for establishing a UBS
  • Visibility studies for UBS
  • Centralised and decentralized members savings
  • Advantages and disadvantages of centralised and decentralized banking system
  1. Union banking services
  • Savings account services
  • Conditions for opening and operating savings a/c
  1. Members savings account and members personal account
  • opening of a member savings a/c, personal a/c
  • posting of transactions of members savings a/c and members personal/c
  1. Reconciliation
  • Definition of the term reconciliation
  • importance of reconciliation
  • opening and posting into various a/cs
  1. liquidity and investment
  • Meaning of the term liquidity
  • preparation of cash inflow and cash outflow
  • calculation of liquidity margin
  • action taken on the basis of above calculations
  • priority consideration in investment
  1. Profitability margin
  • explanation of profitability margin
  • sources of capital in the UBS
  • calculation on rate of returns on capital utilised
  • composition of capital utilised
  • calculation of cost of capital employed
  • calculation of the grass interest margin
  • actions arising from the gross interest margin
  1. Security Arrangements
  • Physical security measures in the UBS
  • Control measure in the UBS
  • Insurance requirement in the UBS
  1. Structure and Daily Operations Of Saccos
  • Functions/roles of various people in the Saccos



Purpose and structures of co-op banking

Co-operative banking system

The co-op banking system consists of:-

  1. co-op bank of Kenya
  2. union banks
  3. co-op rural and urban Saccos
  4. marketing society

It is an organised system whereby the members of the co-op movement are provided with banking services in line with co-op ideas/policies /principles

The co-op bank operates under the co-op society’s act and the banking act

The co-op banks works through the head office in Nairobi and a number of its branches countrywide

It functions as the central bank in the system where a rural Sacco has excess funds it invest in the co-op bank.

However where the rural Saccos experiences liquidity problems it can borrow from the co-op bank of Kenya

The bank also gives some other types of services e.g. management of systems investment analysis and advice to urban or rural Saccos.

The structure shows the central bank as a banker to all commercial banks including the co-op bank of Kenya.

The co-op bank system operates from the central bank of Kenya through the co-op of Kenya down to the union banking section, rural Saccos, credit sections, non-affiliated Saccos and finally the individual members of the co-op movement.

The co-op bank system operates aims at the meeting its needs through:-

  1. providing efficient payment for produce market through the societies
  2. providing savings custody facilities to their members
  3. Providing credit facilities to co-operative organizations and to individual members
  4. accumulating savings for development activities
  5. assisting in education in the use of banking services and financial management
  6. it exposes the farmers to banking services

 Co-operative bank of Kenya

It was registered as a co-op society on 19th June 1965

On 10th Jan 1968 it registered under the new banking act

It was until 1969 when it started offering banking services

Reasons for these were:-

  1. it needed to be registered under the banking act to operate as a bank
  2. minimum capital requirement for the banking act had not been met
  3. it had operational problems i.e. whether the bank would started operating with branches in every province or it could start with one branch in the head  office and open branches later

The problem of share capital was solved through exemption and the bank would operate from one branch in Nairobi. It: – started operating in 1969.

Membership of the co-op bank

The members of the bank (shareholder) are:-

  1. registered co-operative societies
  2. co-operative unions
  3. countrywide co-operative organisations

To become a member the following requirements have to be fulfilled

  1. Accept the by-laws of the bank
  2. Undertake to purchase not less than the minimum number of shares as it is decided by the bank from time to time.

 Objectives of co-op bank

The co-op bank of Kenya was established to achieve the following objectives within the co-operative banking systems

  1. Mobilizing the financial resources of the co-op organization and to avail this capital circulation by distributing credit to co-op members according to the need without relying too much in borrowed funds.
  2. organise appropriate saving services to the co-operative organisation
  3. to channel outside financial resources from donor agencies into the co-op sectors
  4. assist the co-op sector in the international trade

General meeting

The AGM is composed of delegates from provincial electoral zone

Each member within a provincial electoral zone will elect 2 persons

There are 8 provincial electoral zones namely: – Nairobi, Central, Riftvalley, Western, Nyanza, Coast, Eastern, and North Eastern

Board of directors

At the AGM the BOD is elected. Each provincial electoral zone will elect their representative as follows:-

Central province          2          board members

Nairobi province         2          board members

Eastern province         1          board member

Western province        1          board member

Nyanza province         1          board member

Riftvalley province     1          board member

North Eastern 1          board member

Coast Province            1          board member

Total               10        Board Members

 Representation of the Kenya board members comprise of:-

Commissioner of co-operatives

Permanent secretary in ministry of co-operative

Permanent secretary treasury

A representative of the central bank of Kenya

Sub Committee

The by-laws of the bank provide for election of the sub-committee to various specific areas

The decision of the sub-committee is subject to verification by BOD


Union Banking section

Although the co-op bank was setup to serve the co-op union and societies, the individual member continued to have problems due to lack if appropriate savings facilities within the co-ops.

At the same time the members pay outstanding increased and need for banking services through which the prompted for the establishment of UBS

in order to find out how the members could be helped, a survey was  conducted by the ministry of co-op development and the nomadic mission to Kenya to look into ways and means of starting a saving scheme  and credit facilities

This survey came up with the Lindquist report which had the following recommendations

  1. the co-op should find ways and means of building up their own fund for venture and extension of credit facilities to small scale farmers
  2. the shareholders were to raise enough capital to make the bank self-supporting without relying too much on borrowing funds

Out of the report that the co-op bank was established in 1970, co-op banking section was started in kiambu district by the kiambu coffee grower’s co-op union. Under the guidance of Nandi advisor, the success of the union banking section made the government to encourage other unions to start their co-op savings scheme.

In 1972, Murang’a started theirs. Thereafter, union banking sector were started in Kirinyaga , Nyeri, Kissi , Meru, Central, Machakos, Nyahururu, Sugarbelt, Kiambu diary and pyrethrum, then Embu, Bungoma, Kinangop, Al Leareto, Mwea  and Mashamba Union.

The major aims of the UBS are:-

  1. to organise appropriate savings facilities to farmers
  2. to mobilise persons savings /resources for local development
  3. to promote appropriate credit facilities

Organisation Chart

Any organisation chart is an arrangement of framework of b/s activities within which people work

It shows the responsibilities, duties of command and communication within the business enterprise for efficient accomplishment of the organisation objectives.

Organisation chart of a rural Sacco

The AGM is the highest authority within a Sacco organisation

It consists of members and employees of the Sacco and any minority official in accordance with the by-laws.

UBS Organisation chart

The main duties of AGM are:-

  1. approve audit a/c
  2. approve the budget which includes all capital expenditure
  3. elect the members of the management committee
  4. any other matter as contained in the act or by laws

Management committee

The management committee consists of members elected by the AGM

A committee must meet once in a month

 Powers and duties of management committee

  1. Loan – The committee determines the allocations of loan of members
  • Supervise and ensure the rules and regulations are complied with
  • Together with the district co-op officer and the district agricultural officer, work out a detailed use of loan priorities (ie which project to be considered to be given loan first)
  • Follow the issuing and usage of loans by members
  • Grant or reject individual member application
  • Follow the repayment of loans, members debts and charge of interest through monthly report
  • Decide on legal action against defaulters

Savings- They ensure that they are compliant with the rules and regulation laid down by the co-op society act in regard to the savings activities

  • follow up the development of services to members and suggest changes on the terms of savings
  • any other issue dealt with is empowered by the annual delegate meeting

 Other powers and duties of management committee

  1. pay special attention to the prepared report and make follow up of these reports by having surprise checks and special scrutiny.
  2. to follow closely through the report, trial balances, budget of the economy of the society
  3. to introduce motion for consideration by the AGM through the following matters
  4. Through proposed budgets and related matters
  5. Suspension of members from participating in savings and credit scheme in case of violation of regulation of this scheme
  6. Terms and conditions for loan and savings including rate of interest
  7. to recommend limits for maximum borrowing powers of the society in the application to the commissioner
  8. to delegate responsibilities e.g. to the sub -committee
  9. holding meeting atleast once per month

The banking manager

This is an employee of the Sacco who reports to the management committee and shall be an ex-officio member (he is not elected but becomes a member because he holds the office) of  all committee and sub- committee of the sacco except a committee appointed  to enquire into any matter in which he is personally concerned.

He has no right to vote because he is not elected by the members

He is responsible for the day-to-day running of the affairs of the Sacco

We have 7 people who report directly to him

  1. accountant
  2. credit officer
  3. chief cashier
  4. personnel officer
  5. internal auditor
  6. deputy banking manager
  7. branch manager

Deputy banking manager

  • He acts as the banking manager if the banking manager is not in
  • He is incharge of the headquarters branch
  • He is incharge of the savings section within the headquarters
  • he is incharge of mobile services and reports directly to banking manager

 Internal auditor

He is incharge of audit within the Sacco and reports to the banking manager

 Branch manager

He is responsible for the total branch operations i.e. saving services, mobile services, loans on branch office etc.

He reports directly to the banking manager

 Credit officer

Responsible for receiving and processing loan application

Responsible for maintaining the loan accounts or any other matter pertaining to loans

Supervises the loan clerks


He is incharge of all accounting matters in the sacco

He is incharge of supervising book keepers, accounts clerks etc

Chief cashier

Responsible for safe keeping of all cash

Responsible for all cash handling

Supervises all cashiers

Personnel officer

Responsible for all personnel records and handling of all personnel matters

Responsible for all daily administration as directed by the general manager

Supervises personnel and administrative clerks and all the subordinate staffs.

NB the main difference between the organisation chart of a sacco and that of a UBS is that the sacco is completely independent with its own AGM, management committee and banking manager while the UBS has an advisory banking sub-committee and the section is headed by a banking secretary who reports to the general manager.

Urban Saccos

In the co-op banking section, the urban Saccos play a vital role of mobilizing personal savings from the employed individual members of the national workforce for local development.

About 90% of urban Sacco members have benefited from loans dispersed by Saccos where personal savings from individual members is not sufficient. The Saccos are financed by the co-op bank of Kenya according to their needs

The loans have substancially assisted in the development of the county in all the fields of business including:-

  1. purchase of land, house, furniture , household goods etc.
  2. shares and variety of other investments
  3. building of shops and houses
  4. meeting urgent expenses e.g. legal and hospital bills
  5. sponsoring the employees for education and training

The credit programmes in the co-op sector

Credit may be defined as the process of obtaining the control of money, goods or services in the presence in exchange for promise to repay in future i.e. the borrower obtain the resources to use for current production or consumption purpose b/s doing the savings that would be otherwise required to pay for this services if credit were not available

There are two types of credits

  1. Production credit

It’s the credit that has been connected to save economical activities so that the borrower will have a higher net income after he has repaid the loan e.g. credit to purchase fertilisers, building rental houses buying a public vehicle

  1. Consumption credit

It is the credit that is channeled to purposes which do not improve the net income of the farmer or help the farmer to repay the loan e.g. credit for a marriage dowry, a living house, school fees.

 NB Rural credit programmes aims at improving the agricultural aspect which intern would lead to higher standards of living and improvement in the national output and social economic development.

Aims of credit programmes

It aims at developing, promoting and supervising the following:-

  1. well controlled credit schemes
  2. provision of produce buying funds
  3. co-op org to manage their credit skills
  4. members savings and deposits facilities
  5. short-term loans and medium term loans
  6. training of farmers , official, committees, members and staff
  7. follow up on the utilisation of credit loan repayment
  8. Special rural credit programmes for small scale holders the potential for increase production.

 Credit programmes in co-op sectors

  1. P.C.S- co-op production credit scheme
  2. A.D.P- integrated agricultural devt programme
  3. I.S.S-farm input supply scheme
  4. P.S.C.P- small holder production services and credit project
  5. C.I.P- small holder coffee improvement project
  6. P.D.P-national poultry devt project
  7. S.C.S- new seasonal credit scheme

 C.P.C.S  (Co-Op Production Credit Scheme)

It was started by the Kenya govt in 1970 to channel credit facilities to small scale farmers

This scheme is meant to improve or to increase agricultural production


  1. helps develop understanding of modern farming methods
  2. increase yield and better quality crops
  3. help increase farmers income from increased yield
  4. increase savings capacity as a result of increased income
  5. Generally help develop the area where it is operating.

Sources of funds for the scheme are:-

  1. own funds –i.e. members savings in the UBS
  2. borrowed funds –i.e. from the co-op bank of Kenya

Individual member’s qualification

The conditions which are to be fulfilled to quality for a loan under this programme are:-

  1. A member should market their produce through the society during the last 3 years.
  2. the member should be less than 18years
  3. should be an active member of the society
  4. should have repaid all the outstanding debts or secured them
  5. Legal owner of the land cultivated. If not the legal owner should appear as me of the guarantees is aimed at securing the loan.
  6. should be considered honest, hardworking and trustworthy
  7. To qualify for the medium term loans a member should not have a long term loan from another unless that org give consent in writing.

The society’s qualifications

To qualify for participation for credit scheme a society will have to meet certain minimum requirement

  1. be financially sound
  2. have a management committee
  3. have been in operation for atleast 3years
  4. have update records for atleast 3years e.g. books of a/cs
  5. good stuff and secretary/ manager capable of running e.g. affairs of the society properly
  6. have the society committee, secretary/manager and other staff properly trained in credit activities
  7. pass certain resolutions in the society management, committee and general meeting
  8. obtain funds for lending within the society o from outside source e.g. union and co-op bank
  9. Give members of the society necessary information about the aims and conditions of the loans and the application procedures.

 Union qualifications

Before a union can participate in cps, it must fulfill the following conditions:-

  1. Appoint a banking /credit committee composing of 3-5 members. This subcommittee will handle the loan processing activities
  2. Establish a banking /credit section on a model organisation chart so as to determine the number of staff that will be required.
  3. appoint a qualified banking or credit secretary to manage the operation of a credit section
  4. formalize all outstanding debts i.e. the debtors must be followed up and made to repay their debts
  5. pass certain resolutions in the union management , committee and general meeting
  6. Carry out adequate education of members. committee and staff on C.P.C.S rules and its benefits
  7. apply to the commissioner of co-op for appraisal to be allowed to participate in the C.P.C.S programmes

Types of loans that are given to this programmes C.P.C.S

  1. short term loans- takes 1 ½ years (18months)
  2. medium term loans phase I- 3 years (36months)
  3. medium term loans phase II- 5 years (60months)

Mr. Kioko crop proceeds for the last 3 years were as follows:-

1984                 10,000

1985                 9,000

1986                 11,000

Total                 30,000

Calculate what Mr. Kioko will get under short term loan, medium term loan phase and medium term loan phase II

  1. Short Term Loan

x 30,000 =6,600/=


x  = 6,600/=

2. Medium Term Loan-Phase I

x 30000 = 15,000

3. Medium Term Loan –Phase II

x 3000 = 24,000

NB short term =  of average annual cash value of the crop


22% of 3years crop value

Medium term phase I = 50% of 3 years crop value

Medium term phase II = 80% of 3 years crop value


  1. Short Term Loans

It has a maximum repayment period of 18months (11/2) years

A member can only be granted 2/3 of the annual cash value of the crop market through the society for the last 3years or 22% of 3 years crop value marketed through the society

No loan less than shs. 500 should be given to any member

2. Medium Term Loan Phase I

The repayment period for this loan is 36 months and the amount of loan that a member can get is 50% of his last 3years crop value marketed through the society

Any amount excess of kshs. 10,000 will require additional security

  • Medium Term Loan Phase II

Its repayment period is 60months (5 years) and the limit hat a member can be given is 80% of the crop value marketed by him through the society for the last 3 years.

Intergrated agricultural devt programme (I.A.D.P)

This is the project finance by the World Bank and e- fund i.e. international fund for agricultural devt

The loan scheme support the following activities

  1. store construction
  2. recruitment of staff
  3. subsidiary operating expenses
  4. recruitment of additional ministry staff
  5. foods for farmers training

NB they target those subsistence farmers in marginal arrears

AIMs of I.A.D.P

  1. increasing production of food crops
  2. creating opportunities for upgrading livestock’s
  3. intensified soil and water conservation activities as a support measure

F.I.S.S (farm input supply scheme)

The F.I.S.S was introduced by Davida to make farm inputs ready available to small scale co-op farmers in less developed areas of Kenya

The assistance is given through:-

  1. provision of credit for produce stores constructions
  2. seasonally credits for farm inputs to the members
  3. provision of storage facilities for far, inputs
  4. management service and training of personnel

The target group consists of individual farmers with unexploited farming potential and these credit facilities enable them to explore these potentially productive areas.

S.P.S.C.P (small holder production services and credit project)

This was introduced by USAID in order to improve and dev the capacity within the co-op system.


  1. Organising comprehensive production
  2. Marketing of produce for small holders who have potential of increasing production.

These are the potential of increasing production but have not benefited from credit services

The projects is aimed at improving the following

  1. Co-op mvt
  2. food production credit
  3. input delivery system
  4. marketing services
  5. agricultural technical assistance
  6. programme management

S.C.I.P (small holder’s coffee improvement project)

This project is aimed at improving the quality and quantity of small holder coffee farms through rehabilitation of coffee farms, coffee factories and improved extension services.

The type of credit offered under the scheme include:-

  1. clearing and weeding coffee shambas
  2. purchase of farm inputs
  3. pruning and fencing
  4. factory rehabilitation/ construction

The target groups are small holder’s coffee who have not sufficiently benefited from other credit programmes such as SPSCP.

These farmers may have had production in the past but has neglected their coffee

This project is funded by World Bank.

N.P.D.P (national poultry devt project)

This was introduced by the govt of Kenya and Netherlands to assist the small poultry keeping farmers by the devt of commercial poultry farming

The project was introduced to assist in providing alternative source of cheap protein by providing more eggs and broilers.

The assistance include:-

  1. purchase of inputs
  2. improving indigenous poultry production
  3. production techniques /methods
  4. marketing org and economic research

This projects started with pilot project co-operation in the project area with project is to start with atleast 24 eggs production farmers and 10 broilers production units.

N.S.C.S (new seasonal credit schemes)

This is programme was introduced by the govt to support existing credit scheme for increased production

It was introduced to replace the guaranteed minimum return loans scheme which was being run by AFC (Agricultural finance co-operation) and the govt for maize and wheat farmers. Currently, credit for farm with less than 5 hectares of land is financed through the co-op mvt while those with 5 or more hectares are financed by AFC.

AFC- an or that specializes in agriculture and rural devt segments of the economic through consultancy and technical support.

Agricultural co-operative credit policy (ACCP)

the main objective of ACCP is to improve economic and social welfare of the co-op members and the credit policy is expected to achieve the following major goals


  1. to establish a fair loaning system
  2. to assist co-op members in identifying viable projects
  3. to establish efficient credit administration procedure
  4. to ensure proper utilisation of and recovery of loan funds.

The members loan conditions

Loan application by members of the Sacco shall be done by the credit committee and presented to the management committee for consideration and approval

The loan application shall be considered on the basis of 1st serve

To qualify a loan from a Sacco society the member must meet and fulfill the fall

Major conditions

  1. Active member- the member must be active in that he should deliver his produce for marketing in the co-op society case of produce marketing society e.g. coffee, dairy, cotton, tea etc.
  2. Good character- the applicant should be a person of high integrity, honest and trustworthy. his past loan repayment records must be clean
  3. viability-the applicant should make a viable market proposal in accordance with credit purpose of this policy
  4. Age-the applicant must be the atleast 18years old.
  5. Land ownership-the applicant must be the owner of the land cultivated by him if not the owner must appear as one of the guarantees and where he is not a member must give a letter of undertaking.
  6. Total debts- a borrower should not be eligible for capital devt loan if the borrower has a long term loan with another lending institution.

Types of loans offered under A.C.C.P

  1. working capital

This type of loan cover activates such as: – land preparation, procurement of farm inputs, hiring labour, transport, maintenance and repair of farm machinery.

Members who qualify for this loan will be granted a maximum of 30% of the immediate past total value of produce marketed through the society.

The minimum loan that members may be granted under this category is kshs.500

The repayment period of this type of loan is 1 ½ years (18 months)


1. Musendos crop value for 3years was given as follows

1986  -4800  1987-6200   1988-8400

Calculate what Mr. Musenda will qualify for under the working capital loan.

x 8400 = 2520

This type of loan replaces the short term loan under the co-op production credit scheme (C.P.C.S)

2. capital devt loan

This type of loan is intended for perennial crops, livestock, irrigation systems farm machinery, vehicle purchases, agro-chemical industries, construction of houses, buying of salon cars etc.

The amount for which a member can be granted is 80% of the total value of 3years produce marketed through the society

The minimum to be granted is ksh.1000

Repayment period is 60 months (5months)

It replaces the medium and long term loan under the C.P.C.s

Mr. Musendas crop value

4,800 + 6,200 + 8,400 = 19,400

x 19,400 = 15,520

3. welfare loan

This type of loan will be granted to the members to pay school fees, legal bills hospital bills etc.

The loan advance for this activity shall be based on the value of members produce delivered to the society and not yet paid for.

A member will qualify for a maximum of 20% of the production + the value of the member’s shareholding subject to the society liquidity position

The repayment period is 12 months (1year)

Loan securities

It’s a property or undertaking given in support of a loan lender to make it harmless for the lender in the event of default.

  1. welfare loan

Loans are secured against members produce delivered to the society member’s shares and 2 guarantors.

A guarantor is one who undertakes to pay the loan in case the applicant defaults.

working capital and capital devt loan

The loan types requires security such as guarantors, members proceed marketed through the society title deeds etc.


Working capital- 30% of the immediate total value of produce marketed through the society

Capital devt loan- 80% of the total values of 3 years produce marketed through the society

Welfare loan-20% of the production + the value of the member’s shareholding

Loan package and loan priority list

It involves various types of inputs that any farmers may require when he wants to venture or go into same produce purpose or it’s an enterprise budget per cost of investments.

It is an assortment of cost of inputs that is required by unit of investment by a farmer and expected output

Loan packages are usually grouped in their priority order taking into consideration the investments that correlate directly to the agricultural production e.g.

1. packages of 1st priority

They are enterprise whose investments are directly agricultural like coffee, tea, pyrethrum, diary, maize etc.

2. Packages of 2nd priority

Are enterprises whose investments are directly connected towards the improvement of agricultural production in 1st priority e.g. tractors, ox-ploughs, water pumps and tanks etc.

3. Packages of 3rd priority

they are nay of her type of investment that will generally assist in raising the std of living of a farmer but does not in any way fall under the 1st and 2nd above e.g. money for putting up a new house, purchase of TV, car, radio, shoes etc.

NB once the loan packages for all the enterprises have been prepared they are grouped and listed according to priorities. This is called loan priority list

When preparing a loan package it is necessary to project the expected output i.e. the return should be adequate enough to cover the cost of investment and leave the farmer with some surprise.

The loan packages are usually prepared annually at district level as the cost of inputs keep on changing every year and also the climatic and physical features of the district value.

Persons responsible for loan preparation at district level

  1. district co-op officer
  2. district agricultural officer
  3. union manager
  4. credit secretary
  5. assistant co-op officer

Loan priority list

It’s a document giving in order of importance the projects which are to be financed through a credit programme

It’s prepared on district basis taking into consideration the climatic, economic and agricultural conditions

It may be uniform for one district but may also be valid for different divisions, locations etc.

They are also prepared annually for each district

They should be tailored to suit the devt plan for the district as closely as possible

It is prepared by DCO, DAO, UM, CS, ACO

The loan priority list should show the loan repayment period for cash loan

Examples of a loan priority list

Loan priority list

Kiambu district

Coffee extension

Dairy farming


Piped water

Co-op saving scheme

It’s an activity a co-op org either at union or society level with the main objective of providing saving services and eventually offers savings facilities to the very members who save with the scheme.

Aims of the co-op savings scheme

1. To provide appropriate savings facilities to the co-op members.

The minimum balances that were being demanded by the commercial bank were too high for the farmers to raise hence they resorted into keeping their monies in odd places where security was not guaranteed. The scheme now was, established to provide a safe custody for the members’ funds as well as earning interests for the account holders.

2. Help mobilise personal savings- money kept in people’s houses is ideal and does not contribute to the national economic development. There is need to make co-op members bring their personal savings to a place where money could utilised for national devt.

This was also seen as a way for the co-op movement to create its own funds instead of depending on borrowed funds.

3. To provide appropriate credit facilities-the farmers had very little to offer as security to the commercial bank for any loans they needed. The time required between co-op delivery and payment was lorry and they were finding it very difficult to continue producing in the absence of credit.

Qualification for operating a co-op saving scheme

Every co-op that wants to participate or run a co-op saving scheme must fulfill certain conditions it requires to:-

  1. Appoint a banking committee to supervise the operation of the co-op banking section.
  2. has a good financial position in order to assure to the members that their funds will be safe
  3. establish a co-op banking section with proper facilities for operation
  4. appoint a qualified banking secretary to manage the co-op banking in a professional manner
  5. all members debts should be formalised in order to ensure that all old debts are reserved and those not recovered are fully secured for recovery.
  6. both the union committee and the general meeting should pass a resolution to operate a co-op banking section
  7. Carry out member’s education in all affiliated societies. this is because members need to be informed on how the bank will operate and how they can get the services
  8. the audit of the union should be upto date so as to reveal the financial position of the union at the starting this activity

Society conditions

To qualify for participation in the savings scheme, a society will have to meet certain requirements

  1. the society will have been in operation for 3 years
  2. to have updated records of atleast 3years
  3. the society should be financially sound
  4. should have a good committee, staff and the secretary manager capable of running the society affairs
  5. Give members necessary information about the aims, conditions of the loan, loan application procedure and list of loan packages.
  6. formalize all outstanding loans owned to the society and pass certain resolutions in the society
  7. shall obtain adequate funds for lending either internally or from outside

Feasibility studies for implementation of the saving scheme

by establishing a savings scheme it’s important to carry out the necessary  feasibility studies in the area of operations and based upon results, prepare a proper  plan implementation.

Steps in implementation of a savings scheme

  1. evaluation

It will cover the following areas:-

  1. preliminary studies to establish the need for staring the savings scheme
  2. feasibility studies in the following aspects
  3. technical requirements study
  4. technical feasibility study
  5. economic feasibility study

Technical requirement study

The technical requirement study shall make clear:-

  1. whether the co-op org qualifies for operation under the savings scheme or not
  2. the crops marketed by the society and how the systems of payments are organised
  3. the frequency of payments presently maintained e.g. on delivery, monthly, quarterly, yearly
  4. whether the relevant m.t systems have been implemented and if not which steps are being taken to do so
  5. which type of deposits and credit facilities will be established
  6. The quality of such services i.e. daily, weekly, monthly etc. and the number of hours per day possibility of organising savings, withdrawal and deposits services.
  • Availability of transport, labour in cases of construction work, fuel, power, stationery equipment’s, office machines and sanitary facilities for the staff etc.
  • estimated initial operating and overhead costs for a smooth implementation and continuous operation of the credit and saving activities and how the whole activity can be financed.


Technical feasibility study

It will show item by item how the tech required can be met e.g.

  1. How to make the society qualify for participation in the saving scheme e.g. implementation of mt. system if not already carried out.
  2. through reconstruction of office premises or building of new offices and the cost involved
  3. where and how to employ qualified staff for the banking society
  4. where and how to obtain necessary office machines , equipment’s, stationeries and other accessories involved
  5. how to satisfy the members need for banking services at the lowest cost

Economic feasibility study

As a result of the above its necessary that an economic appraisal in the farm of study of the present situation in the Sacco is accrued our in order to establish satisfactory savings facilities to the members.

Hence the following ought to be worked out before an implementation plan is prepared:-

  1. the savings capacity-savings capacity ought to be known as this will certainly determine the members need services and also number of staffs and opening hours at each service place
  2. size of the society- the membership turnover/ number of members to be served as far as its concerned should be known in order to show size of Saccos together with experience gained from already established saving scheme giving the bas for staff requirements, the size of the office premises , equipment’s, accessories and stationery need.
  • How frequently should the service be given

It could be daily, weekly, fortnight or monthly in each one of the centres. what are the distances from the sacco office to be members and how are the road conditions should be service be rendered through a mobile bank or permanent offices

Should be members personal a/c be centred or decentralized

Should they be maintained manually or should they be mechanized?

What security arrangements are to made for money in custody or in transition e.g. should they be reinforcement in report of storeroom and insurance cover required.

which categories e.g. of people who are in need of training , education and which stage e.g. knowledge about the scheme should be reached by each category and where can such education be obtained (locally, co-op college of Kenya or other education centres).

Results of the study

Based upon the answers to be above question together with the gained e.g. filed of scene it is possible to determine.

  1. organisational set up of the sacco activity and prepare an implementations
  2. initial cost of establishing a sacco in the area
  3. the ruining and overhead cost for longer period of time e.g. 3-5 years plan
  4. whether the banking activity will be a viable one or not

Savings implementation plan

General information

To enable a smooth implementation of the savings scheme in a Sacco it’s necessary that certain conditions laid down in the 5th year devt plan. Of the Sacco should be fulfilled of the economic viability must be proved through the members transaction system must be updated and the records maintained before the actual savings scheme is implemented.

The local conditions as far as the devt of various systems must also be considers as in the case with the 5th year devt plan before it gives a rough idea as to when saving scheme should be implemented in a certain area.

Before implementing a Sacco which offers the above services to members it will be important to workout proper plan of operation

The following implementation plan for the savings scheme in Sacco will serve as a guided

  1. planning and preparation
  2. implementation of the sacco
  3. consolidation of the centre


Loan application and handling procedures

Loan application procedure by a society

Whenever a society wants to give out loans to its members and it has no enough funds, it can borrow from co-op bank.

To get funds from the co-op bank of Kenya the society will fill 5 application farms, one copy is sent to the manager of co-op bank and the other fair (4) copies are sent to the district co-op officers.

At the district co-op office, they are scrutinized and forwarded sent to the district loan committee for that particular district.

The loan committee is composed of:-

  • District agricultural officer
  • Branch manager
  • Representative of the district co-op union

As soon as the district loan committee has approved the loan district co-op office will distribute the farms as follows:-

  • One copy to the co-op bank of Kenya
  • One copy to the commissioner of co-op debt
  • The other copy to the office files.
  • One copy to the district office files

 Details to be filled in the application forms

  1. name of the society and its address
  2. amount in figures and the loan purpose
  3. Repayment –indicate frequency of repayment which will be made taking into consideration when payments to members are normally made during the year and the size of recovery of member’s loans which will be expected.
  4. Proposed withdraw schedules- indicates the amount to be withdrawn and approximate date for withdrawals. this will be in conjunction with members expected withdrawals, such information can be detained from the members individual applications
  5. date of registration and the total shares in the co-op bank of Kenya
  6. assets and liabilities –these figures are used for assessing the validity of the society
  7. Total investments-specify have the total investments is to be financed
  8. Details of security –the details of security offered shall be indicated.

Documents to be closed in support of the application                         

  1. Extract from the minutes showing the resolution passed by the committee certified by the chairman and the manager.
  2. Extracts from the minutes showing the unions/societies max borrowing power as decided by the last general meeting certified by the chairman and the manager.
  3. a statement signed by the chairman and the manager revealing the total amounts of loans overdraft already granted to the society including loans overdraft granted but Act yet utilised.
  4. one copy of audited final a/cu and the balance sheet
  5. the trial balance and the budget
  6. Specified report showing the profitability of the planned investments.
  7. A list of the societies to allocated funds together with a report on credit activities for prevails loans signed by the manager and credit secretary.

The application shall be dated and signed by the society officials who are the signatories on the reversed side of the application form.

The DCO shall after scrutinizing give his comments

The DCO gives the recommendation/discommendation of the districts loan committee

Funds from the union banking section

Another source of funds for lending to members, comes from the union section

Such funds are usually the members own savings

When applying for funds from the union, the society will normally make its application direct to the union

The union will then allocate loans from the societies on the basis of either the individual society turnover or its member’s savings balance.

Usually the UBS policy that when granted loans thereby leaving a balance of 20% for the members to come and withdraw for other needs

This method encourages societies to save regularly and also prompt loan repayment.

When the society turnover method then the CPCS upper loan limit for calculation are applied i.e. Short term, medium term, phase I and phase II

Before a society can use its own funds for leading purposes, it must be authorized by the district officer

The essential information you be filled in the application farm includes

  1. The total amount to lend out
  2. In which period and for which credit.

Filling of the application form by a members

Loan application by members from their society

Members who want to apply for loan will get a loan application form from the society

A society clerk may assist the member to fill in the loan application form

The following stationery and equipment must be available:-

  1. Loan packages
  2. Members proceeds
  3. Computation table for upper loan limit
  4. Loan application form

Filling in the loan application

  1. Fill in the name of the society, address, age and members number of the applicant

The number of application is important to note in order to ensure the members are considered in the same order as they come to apply.

The number should be consecutive based on the loan purpose and loan amounts and shall unless normal circumstances be filled in by the members.

Considering the loan purpose stipulates the number of areas to be invested into the month when the loan will be needed the amount in kind in cash and totals.

All these shall be in accordance to the loan packages

The society field officers or reps will visit the applicant farm, lack of the land , access its size and possibilities of increased yields as well as quality production together to the applicant he will work out a crop package that will give the farmer an optimal return on his investments

He shall also advice the farmer on the most productive methods ,what seed and fertilizers and spreading chemicals to use for various crops as well as when and how to use those inputs.

Finally the society will assist the farmer to fill in the particulars of the application farm

  1. If some of the crops are to be produced in a leased land the number of acres and the name of the owner shall add be put in the application.

The value of the crop proceeds shall be filed in these values shall have been calculated beforehand in the crop proceeds farm.

  1. The society representative will discuss the security part with the member and fill in the securing crop the acreage and the number of incase of milk.

In case loan applied form is ksh. 30,000 and above the security part in this section shall be completed .the society committee shall discuss the value

Guarantor qualification

The guarantor’s qualifications are similar to those of loan application (borrowers qualified)

NB: Guarantors production should cover the total amount which is guaranteed plus possible own loans.

Loan Agreement

A loan agreement is an unrevokable order form which shall be filled in at the same time as the application.

After the loan granting meeting the general managers shall be seen to it that the loan agreement are ready for all successful applicants and shall be signed by the borrowers immediately after the loan granting meeting.

Loans which are given in kind, a delivery order has to be filled I and signed by the borrowers

The loan agreement form shall be filled in as follows:-

  • A/C no which is comprehensive containing the society activity and the member’s number.
  • The lenders name- this is the name of the tender in block letters
  • The name of the borrowers in block letters
  • Borrowers age
  • Borrowers address including home village, location and society
  • Loan amount inwards and figures
  • Loan purpose which shall be the same as the loan application form
  • Conditions of loan repayments (they should be divided into monthly or quarterly installments depending on the type of loans.
  • On the type of loans the loan installment will be deducted from the member’s proceeds until loan is fully repaid.
  • The dates on which the 1st and final installment falls due from due should be indicated.
  • The rate of interest- it should be stated and the date from which it shall be charged
  • Transfer to this part shall be filled in only when the loans to be paid in cash to the borrowers and credited to the member’s savings a/c. The a/c no, the amount and the date when the 1st withdrawal will take place shall be indicated
  • Quote the guarantors name and the member’s number in block letters from the loan application
  • Witness -the witness signature shall be followed by their names in block letters ad addresses

NB: after the preparation the loan agreement shall be filled activity wise in member number order

This facilities easy tracing of the respective loan agreement.

The society shall in good time order for the revenue stamp is needed when the loan agreement is being signed.

The language used when explaining the agreement shall be indicated

The borrower’s confirmation as well as the guarantor’s pledges and the witness as certificate shall also be completed.

Roles of borrowers, guarantors and witnesses

Loan agreement shall be signed by four different parties namely,

  1. Lender /Society
  2. Borrower
  3. Guarantors e.g. two friends and must be society member’s
  4. Witness e.g. 2 society members.

Name of these categories can act as dual capacity on the same agreement form.

This means for instance a guarantor is not allowed to act as a witness

It also means that a society chairman/banking manager cannot appear as a guarantor in a loan agreement

They shall not sign on behalf of a society in agreement is established with a member’s the society is bound to:-

Roles of a society

  • lend during a specified period of time a certain amount of money for a certain purpose to a certain person against a stated security

Roles of borrowers

The borrower shall be a member of the society and when he signs a loan agreement he is legally undertaking to/ entitled to:-

  • Borrow a certain amount of money for a certain purpose from the society
  • Repay the loan within a stipulated period of time the interest at a specified rate
  • Deliver his produce for making through the society
  • Care for then property security or item interested in with the assistance of the loan and not sell without the consent of the society such items/ properties until the loan is fully repaid.
  • Adhere to all of the conditions concerning the loan whereby the borrower has a right to withdraw his loan and of course somebody else in writing to make withdrawals of this loan.

The guarantors are jointly and severally responsible for the repayment of the loan should the borrower default

In case the borrower refuses to pay an installment which has fallen due the society can ask the guarantor to pay the loan.

Scrutiny of loan documents

All loans application/ agreements after the approval and having been completed shall be submitted to the credit section for final scrutiny.

The society banking manager/ sec manager shall implement a system for control of dispatched documents.

For this purpose, use of research for valuable documents will be dispatched

The receipt is filled in duplicate and taken to the credit section together with the filer containing the loan application and agreements.

Upon receipts of the application ad loan agreement the credit manager will sign the above receipts and file the duplicate.

While the original is taken to the banking manager/ sec manager where it will be kept in a file proving that the loan documents are now with the credit section

The society credit officer is responsible for seeing to it that a register for loan agreement is opened.

With society credit officer shall see to it that the loan agreements are thoroughly scrutinized.

Main points to observe in the loan agreement

  1. All signatures appear in the correct place. Whereby the borrower shall sign across a revenue stamp.
  2. that the witness are not biased and nobody is supposed to SIGN IN DUAL CAPACITY
  3. that the loan amount is the same as the approved amount in THE APPLICATION
  4. That the loan purpose is the same as in the application
  5. That the terms of the loan payment fall written with limitations and reasonable in relating to the loan purpose.
  6. the security is appropriate
  7. the guarantors are the same as mentioned in the loan application

NB : Any irregularities are the same as mentioned in the loan application available on the application or any other information that is missing but known by the society credit officer can completed at the society credit system.

Loan agreement register

A register of loan agreement shall be maintained by the society credit section

Entries into this register hall be made from already scrutinized agreement

Separate register shall be kept on the basis of the type of credit

The fallowing information will be filled in extracted from the loan agreements into the loan agreements register.

  • the society name and the date ,year, page no, member no, members name as in the loan agreement
  • Amount of loan, type, final due date as in the loan agreement, security-indicates e.g. crop proceeds.
  • The signature of the person filling in the loan agreement
  • Date of filling –state the date in which the agreement has been finally filled in the society
  • Remarks-this column may be used when the agreement is return to members for correction or completion.

Loan agreement register


Charge as security

According to the credit policy all loans of ksh.30,000 and above are to be secured by a charge of the land owned by the loaned.

Where land as security is not suitable other properties can be provided /used.

Various terms used in charge procedure

  • Change –it’s a farm of security provided for payment of loan
  • Charge-this is the lender or the proprietor of the charge i.e. the society
  • Charges-this is proprietor of charged land i.e. the owner of the land, loanee or borrower.
  • proprietor-in relation to a charge of land ,the person named in the register of the land
  • land certificate-it’s a certificate issued by the land register and it’s a sufficient proof for the properties ownership

The charge I to have the 1st priority and the value of their land charge must exceed the total amount the charger is borrowing from the society.

In case where the property of the loanee has already been given as security from another loan the society an in special cases accept a 2nd priority charge a security for the loan.

In such a case the value of the property charged will have to be sufficient to cover the second loan borrowed.

A written consent of 1st charge will have to be obtained

When the society estimates the value of the land the fall points should be taken into consideration

  1. the size of the land
  2. any size of the land
  3. Quality of the land i.e. is it suitable for cultivation, is there enough water, are there roads close to the land, is the land bushy or cleared, is there any other fact that might influence the market value of the land e.g. electricity.
  4. conditions of the permanent buildings
  5. Estimated value of any permamment crop e.g. coffee, tea, pyrethrum etc.

The comet considers the above information to access the value of the land according to current price of the land of particular area.

The security of charge is considered sufficient if the loan applied for the does not exceed 80% of the estimated value of charge property

E.g. the value of property is estimated as ksh.40,000. The amount applied for is shs. 30,000

  1. calculate the amount to be granted
  2. will the loan be granted or not?


x 40,000 = 32,000

The loan will be granted:

In this case the maximum value of security offered will be 80% of the property hence the loan applied for falls within the value of security offered and the loan may be granted provided that no obstacles are faced when registering the charge.

Procedure to follow when one wants land as security

The loan handling procedure for a loan secured by a charge of land will be as follows

  1. The potential loanee applies to the society for a loan
  2. the society loan conte considers the application and especially the value of the property belonging to the applicant has to be scrutinized if the loan is ksh.30,000 and above.
  3. If the applicant is granted a loan more than kshs.30,000 and above the society demands  a change over his land in addition to the normal security of crop proceeds and guarantors
  4. Then loan agreement is to be filled in
  5. The loan farmer is asked to arrange for the charge and the 1st step in this exercise is to send an application to the divisions land control bond for its consent to charge the land.
  6. If the land control approves the application it issues a letter of consent which is returned to the applicant.
  7. The loanee brings the letter of consent and the copy of application together with his land certificate to society.
  8. The society credit officer files the land certificate together with the loan agreement and the application and issues a receipt to the lonee for the document.
  9. The society will assist the loanee to register a charge
  10. Once the charge has been registered and the document has been returned to the society it should be ascertained that
  11. The charged property is sufficiently insured
  12. The insurance co. has notified the society of the same.
  13. Thereafter the loan can be released to the loanee.

 Application for consent

Consent is given only when the land control bond ensures that land is used for other purposed other than agriculture, and that it is not transferred to others who do not intend to develop the land properly.

It is necessary to follow the rules in the land control act so that the charges become security for loans.

Application is made in duplicate in form1 and forwarded to the land control bond.

If the land control bond gives its consent to the transaction if issues a letter of consent.

The loanee brings the documents from the control bond to the society in order to register a charge.

Registration of a charge

When registering a charge the following documents and stationeries will be used

  1. Letter of consent
  2. The land certificate
  3. The charge form (R.l.9) –filled in triplicate
  4. Application for official search (R.l.26)
  5. Application for registration

When all the documents are ready the members are assisted by the loan officers to prepare for the registration of charge.

The form R.l.9 (the charge form) will be filled in triplicate and this together the application official search will be submitted to the district land registrar.

The land district registrar returns the duplicate and triplicate and keeps original on his own file .

The charge has to to be signed both by the loanee and the charge

The loanee must be informed alt the contents on a charge before signing it

They should be informed told of the implications that.

  1. If default is made on payment of the principle sum or of any interest or any other periodical payment or any part therefore or in the performance or observation of any agreement experienced in any charge and continues for one month the charge may serve on the charge notice in writing to pay the money owing or to perfom and observe an agreement or as the case may be.
  2. If the charge (loanee) does both comply within 3 months form the date of serves the charge May
  3. Appoint a receiver of the income of the charged property
  4. Sell the charged property

If the charge who has appointed a receiver may not exercise the power of sales unless the charge fails to comply them in 3 months of the date of service.

NB a loan secured by a charge should not be released to the loanee before the fails is carried out

  • The charge is properly registered by the district land registrar and returned to the society
  • The certificate of official search is received from the district land registrar.
  • The land certificate must be deposited in the society
  • Valid insurance cover is shown and the insurance company informed about the interest of the society
  • A loan agreement has to be signed by the loanee and the guarantor.

Lodgment of loan document’s

Loan document in many ways are as variable as money

In case of default it’s through the different documents that the society will be able to recover the loans

In order to protect this variables its necessary to have a system for registration and safekeeping of this document’s

The entire document’s involved are:-

  1. Land certificate
  2. Loan application
  3. Charge form
  4. Insurance policy
  5. Letter of consent
  6. Loan agreement

All documents to be registered and filled should indicate the society, the type of credit and re and the member’s on top of the 1st page.

The mentioned documents are registered and stored on a lodgment journal which printed in a set of 3 copies each, whereby:-

  • The 1st copy has lodgment journal on the first side
  • The 2nd copy has the loanees receipts
  • The 3rd copy has lodgment envelope

All these 3 copies are filled simultaneously down the double line using carbon papers

The credit manager should check in advance the insurance register and in case there is any insurance policy that is about to expire, he should take the necessary steps to find out whether it has been renewed or not.

In case there is same premium which has not been paid the society can pay on behalf of the member’s and debt the amount to his loan a/c.

All the documents therefore related to the loan shall be filed in the lodgment envelope

The lodgment envelopes are then placed in member ordered in a lockable cupboard /carbon to be kept in a strong room.

Whenever somebody wants to remove something from the envelope, he has to write on the envelopes what he has removed and sign for it

On return the person shall write the date of replacement and sign for this

 Purpose of lodgment journal

  1. To keep all necessary information of the loanee in one document only
  2. To keep all necessary information of security of the loan in one document only
  3. It forms the main register where special information such as an insurance expiry register is extracted
  4. It is used by audition while checking whether registration has been carried out properly

Discharge of a charge

When loan is fully repaid the charge will be discharged

There is a discharging fee collected from the loanee and an official receipt is issued

Some of these fees includes: – i) Stamp duty ii) registration fees

The following stationery will be used when discharging a charge

  1. Discharge over form (R.l. 10)
  2. Application for registration

The society submits to the district land registrar an application for registration while the society retains a copy.

When the loan is fully repaid the back side of the lodgment journal shall be used for notification of what has happened to the various documents securing the loans.

It is up to the loanee to decide whether the charge can be discharged or kept in force for later use his decision shall be noted on the receipt

There are several cancellation which have to be carried out once the loan if fully paid.

  1. Cancellation of the insurance register by removing the expired card from the register

A letter to the insurance company has to be sent to inform them that the interest of the society on the property is terminated

  1. The loan agreement has to be stamped “PAID and returned to the filling envelope.
  2. The land title dead must be returned to the owner. This is where the loaness should be informed either by person or sent in person and be told to come to the society to collect the land title deed and he should sign for it.
  3. The charge can be in same cases be used as security for a new loan
  4. The lodgment envelope is removed from the current loans and placed to paid loans lodgment envelope in the society
  5. The lodgment journal is removed from the current files and is transferred to the society credit stations

NB Any valuable document given to the owner or cancelled, a receipt is issued to the owner.

Formalization of debts

Formalization-refers to the process of either recovering or securing of all overdue debts

The ultimate aim of this procedure is to clear the books of the union /societies of all overdue debts whether they are recoverable or not.

All debts due to a union or a society which have fallen due have not been repaid are termed as overdue debts

There are mainly two types of debts to a society namely:-

Members and non-member’s which includes committee, staff members of other affiliated societies are

  1. Members debts (unions)

The society should be requested to pay in cash and if the society is unable to pay cash it should sign an irrevocable letter of instruction to the source of crop proceeds authenticating payments to the union.

In case a society denies owning any debt to the union the matter should be referred to the necessary authorities as a dispute

2. Nonmember’s debts

If a debtor is a member of an affiliated society, and he is active in that society, the union should send a letter to the society and request that the debt be recovered on its behalf from the member’s crop proceeds

Incase it’s an employee /staff their salaries should be attached to recover the debts

Incase all the efforts are failed then such a debt should be recommended to the union AGM for write off.

The formalization of debt should be done on the fail guidelines

  1. Reconciliation-this is where by the posting of data ledgers must not be brought up to date. This is to ascertain the corrections in the individuals member’s a/c and ensure that they are reconciled in the control a/c
  2. Listing of cover overdue debts

After the individual a/c have been reconciled the balance on them should be considered as the correct balance. Then the secretary manager should prepare a list of overdue debts showing

  • The members name and no
  • Action taken to recover the debt
  • Amounts used
  • Whether active or inactive.
  • Recovery this requires all the debts to pay their debts in cash and if a member cannot repay the debt in cash, the debt shall be recovered in the subsequent payout.

If the debt is too large the members will be required to fill a loan agreement with the society for regular loan repayment not exceeding 12 months

If a member is unwilling i.e. disputing the debt with matter should be referred to the to the co-op tribunal as a dispute

If there are no supporting document’s then the debt can be recommended for write off in the next AGM

If a member has left the area of operation of the society and cannot be traced, the debts should be offset against the shares in the society

In case a member is salaried person a bank order limiting money to the society should also be signed by a particular member

In case of staff, salary deductions should be made until the whole debt is recovered

If the staffs are also members then deductions from crop proceeds should be made.

If a member of the staff uses unfair means to obtain the debt salary reductions of up to 50% should be made



Loan withdrawal and recording procedures

How loans are withdrawn

There are 3 main ways of loan withdrawal

  1. Loan withdrawal in kind
  2. Loan withdrawal in cash
  3. Loan withdrawal credited to members savings account
  • Loan withdrawal in kind

In case  the loan agreement provides for loan in kind , a delivery order has to be filled in and signed by the loanee at the same time as the loan agreement form

The duplicate of delivery order will be given to the loanee who then can collect required goods from the society or union store or from any other dealer recognized  by the society. The original  is  retained by a society and the order is valid for a period  of 3 months from the date  of  issue.

When the loanee or somebody authorized by the loanee collects the goods, the suppliers delivery note or invoice is signed by the person who collects the goods. The serial no of the order shall be quoted by the supplier in the delivery note or in the invoice.

An outside supplier will send the invoice to the society where its particulars will be checked against the original of the order and if found correct, a cheque for the amount will be issued to supplier. The society cash journal for that day, a payment will be prepared and an entry made in the interim account of member’s loan in the ledger.

At the same time the entry in member’s loan account shall be made from the invoice received from the supplier

This operation shall be repeated for every loan in kind.

Document used when withdrawing loan in kind

  1. Loan sales journal- The credit manager of the society should ensure that all summaries of loan withdrawals in kind are properly scrutinized and reconciled the relevant invoices.

The loan clerk will carry out the recording of the transactions of the member’s loan account  as follows:-

  1. Fill in the member’s number from the loan sales journal
  2. Indicate the date in the loan sales journal
  3. In the details column indicate the invoice number
  4. The previous balance will be the same as the debit balance on the previous line as the members loan account.
  5. Entre the amount shown on the loan sales journal as withdrawn in the debit column
  6. Calculate and enter the new balance in the balances column (i.e. previous balance + debit entry=balance)
  7. Tick off the line used in the journal and replace the member’s loan account with the ledger card box

The above routine will be repeated for all members who appear in the loan sales journal

  • Loan withdrawal in cash

It can be done in two ways (i) from the UBS    (ii) from the society

The loan being withdrawn in cash should be paid to the member when he/she is going to use it to avoid the risk of misuse.

The credit secretary should be responsible for ensuring that sufficient funds for member’s loan withdrawal are requested for in due time

A day should be arranged when all the loanees should come to collect the money

A cheque shall be issued and signed by the union signatories

A list of all loanees eligible for loan in cash shall be attached to support the cheque

The union cashier will collect the money from the bank and hand it over to those responsible for payment to the loanee

The following stationaries shall be used during the loan repayment

  1. The tellers cash report
  2. Loan withdrawal voucher /journals
  3. List of member’s eligible for loan in cash
  4. Summary of the member’s loan withdrawal
  5. Carbon papers

Loan withdrawal voucher /journal

It’s composed of 3 pages

The 1st page consist of withdrawal vouchers- These are torn off and given to the members when they receive the money

The 2nd page is the loan withdrawal journal- It’s the union credit section copy

The 3rd page is also a withdrawal journal to the accounts section.

Contents of loan withdrawal voucher

  1. Name of the society in full
  2. Official stamp of the society
  3. Member’s name as contained in the loan agreement
  4. Date of withdrawals
  5. Member’s loan as per loan agreement
  6. Loan a/c number as per the loan agreement
  7. Amount of loan withdrawn in cash

Contents of loan withdrawal journals

Information (i) – (vii) in the voucher is carbonized and all the information on the voucher (except the society stamp) will be copied into the journal when the voucher is filled in

  • The date from which the journal is used to the last date shown at the bottom of the journal
  1. The loan journal page used to post the withdrawal into the member’s loan a/c
  2. The members signature or thumb print
  3. Total withdrawals made on the withdrawals voucher
  4. Total withdrawals carried forward from the withdrawal voucher
  5. Addition of number xi and xii to get the balance carried forward

NB the 3rd copy will have similar information as the 2nd copy.

  • Loan withdrawal credited to members savings account

The cash portion of a member’s loan shall always be credited to the member’s savings account in accordance with the loan agreement. This is done in case the society is operating both on credit and the savings scheme

The union credit secretary shall see to it that this is done in due time for member’s appropriate use of their loans.

Stationaries and equipment used in number (iii)

  1. Loan agreement duly completed and scrutinized
  2. Loan withdrawal credited to the members savings account
  • Summary of member’s loan withdrawal

The loan clerk responsible for recording the loan transactions of the society will take the forms of loan withdrawals credited to the member’s savings and insert a carbon paper in between the original and duplicate of the set.

The loan clerk will fill in the form with the following particulars;

  1. The society name
  2. Society registration number
  3. The amount to be credited to the member’s savings account according to member’s instructions
  4. The date of transaction
  5. Activity number
  6. Page number (which is reprinted)
  7. Account number i.e. the savings account number which the loan amount shall be credited to
  8. name of the member’s concerned
  9. tick the line used
  10. page number of the journal used
  11. page number of the savings journal used
  12. Total withdrawals credited to the member’s savings a/c.

Opening of member’s loan account

After the loan granting meeting, all those members who have been granted loans are supposed to sign loan agreements

The loan agreement forms are sent to the union private sections where the credit secretary after a proper scrutiny of both the loan application forms and the loan agreement forms asks the loan clerk to open the member’s loan account

The opening of the members loan account should be done actively wise

The following procedure should be followed when opening the account

  1. Name of the society as shown in the loan agreement form
  2. Member’s name as shown in the loan agreement form
  3. The name of the activity where the member comes from – This can be a coffee factory, milk collection center or center to which the member deliver his produce
  4. The total amount of loan granted as shown in the loan agreement form
  5. The final date by which the member’ has to finish the loan repayment as shown in the loan agreement form
  6. The members number as shown in the loan agreement form
  7. Number of the activity as given by the society
  8. The co-op society number i.e. the society registration number
  9. The amount of installments to be deducted –this is the principal amount + interest
  10. The date or year when the 1st withdrawal will take place

The detail should be extracted from withdrawal documents e.g. loan withdrawal journals

  • The balance before the present transaction if any
  • The amount of loan withdrawn by an individual is posted in the debit column and any other charges such as ledger fees and interest on loans
  • Credit all loan repayments

The balance is equal to the previous balance + debit balance-credit balance. The number of months from the latest repayments or loan withdrawals

  • Amount of interest charged.
  • Amount of loan which is overdue and its calculated by deducting the actual installments

Installments –deductions= overdue loans

NB the members loan account shall be used throughout the loan period to take care of the loan repayment, interest on loans and any other loan charges.

Preparation of the loan granting meeting

The society chairman may remind his committee and other participants of the meeting that

  1. All the information contained in the member’s application as well as any other information about the members shall not be disclosed to persons outside the society committee.
  2. The regulation of credit policy shall be adhered to when considering the application
  3. Committee members shall be guided by their knowledge of the applicants and before taking a decision on application they shall discuss the following questions
  4. Will the loan assist the farmer to reach a high production and thereby a higher net income?
  5. Will the member be able to repay his loan without being faced by economic hardships?

If the answers to the questions are favorable to the applicant, the application may be approved. If however it’s opposite, the application shall be rejected.

  1. Loan application from the committee members and the staff may only be recommended for approval by loans committee but the final decision shall be taken by the full management.
  2. Committee members or society staff members attending the loan granting meeting and who have got a personal interest in a certain application shall not be present when such an application is being decided upon.
  3. The guarantors’ last year production should cover the total amount guaranteed + own loans

NB: Decision taken will be recorded separately for each application in the loan application register.

The committee’s decision is signed for by the society chairman and the banking manager

If the funds available is insufficient to cover for the applications, the remaining applications shall be deferred depending on the availability of funds

The banking manager after the loans committee, shall extract a list of successful and unsuccessful applicants and send them to the marketing societies.

The unsuccessful applicants shall be informed of the reasons why they were not successful and such reasons could be:-

  1. Lack of enough security
  2. Lack of proper guarantors (unqualified)
  3. Past loan repayment records
  4. If the loanee has not been a member of the society for the minimum period required of 6 months

Then they are advised on how they can improve their chances of obtaining loans in future.

The successful applicants are asked to come and sign their respective loan agreements with their guarantors.

Organization of control unit into the member’s loan account

When all loan agreements have been gone through and member loan accounts have been opened for each borrower, the member’s loan account shall be organized into control units.

One control unit should not consist of more than 1000 members loan accounts.

The control unit should be arranged in accordance with marketing society and if necessary their collecting center

For each control unit there shall be a loan control ledger card.

The members loan account shall within each control unit be arranged in member number order.

Each control unit has got its own colour signal tabs and a guide card is inserted in front of each group of hundreds

Each guide card is fixed with a slot in signal indicating the member numbers to be found behind the guide card

On the numbered index card, each number which has got a corresponding member loan account behind should be encircled with red

This makes it easy to file the correct card immediately

When trying to find a certain member loan account from the control box apply the following techniques e.g. member number 1268

  1. Find from the slot in signals on the guide card the respective group of hundred ie. Group of 1200
  2. Turn up the guide card and then find the last 2 figures i.e. 68 on the numbered index card behind the guide card

Interest on loan

Interest is usually charged on any principal amount outstanding on a reducing balance basis

According to agricultural credit policy, the rate of interests charged by the society to their member’s on loans will depend on the cost of money.

Where the society use their own funds to lend to members, interest rates will be controlled by the prevailing marketing rates

However, where society borrow funds for the purpose of loan lending, the interest rates will be determined by the cost of borrowed funds

The charging of interest rates in this firm, the commissioner for co-op development shall issue administration circular guiding the society on the interest rate chargeable

Similarly, where society use both borrowed and own funds for lending the commissioner for co-op development will guide on the rate of interest to be charged

Calculations of the interest

To be able to calculate interest, the principal amount and the installment must be given

The following information will be needed at any given period

  1. The loan balance
  2. Loan repayment period
  3. Number of installments i.e. number of payments during the loan repayment period
  4. Interest rates
  5. Number of months since last pay out

 Formulae for calculating the loan interest

Interest is calculated as the loan balance at any giving time according to the following formula


Kutwa co-op society is a coffee marketing co-op there are 3 main coffee pay payments during the year as follows: – April, July, and Dec.  Mr. x got a short-term loan of ksh. 3000 Kutwa society charges 12% annual interest


  1. Calculate interest on loan given to Mr.X
  2. Calculate the installments amount for Mr.X


Loan deduction list

It is to be filled by loan clerk with the information from the members loan account as follows

  1. The principal amount required for each members (installment)
  2. The interest to be recovered d
  3. uring payout
  4. The total deduction required ( installment +interest)

The rest of the form will be filled in when net repayment is done

This will be done either at the society level or in the banking section

5. Actual deduction made according to the net payment journal

6. The overdue amount

Loan repayment

Loan repayment methods

  1. Deduction from crop proceeds/procedure

This is whereby the member’s loan repayment shall be deducted from crop payments i.e. loan deduction is made throughout the payout.

  1. The cheque of system

This is mainly for salaried people i.e. deductions are made on behalf of the society   by the employer of the member

  1. Payment through cash

This is whereby the members can pay their loans through cash made from other income.

Loan default

Causes of loan default

  1. Misappropriate of loan funds
  2. Natural calamities e.g. death failure of crops
  3. Loss of job /dismissed
  4. Ignorance
  5. Poor methods of loans recovery by the society
  6. Relocation from one geographical area to another one

Minimization of loan default

  1. Through educating and training member’s on the usage of loans
  2. Proper timing
  3. Giving at the right time so that members are able to utilize the loan for the intended purpose
  4. A proper recording procedure in case of disputes
  5. Giving loans for viable project

 Consequences of loan default

  1. The society may lack funds to tend to others
  2. May lead to collapse of the society
  3. The society will not be able to service loans from other financial institutions
  4. Loss of property and even funds
  5. The society is unable to meet operation cost.
  6. There may arise dispute between a member and member the society and a member and the guarantor
  7. Loss of membership


When an application is made to open an a/c in the UBS /Sacco by individual member or an organization there are principle matters for consideration regarding the prospective customers namely:-

  1. Whether he/she is a proper person to open the a/c in his /her name
  2. Whether he/she is a proper person to open an a/c in the UBS/Sacco

An a/c in the UBS/Sacco can only be opened by the following

  1. individual members of the affiliated society whose  proceeds pass through their society
  2. Employees of the UBS
  3. Jointly opened by a member’s and another e.g. member’s with his wife or b/s partner

Accounts that can be opened in the UBS /Sacco

  1. MSA –members savings a/c

It’s an account maintained by the members under the decentralized banking where by once the payment preparation and the posting of member’s debt have been carried cut at society level the UBS is left with the responsibility of maintaining only the member’s savings transactions.

The member’s savings a/c document is maintained in the UBS /Sacco on behalf of the customers.

It contains the following information (contents of MSA)

  1. The member’s name
  2. Member’s number
  3. The previous balance
  4. Interest bearing balance
  5. Interest and society number
  6. MPA- member’s personal a/c

It’s an a/c maintained by the UBS/Sacco on behalf of the members under the centralized system banking

The MPA containing members records of payments preparation, member’s debt, loan recoveries and other deductions made from payments and actual payments are kept at the UBS/Sacco

The MPA contains the full information (contents of MPA)

  1. The transactions which have taken place during a given period
  2. Name of the members
  3. Members number
  4. The balance
  5. The accumulated gross payments
  6. The member’s debts
  7. The member’s loan recoveries made.

Procedure for opening and operating an MSA/MPA

  1. The members register at the society level should be kept up to date

This is necessary in that the membership number and the society register to help in allocating a savings a/c number to members of UBS/Sacco

  1. The society management committee has to pass a resolution to admit the new member to the society
  2. The officials of the society are required to sign the introductory card of the new member. This is an introduction to the UBS/Sacco bearing customer signature and his ID number.
  3. When all the above details have been received at the UBS the member’s particulars are entered into a register called the members into a register called the members savings register. This register contains the members name members number, new a/c number, the nominee or next of kin.
  4. A new MPA/MSA is opened for the member at the UBS/Sacco
  5. A new pass book is issued to the customer and the serial number other particular of the book are entered into a pass book register

Savings transactions carried out in MPA/MSA

  1. The cash transaction
  2. Non- cash transactions

Under the savings transaction all the savings transactions will be done through the savings a/c as members cannot deposit/withdraw money from their society other than in with UBS/Sacco.

The full will be cash transaction/non –cash transactions deposited in a daily monthly, quarterly in the MSA/MPA

1. Cash transactions

  • Cash /cheque deposits
  • Withdrawals
  • Deposits from member’s payments
  • Transfer of payments from one activity to another
  • Loan withdrawals credited to MSA/MPA

2. Non-cash transactions

  • Invoice e.g. regarding service charge to another
  • Monthly summary of members savings

 Features /general information in MSA/MPA

  1. There is no fixed time i.e. the a/c is a continuous one
  2. No fees is charged for maintaining the a/c
  3. Most of funds is allowed in the a/c i.e. partial withdrawals and further deposits are allowed i.e. deposits can be made continuously but withdrawals are ltd
  4. The a/c earns interest at current rates
  5. Minimum balance in the a/c must be maintained i.e. unwithdrawable amount
  6. Cheque are not drawn in the a/c i.e. holders  must make his withdrawals personally i.e. the a/c is operate by the use of vouchers and pass parts /passbooks
  7. The main attraction in the a/c is that its allows movement and earns interests.

Joint account

At times members can be allowed to open a joint MSA/MPA

Bothe of them can be members or at least one of them must be a member of a pay society affiliated to the union operating a banking section.

The husband and wife commonly open a joint a/c however it may of course is opened by others who may or may not be related to one another.

If such a situation arises in the UBS then the following should be done

  1. Both parties should sign a specimen signature card and then MSA/MPA are supposed to  indicate whether these two parties are signatories
  2. The authority should state whether the articles so defined can be collected by either of them or both e.g. the title deed or other variable.
  3. The joint and several liabilities should clearly stated in a case of legal action arising  later of them or both e.g. title deed or other variables
  4. In absence of any written transaction, withdrawals from all should be authorized by both parties

Choosing of MSA/MPA

Closing of the a/c is possible after membership of the society has authorized or when the membership is transferred to another society.

It can be due:-

  1. Committee decision the committee however give permission to close an a/c if  special results are submitted the an application to gauge effect This may be possible due to a/c holder having special reasons e.g. insanity
  2. If a person voluntary withdraws from membership
  3. If the members have withdrawn from the society voluntarily the a/c can be closed at the end of the financial year
  4. If the customer dies
  5. If the customer only the nominee appointed by the members and recovered in in society register is allowed to use the a/c

NB incase where no nominee is or confusion arises, a cheque of the equivalent amount is drawn in f of the area.

Minimum saving balance

The reasons for minimum deposit is mainly

  • For giving loans to members
  • To enable the society to carry on its own operations

The repayment period of loans is normally at least one year although some part of the loans is recovered earlier.

There would be difficulties if some members decide to withdraw all their deposits at once

For lending purposes, it’s necessary to know that there will always be a certain amount in the savings a/c

This is the main reasons for having rules, regulating the lowest balance of savings a/c

The minimum deposit is withdrawable only when the member’s leaves the society

Balances below minimum balance shall bare no interest

The committee can also fix a higher figure as the minimum interest bearing balance


A passbook is copy of the record of the member’s savings a/c and its kept by the customer

All members of society having a savings a/c will be given a passbook

It shows the balance after each transaction and it reflects all the transactions appearing in MPA/MSA

Withdrawals can only be done by the MPA/MSA to whom the passbook has been issued or a person authorized in writing by the a/c holder

When a member wants to make a deposit or a withdrawal, he/she will have to present the passbook to the UBS/sacco so that a proper transaction can be made a passbook

If the deposits are made by any person other savings /ac, the passbooks are normally not available hence the updating of the passbook will take place when the members visits the UBS next

In order to ensure that the savings balance in the passbook is correct, it shall always be compared with the balances of the MPA/MSA when provided for the withdrawal deposit slip /vouchers.

NB from the above information it’s clear that the pass book is a valuable document and must be kept by the owner safely. Procedure followed when the passbook get lost

If the passbook gets lost, the owner should immediately report to the UBs/Sacco and deliver a statement in writing to how, when and where the passbook was lost.

This is done through a notification from obtained in the UBS/ Sacco.

The concerned savings a/c is temporarily suspended and transactions stopped for a neither period of nor less than one month from the date the passbook was lost.

Should the passbook be issued a note is made in the passbook register and in the MPA/MSA cancelling the previous passbook.

The UBS management may at its own description decide upon a fee for the replacement of a lost passbook.


Authorizing another prone to operate a member’s a/c can take the following manner:-

  1. A member may authorize somebody else to withdraw money from the a/c where the member to introduce the prone to the bank and the savings clerk fills in an authorization in the withdrawal form.

It’s signed by the member and witnessed by 2 persons who knows the ember personality

The authorised person will provide his specimen signature or thumbprint, id card no or driving licence no, his name and address on the MSA/MPA.

Revocation of authority

The member may at any time revoke an authorization in writing to the UBs /sacco

The specimen signature of the authorised person will then have to be cancelled

The authorized party will then cease to operate the a/c

Such a cancellation a/c shall be dated and initiated with reference to the member’s letter revoking the authorization.

Posting of vouchers into MPA/MSA & passbook


Deposits into MSA/MPA can be done in any of the following ways

  1. The cash deposits
  2. Cheque deposits-can either be in salaries/procedure payment deposits.

This can be done either by the holder or any other prone on their behalf

Procedure for making deposits in cash

  1. The savings clerk in the UBS/Sacco doe the posting. He/she takes the MSA/MPA and verifies the a/c number on the passbook and that on the deposit voucher and the passbook to either teller who will correct the money from the voucher and the posting on the passbook.
  2. The teller stamps and issues the deposit voucher. as soon aas he ascertains that everything is correct, hell then entre the amount in the deposit voucher into the tellers journal then initiates the passbook and hands it over the depositor.

Procedure doe making cheque deposits

Cheque deposits can be made by a/c holder or his agent

Payment of salaries or other produce payments are frequently mad through the UBS/Sacco

A list of names and amounts to be deposited to each member’s a/c is received together with the cheque

An official receipt is issued by the teller for the cheque received by him or her

The list of deposits having been stamped, initiated and entered in the tellers journal

NB At the end of the day, the teller hands all deposits vouchers and official receipts society wise and activity wise and fill his teller cash report.

He also does the reconciliation of his physical cash, tellers journal, official receipts and deposits voucher which are handed over to the chief cashier who summaries the deposits  received by all the tellers activity wise and society wise.


A member will fill a withdrawal voucher either by himself or with the assistance of the savings clerk.

The withdrawal voucher and the passbook will be passed over to the savings clerk at the couter who verifies the document to ensure that:-

  1. The person withdrawing is the true and legal holder of the a/c
  2. The passbook number is correctly filled in the withdrawal vouchers + the MPA /MSA is filled
  3. both balances in the passbook and MSA/MPA corresponds
  4. the balance is not below the agreed minimum balances

Means of identification

The savings clerk may identify the members a/c holder or authorised person by the following methods

  1. By ensuring that the specimen signature in the withdrawal voucher is same as the one in MPA/MSA.
  2. In case where there is only a thumb print, the Id card can be used a further means of identifying the person.
  3. The UBs. Sacco staff usually knows the members personally.
  4. Any withdrawal of over kshs. 100,000 require that a notice be given to the UBS/ Sacco except during payouts any mount can be withdrawn without notice served.

NB if after verification all are correct the depositing can be done in MSA/MPA and the following statements are used:-

  1. Withdrawal vouchers
  2. MSA/MPA
  3. savings journals
  4. A carbon paper etc.

At the end of the day the savings clerk will total up all savings journals and reconcile them by taking the previous balances –debit entries + credit entries and this will give the closing balance of the day.

Union banking system

Factors to consider when establishing a UBS

  1. Cost of establishing that section- should be able to evaluate and estimate the cost involved in establishing a banking section.
  2. No of affiliated societies-the societies affiliated should be in good number where by they should be willing to participate in that section.
  3. Security- security should be good for the section i.e. co-op should ensure that union premises are secure enough for the banking section.
  4. Qualified staff-society should establish or ensure they have qualified staff to offer the services in the society before establishing the banking section and operate it.

Sources of funds for the union banking

  1. members savings-UBS should adopt a positive strategy of mobilizing savings from member’s who are expected to operate individuals savings a/c through which their procedure proceeds will be channeled
  2. government and donor funds-UBS/Sacco society will Utilise government and donor funds channeled through their co-op bank of Kenya and offer loans to individual member’s
  3. borrowed funds-UBS/ sacco society will supplement their own generated funds through borrowing from the co-op bank of Kenya or nay financial institution approved by the commissioner
  4. Operations inform of retained earnings-e.g. sale of assets, rental houses etc.
  5. share capital-this is where by the UBS shall issue or offer a number of shares in accordance with the by-laws for purchase by its members and raise sufficient capital for establishment

 Services offered by the UBS.

  1. Savings services- this is where members open savings a/c .it can either be MPA/MSA at the UBS

The minimum balance for every a/c used to be 500 but with time it has changed

An interest rate is fixed to pay interest on the savings a/c

At times members can deposit money into their a/c, form crop payout and this is mainly forwarded and posted into their a/c.

Also members can deposit money from other sources e.g. b/s, salaries etc.

  1. Credit services-they are given to the members for productive agricultural services

Some purpose for which member’s take loans are-purchase of inputs, dairy farming, paying school fees, building houses etc.

  1. marketing of member’s produce
  2. education and training of member’s and staff

Centralised and decentralized banking system.

A centralised banking system with member’s payment preparation, member’s debt, loan recoveries and other deductions made from payments and actual payments are concentrated at the UBS.

Decentralized banking system is a system whereby the UBS deals with only the payments and manages savings only.

Advantages /benefits of decentralized banking systems

  1. Since the UBS handles net payment only, it’s not banged down with calculations of net payment.
  2. the debts are deducted at the label hence the UBS manages the saving only
  3. the UBS acts fully as a bank handling money matters and does not deal with society activities
  4. the UBS need not employ very large staff hence cutting down cost
  5. The UBS management is likely to be more efficient creating confidence with member’s.

Disadvantage of decentralized banking system

There is overcrowding of activities at the society level hence it might not be very effective at society level.

  1. There is duplication of work
  2. Control and supervision is hard at the society level
  3. Auditing is cumbersome
  4. Requires a lot of time
  5. lack of work uniformity

Disadvantages of centralised banking system

  1. it’s expensive e.g. due to many employees required and many expenses incurred in the process of carrying out the activities together
  2. might not be very effective /efficient as many activities are concentrated at one point
  3. its baked down with various calculations concerning members payment preparations, loan recoveries, debt preparation and other deductions
  4. A lot of time is consumed when dealing with all those activities.

Advantages of centralised banking system

  1. duplication is minimized because all the activities are centralised at the UBS
  2. discount is made possible due to bulk buying
  3. there is a close monitoring of activities because the activities are all concentrated at one point
  4. Auditing work is done easily.

Security aspects

The security in banking section /rural Sacco has got many aspects. This includes physical security, insurance, good a/c system and well trained staff.

  1. Physical security


The entrance to the banking section should be clear so that any visitor coming to the bank premises can be seen when approaching

The centres of the banking section should be well constructed and secured with iron bars all round so that nobody can reach the cashiers drawers

The doors and the windows must be strong using string locks and iron bars for the windows.

Security lights should be fitted inside and all-round the building and put on during the night

The premises should guard day and night by watchmen and trained dogs esp. during payout period when a lot of cash is in the premise.

Strong Room and The Safe

The entire building where the safe and the strong room are situated should be built of cement and stones the ceiling strong room should be equipped and reinforced with iron bars

Special made locks should be used to lock the strong room

Only big fireproof and explosive roof safe should be used

The key should be kept by two different people so that no one person can open the strong room and the safe

Large sums of cash in the safe should be avoided even if the money is insured

There should be an insurance cover in the safe for cash during and out of b/s hours

The strong room doors and the safe should be insured against damage in case of an attack

Nobody should be allowed to enter the string room except the officials who deals with transportation of cash


The vehicles should be built specifically for carrying cash and should include a build safe in

The union /society should have atleast 2 armed policemen to escort cash during transit

The keys should be duplicated one copy should be kept in the premises and either one should be kept in the bank where money is drawn so that no key is carried during the transit.

The vehicle carrying money should be well maintained to avoid breaking down during trasnits

If possible, a wireless phone should be installed in the vehicle and be connected with a police station to enable communication in case of an attack.

There should be another vehicle to escort the vehicle carrying cash

The routes times should be changed from time to time and be kept secret\there should be an insurance cover for cash in transit and the limit for insurance cover should not exceed the amount being carried

Cash should be withdrawn from the nearest bank to avoid long journey while carrying money


Before insurance is renewed every year and whenever a charge like opening a new breach office, insurance of mobile services should place, the banking secretary should review the insurance terms to check whether the coverage is still efficient

Of special importance are:-

  • limitations of amount kept by banking section in transit or
  • in the safe or strong room overnight

The banking security should check all other conditions in the insurance policy whether they are followed. He must make sure all staff members involved in cash handling  and transportation are aware of applicable conditions and that they  adhere to  them.

Good accounting system

An important part of the security is to have according and a/c system that facilitates control and maintenance of up to date records.

This prevents theft and frauds

It also provides a tool for good financial management and economical losses or even bankruptcy can be avoided

Whatever systems a banking section has, it must have adequate, suitable and sufficiently trained staff to turn them.

Well trained staff

Whatever system a banking section has it must however have adequate, suitable and sufficiently trained staff to run them.

This includes:-the cashiers should be honest, trustworthy and hardworking

Should be free from enemies and their previous records being good

The earning of the employee will dictate the amount of cash he/she should handle

The hire the salary the more cash the employees should handle

No cashier should handle money on his own. There should be counter checking by other cashiers and finally by the banking secretary

Interval control of cash and surprise cash checks should be conducted regularly

When employing cashiers investigations should be conducted in respect of their private domestic life, family responsibilities and property owned.

Cash reconciliations should not be given out to the cashiers and a limit to b handled by each chaser should be set

Rotation of cashier should be conducted regularly, not only cashiers but also some other staff

Cashier should be well trained and taken to training joins to improve their performance

Other security aspects

  1. fire arms

There should be adequate fire extinguishers. The extinguishers should be well maintained and the staff should be trained to operate them

They should be installed at easily accessible places

Inflammable items e.g. gas, petrol should never be kept in the premises

Smoking in the baking halls should be strictly prohibited

2. guards and the keys

selection of guards

It’s obvious that a banking section needs guards

The selection of permanently employed guards has to be carefully does the previous employment records should be checked including contacts with earlier employers.

In the absence of records other ways and means will have to be tried to surrender that the person is absolutely honest.

If this cannot be established the person should not be employed as a guard

The banking section management promotes good relations with the local government administration and keep informed about the need of armed escorts in the banking activity.

Through planning a head the banking section can inform the administration well in time about the payment and money transport.

Under such circumstances it has normally not been a problem to get the necessary armed the mobile service should be cancelled and the members informed accordingly.


The strong room lock and the lock of the state both need two keys to be opened

The key should be kept by 2 persons e.g. the banking secretary and the chief cashier so that they both have to be present to open the locks.

It’s sometimes necessary to handle over the keys to other staff members

To control this banking secretary must keep a key register which show who has had possession of the keys and who is currently holding the key.

The return and the receipt of the key should be properly  signed for the concerned staff in the  register

The number and other marks of the key shall always quoted in the register to make it possible to trace individual keys.

duplicate keys

The duplicate keys for the strong room and the safe shall under normal circumstance be kept in the union premises.

Instead the keys should be deposited in a local bank

Mobile services

This is banking services offered to the customers who are part of the banking hall

It’s normally offered once or twice a week after produce payments as the UBS/ sacco May 13, 2019 the market of cash in this nature constitutes a high security risk

The procedure which should be used must be known and observed to minimise the possibilities of injury or loss

Proper security should be made prior to the start of the exercise and this includes:-

  • Escorts and guard-they should be responsible for escorts and must accompany all consignment of cash, items treated as cash and should at no time leave a consignment unattended.
  • Use of different routes to and from mobile services centres- should be taken into consideration in that one route is not used frequently. Routes should be changed from time to time where necessary.
  • the van- the van should mad available for the exercise and should always be in a good condition fitted with necessary equipment’s e.g. alarm and safe
  • The limit- the amount to be carried during the mobile service should be in accordance with the insurance cover.
  • premises in general-there should be places which are well situated and conducive for holding cash
  • avoid paying in odd places e.g. hotels, bars, markets
  • such services should be done during the normal working hours
  • tellers should take necessary precautions when serving the members
  • They should make sure that proper payments and actual receipts are maintained and should balance the actual work at the end of the day.

Action in case of robbery, theft of fraud

If a robbery takes place it’s important that staff do not panic, they should keep calm to avoid violence and injury.

They should be possible to make valuable observations e.g. robber’s body size, head shape marks of any type, details of dress, weapons, car make car no etc.

Other details should be carefully observed, while still in good memory the staff should be asked to make notes of all observations for later reporting to the police.

Care should be taken to avoid destroying finger prints.

Secret alarm to the police should be put on; the management should be alerted as soon as possible and should see to it that policy and insurance get proper information.

Peculiar behaviour by the staff/ customers should be reported to the branch manager

Similarly storage withdrawals of unusually large sums or very frequent withdrawals made through suspicious authorization should be reported to the branch manager. It might be a question of fraud.

General proportions

Protective devises such as alarms and cameras are to be inspected and serviced regularly

Alarms connected to the police station must be tested fortnight and it’s essential for the police to be informed of such tests by a responsible officer personally visiting the police station.


When the alarm is to be tested the message is not supposed to be conveyed by telephone

All members of the staff should be on the lookout for suspicious persons loitering in /near the bank and management should contact the police when in problems

The amount of money or other negotiable assets outside the strong room should be kept as low as possible and at all the times cash must be kept safely.

Cashier should be constantly reminded of the necessity to keep cash over and over that is required for immediate case in the bottom of drawers

If it’s not possible for this drawer to be kept locked notes of the lowest denomination should be kept at the front of drawers

If it is important that security staff should be kept attentive all times and not permitted to read newspapers etc. whereby their attention s destructed during duty.

Profitability margin

Relation to UBS

The gross interest margin calculation is a management tool for measuring the profitability of banking section/UBS

The gross interest margin is the difference between:-

  1. interest received and capital utilised
  2. interest paid on capital employed

The difference is what is referred to as margin which is expressed in ksh. as a %

Gross interest margin also identifies if the banking section is losing or gaining from the funds available

it also shows how successful the UBS management has been in investing the capital available and in  raising this capital of the lowest cost possible.

This report is normally prepared by the banking accountant and the information used in filling the gross interest margin form is obtained either from control ledger or trial balance.

Procedure for filling in the farm


  1. Date of which the gross interest margin is prepared and the name of the UBS
  2. Members savings a/c

Rate of interest on members fixed deposits

  1. Members fixed deposit
  2. Society savings

Rate of interest on society’s savings

  1. Society’s fixed deposits

Rate of interest on society’s fixed deposits

  1. loans from bank –from various banks

Rate of interest on loans from banks

NB If they have different rates of interest they have to be written separately

  1. bank overdrafts

Rate of interest on bank overdrafts

Gross interest margin as at 1/_/20_ _

Union current a/c

Rate of interest the union gets in it’s a/c in the banking section

Other funds

Rate of interest on other funds

Total liabilities

Average interest rate (c)

Average interest rate = calculate all interest amount add them together which is


Cash in hand

Rate of interest on cash in hand

Cash in bank

Rate of interest on cash in bank

Savings a/c

Rate of interest on savings a/c in the bank

Short call deposits

Rate of interest on short call deposits

Fixed deposits

Rate of interest on fixed deposits

Members loans

Rate of interest on the members loans


Rate of interest on debtors

Union current a/c (assets)

Rate of interest on union current a/c

Other investments

Rate of interest on other investments (advanced stock, loss and suspense a/c)

Total assets

Average interest rate (D)

Calculate the gross interest whereby it is equal to D-C i.e.

D – Average interest rate assets

C – Average interest rate liabilities

If C is more that D interests has not been mad wisely

If D is more than the interest has been made wisely


The gross interest margin – D- C =%

The following information is available in the books of Mfano UBS as at 3rd Dec 1989


  1. From the information above prepare the gross interest margin as at 31st Dec 1989
  2. comment on the investment of sacco funds


Mfano UBS gross interest margin a at 31st Dec 1989

Cash liquidity

Cash liquidity is the amount in cash that is held by the banking section either in hand or in the commercial book in various types a/c i.e. current a/cs, short call deposits a/cs, savings a/c etc.

The importance of handling adequate cash held by the B.S is to ensure that there is money available by the a/c holders whenever they want to withdraw any money from the a/c.

This will also create confidence with the holders. Also proper ascertainment of cash liquidity will determine how much fund can be invested in what proportion and where.

With this, cash liquidity format comprises of 3:-

  1. available cash/ cash reserve demanded
  2. available cash/ cash available
  3. cash excess/deficit/ cash reserve excess/deficit

The available cash is represented by cash in hand; cash in bank, savings a/c, short call deposits etc.

Such available funds /cash is used for

  1. Members loan disbursement
  2. Members withdrawals
  3. Operating expenses e.g. salaries, stationeries etc.
  4. Payment to creditors
  5. Investment of surplus funds

Part A- cash liquidity DNB2OW format

  1. fill in the date when the liquidity is being calculated
  2. the name of the UBS /sacco
  3. total members savings balance
  4. 20% of the total members savings balance i.e. 20% is part of the liquidity reserved of the banking section and its calculation is prepared monthly and distributed
  5. provisions for withdrawals after payouts
  6. provision for expected loan payout- i.e. if any loan have been granted and have not yet been withdrawn a provision for such loan must be made
  7. other provisions e.g. refund of shares, interest capitalized and likely to be withdrawn by members
  8. Total ash needed-this will be the total of all amounts above .it shows all cash requirement which should be maintained at the UBS if the liquidity position I to be considered satisfactorily.

Part B of the liquidity format

  1. Total amount of cash in hand in the UBS + all the branches
  2. Amount of cash held in the current a/cs and names of banks in which they are held.
  3. Amount held in savings a/c and names of banks
  4. Amount held in short call deposit a/c and names of the banks where they are held
  5. Total amount available in liquid form.

Part C of the liquidity format

  1. if A is less than B, the UBS has a positive cash liquidity reserve
  2. if A is more than B, the UBS has a negative cash liquidity reserve

The UBS should suspend loan granting and ensure that liquidity reserve is maintained

  1. remarks on the liquidity and action to be taken either when it is –ve or +ve
  2. position held by person preparing the liquidity, date and signature
  3. position held by the person who checked the calculation, date and signature

NB this is a very important document and must be prepared monthly by the UBS

It will review whether there are idle funds being held by the UBs or whether the UBs has violated liquidity requirement by over lending.

Liquidity calculation

Bank reconciliation

BR is one of the most important means to control and safe guard the cash of a society /Union

It ensures that transactions have been posted accurately and timely to ensure society/union

It reveals any errors which could be in the bank statement etc.

NB BR should be prepared for a/c at least on a monthly basis

The monthly controllers appointed are supposed to check that the reconciliations are prepared  and are accurate

Reconciliation should be prepared as soon as the bank statement has been received for the applicable period

Below are documents required to prepare reconciliation

  1. Cash journal-used for monthly reconciliations and all transactions involving cash are recorded here.
  2. Bank statements-covering –covering period from last reconciliation up to reconciliation date bank reconciliation form.

Daily reconciliation

Reconciliations of transactions

The purpose of reconciliation of transaction is to establish whether the payments and receipts have been carried out in accordance with the vehicles which are the primary documents.

Immediately after closing off the b/s the teller will have to surrender all the deposits and withdrawal vouchers to the control clerk for safe keeping and totaling.

The teller will separately total up his tellers journal to establish the totals of deposits and withdrawals made during the day.

The teller will inform the control clerk of the total and withdrawals made in the teller’s journal

If this agrees with the corresponding totals of the vouchers added up then the teller is allowed to proceed to the next step of the daily closing.

if the totals do not agree the difference must be traced immediately

if necessary the deposit vouchers and the withdrawal vouchers will have to be ticked off against the tellers journal to establish the difference.

NB if there is no teller’s journal being maintained the teller will then total up with the voucher on an adding machine before they are surrendered to the control clerk. The teller will retain the adding machines slip.

Tellers cash report

To reconcile cash in a UBS, tellers report is needed

Whereby one has to be able to post and deposit vouchers in the tellers journal and then prepare it

Contents of cash deposit vouchers

  1. Union’s name
  2. Savings a/c number of the depositor
  3. Depositor’s name
  4. Voucher number
  5. Date of deposits
  6. Mount deposited in words and figures
  7. Depositor’s signature
  8. Savings clerk and control clerk signature
  9. Tellers stamp

Contents of withdrawal voucher

  1. Voucher number
  2. Members a/c number and members name
  3. Amount withdrawal in words and figures
  4. Balance in savings a/c and members passbook after withdrawal
  5. Date and signature of the members
  6. ID card number or any valid means of identification
  7. Counter clerk signature
  8. Savings clerk signature after verifying
  9. Control clerk signature.

Teller’s journal

It is a record of all cash transactions, all receipts and payments made by the cash teller

The details include:-

  1. name of the union
  2. page number of the journal
  3. date of recording
  4. cheque deposit voucher number
  5. cheque number
  6. cash deposit voucher number
  7. withdrawal voucher number
  8. Total amount received and total amount paid.

NB after closing and balancing of the tellers journal the tellers cash report can be completed which includes part (i) of receipts and the other part the payments.

Tellers cash report

  1. receipts include
  2. opening balance on behalf i.e. closing balance of the previous date
  3. the members savings –total deposits to members savings a/c received during the day
  4. members fixed deposits-total deposits of members fixed deposits a/c received during the day
  5. chief cashier the cash received from the chief cashier during the day
  6. cheque commission-comm. charged on cheques received during the day
  7. total-total receipts as listed + opening balance

NB to get the balance in the teller’s cash report you take the receipts you less the payment whereby it must be reconciled /counter checked against the physical cash check balance

Reconciliation in loans

The following steps are recommended to be taken in order to ensure a proper reconciliation between member’s loan a/c and the loan control ledgers.

  1. Check that all members loan a/c are in the right place in the card box. This is easily done if signal and guide cards are properly used. Should this not be the case the loan agreements can be used to ensure which documents should be contained in the card box.
  2. Add up twice documents and society wise on an adding machine the balance of the member’s loan a/c and compare the totals of adding machine slips. This total should agree before the next step is taken.
  3. Compare the totals of the adding machine slips with the balance of the relevant loan control ledger a/c.

Use the form reconciliation sheet for member’s loan and rate the respective balances of the relevant columns

Should the figures agree mark with a in a different column if this is the case

Should however the 2 balls should not agree the different should be established

If the balls of the members loan a/c is bigger than the one of the loan control ledger the different should positive

If the balls in the member’s loan a/c is smaller mark the different with a negative sign.

Training of errors

In order to trace and rectify any different a systematic approach is necessary.

The following procedure shall be followed to trace the errors

  1. check the control ledger is properly balanced as follows:-i.e.

Check the previous months balance + debit entries of the month- the credit entry of the month which is end of the month balance.

Check that the balance of the loan control ledger a/c that have been carried forward are correct

Ensure that following documents of original entry have been properly  posted to the loan control ledger

They include:-

  1. summary of the members loan withdrawals e. cash and loan in kind
  2. summary of net payment journals
  3. summary of official receipts for cash repayments
  4. summary of loan journals including the interest and the ledger fees

NB tick all the entries properly made in the reconciliation sheet.

Check that reconciliation of loan journals and summary of loan journals have been properly made

Check that all corrections on loan summary journal have been made in supporting documents\establish all balances carried forward in member’s loan a/c

Make certain that every member loan a/c is arithmetically correct

Tick all transactions on all loan withdrawal journals, official receipts and net payment journals against respective member’s loan a/c and perform all the necessary corrections.

Reconciliation sheet for members loans

  1. fill in the society name in full
  2. fill in the activity name
  3. fill in the society registration number
  4. fill in the activity number
  5. date of reconciliation
  6. date of tracing errors
  7. reference of documents affecting reconciliation
  8. reduced balances which reduces the balance in the members loan a/c
  9. increased balance increasing the balance in the members loan a/c
  10. balance after a reduction or increment effect
  11. reduced balances which reduces the balance in the members loan control a/c
  12. balance after an increase or reduction on the control a/c
  13. difference between loan a/c and the control a/c after the effects on of the members loan a/c and the control a/c

Interest of savings calculation

It can be calculated manually or by use of interest tables

The following are the forms and equipment’s required for calculation of interest

  1. auxiliary interest calculation form (AICF)
  2. members personal a/c/membership saving a/c
  3. adding machine or a calculator

Steps Followed

  1. Fill in the heading of auxiliary calculation form and the details include
    • Name of the society
    • Registration number of the society
    • Name of the a/c
    • Activity number
    • Year applicable
    • Number of the pages
  1. Go through MSA/MPA once a month and using one auxiliary interest calculations form fill in the member’s number and the name.
  2. find the lowest saving balance of the month


The minimum interest bearing balance is ksh.500 the interest rate is 15% p.a

  1. Using the above information complete the MSA
  2. Calculate the interest that the members should earn during the period.

NB the formula is


A cheque is a special bill of exchange drawn on a specified banker and payable on demand

is an unconditional order in writing signed by the person giving it requiring  the banker to whom it is addressed to pay in demand a sum certain in money  to or  to the order of the specified term or to the bearer.

Conditions for a true cheque /conditions for instruments to be called a cheque

  1. the amount specified on the instrument must be payable on demand
  2. the instrument must be payable to or o the order of a certain person to the bearer
  3. the order must be for a certain sum of money only
  4. the order to pay must be addressed to a bank or a banker and it must e a specified one
  5. the drawer must sign the instrument in order for it to be valid document
  6. the instrument must contain an unconditional order
  7. The instrument must be in writing either by means of printed characters, type written or by pen.

Parties to a cheque

  1. Drawer-it’s a person or the party and who or by whose authority the cheque is signed

It’s the party who issues and signs the cheque

  1. Drawee-it’s the party authorised to payout the money i.e. the bank of the drawer, the paying bank
  2. payee-it’s the party authorised to whom or to whose order the money is to be paid

It’s that party in whose name the cheque is issed. in other words the beneficiary

Types of cheques

There are 2 types of cheques

  1. open cheque
  2. closed cheque

Other types

  • Stale cheques– a cheque is stale or overdue when it appears on its false unreasonable length of time
  • Postdated cheques– a postdated cheque bears on its face a future date and the bank will only honour on the date indicated on its face. It presented for payment before the date on its face is due the cheque will be dishonoured
  • Undated cheques– These are cheques that bear no date on the face and the holder of this instrument including a bank may insert a date .Nevertheless banks generally returns undated cheques since they are not bound to be honoured
  • Outdated cheques-these are a cheque that bears a date earlier than the date shown. A bank cannot refuse to honour the cheque on the ground that is outdated.

Aspects to look into when a cheque is presented for payment

  • The date
  • The amount in figures and words and signature of the drawer
  • The paying bank (drawee)
  • Cheque number
  • Whether the a/c number of the drawer is on the cheque
  • Whether the name of the drawer is on the cheque
  • Whether the cheque is one or close
  • The type of closing special or general
  • Whether there is any material alterations

One of the procedures followed in loan granting is a visit to a loan applicant’s form to access the value of land. Explain the shortcomings of this procedure

  1. time consuming-it takes a lot of time walking from the office to the location of land especially where weather condition are bad and no vehicle can reach that place
  2. corruption –the work is tiresome accessing the land may be bribed to give false information
  3. tiresome- the work is tiresome as it involves lots of walking from the office to the location of land so as to get the actual details
  4. lack of necessary equipment’s-lack of equipment may hinder getting the necessity information which may interfere with the procedure as they won’t get the correct details
  5. Lack of well trained personnel-the staff chosen may lack adequate knowledge to carry out the work.

Explain the limitations of relying on govt and donor funds by a co-op society

  1. long time taken for the funds to reach because of the long procedure involved
  2. corruption
  3. long procedure followed
  4. lack of confidence from members
  5. restrictions by the govt
  6. high interest rate charged
  7. inconvenience (money may not be available at the required time)
  8. lack of enough funds hence govt will give limitations on the amount to be donated
  9. tight and rigid conditions for tending by the govt
  10. govt may require heavy securities which the society might not be able to afford or may be risky.

With the aid of an org chart, explain the authority relationships in rural Saccos

AGM – Election members of the management committee, approve budget for capital expenditure approve and audit a/cs

Management committee – determines the allocation of loan to members, receive loan application and follow loan repayment by members

Banking Manager – reports to the management committee and is responsible for day to day running of the society affairs

Deputy Banking Manager – in charge of the headquarter branch, savings section and mobile service reports to banking manager.

Internal auditor – in charge of Sacco audit and reports to the banking manager

Branch Manager – responsible for the total branch operations and reports directly to the banking manager.

Credit officer – receive and process loan applications, maintain loan a/cs, supervise loans clerks

Accountant – in charge of all accounting matters of the Sacco, supervise books keepers and a/c clerks

Chief Cashier – responsible for safe keeping of all cash, handles all cash and supervises all cashiers

Personnel officer – responsible for all personal records and handling of all personal matters and daily administration of Sacco.

Decentralisation- it’s whereby all activities of member’s are carried out at the society level and the UBS is left with responsibility of maintaining only the member’s savings transactions

Centralisation- it’s whereby all activities of member’s /transactions are kept at the UBS /Sacco

Advantages of decentralized banking system

Debts are deducted at society lee; hence UBS do not bother about them

UBS acts fully a bank handling money and not partly as a society

UBS management is likely to be more effective

UBS handles net payment only


Nyash has reported the loss of his passbook to his banking section. Explain the money that the UBS should take to ensure that the person other than Nyash withdraws money from the account

  1. the union should suspend the loss of the passbook and the society should seek details about when ,how and where the passbook got lost
  2. the union has to alert management committee about the loss of the passbook
  3. the union must ensure that the passbook owner cannot withdraw money while investigations by the committee are in progress
  4. the new passbook is issued with a new serial number and the previous passbook is stricken off from the register by the accountant/ secretary
  5. Nyash as the owner should report on the same day about the lost passbook to the union

Aspects of the loan repayment that would be dependent on the circular issued by the commissioner of co-op

Repayment period i.e. if its 18, 36 or 60months

Interest rate charged on the loans

Member qualification to be met before being granted loan

Security to be offered for each type of loan borrowed

Terms of repayment

Advantages of cheque off system as a method of loan repayment

  1. Minimises instances of loan default
  2. timely loan repayment
  3. certainly
  4. it encourages savings
  5. it reduces loan recovery expenses
  6. it ensures proper use of loan funds
  7. security is guaranteed
  8. the method is economical and effective
  9. adequate loan follow up
  10. Member’s in not overburdened in the repayment of the loan.

Factors that lead to difficulty in meeting member’s loan repayment

  1. insufficient member’s savings
  2. misuse of funds by management and staff
  3. increase in loan default
  4. poor record keeping

Explain the ways that a co-op society may use to strengthen loan recovery from its member’s

  1. strict and thorough loan appraisal for all application during loan granting
  2. imposing fines and penalties to loan defaulters
  3. ensuring that loans are adequately covered by collateral in case of delayed payment collateral can be auctioned to cover up the default
  4. constant and regular follow up of loan clients during loan repayment period
  5. implementing insurance arrangements incase if a member dies with outstanding debt or loan

Explain various security measures that should be used prio to the services (e.g. G4S)

  1. Use of different routes when transporting cash
  2. Avoid transportation of large sums of money
  3. Fitting of secret alarms
  4. insurance cover for money in transit
  5. vehicle transporting cash should be well maintained and also a safe should be fitted inside

 Explain the factors that may limit the ability of co-op savings scheme to mobilise savings in Kenya

  1. lack of staff education and training- the staff may lack the knowledge on how to mobilise the savings of member’s
  2. poor management of funds /misappropriation – the management may use the member’s savings for the unintended purpose
  3. corruption-the management committee may use the member’s funds for their own benefits
  4. loan default- the member’s may be granted loan by the society they are unable to repay back hence the society faces the problem of lack of enough funds to mobilise the savings

Disadvantages of withdrawing loan in kind

  1. Destruction of inputs during transit form the society to member’s home
  2. Member’s incurs extra cost if the society does not offer transport services
  3. High chances of wastage if not used properly and at the very right time
  4. May lead to loan default if the input provided did not yield return
  5. Its tiresome during transportation of products where transport is not offered

Advantages of using cheque of system as a method of loan repayment

  1. It minimises chances of defaulters-since the members’ salaries passes through the society /lender.
  2. helps the society to know the amount of money to give as loan
  3. facilities timely loan repayment

Ways in which members education would enhance effective loan recovery

  1. Member’s get to know the effects of loan default to themselves e.g. auctioning of personal assets e.g. land and offsetting of their shares to repay the loan.
  2. helps the members understand loan repayment terms
  3. helps member’s understand the rate of interest and how it is to be charged
  4. informs member’s on the most variable projects to invest in which help them yield more money to repay back the loan
  5. member’s get to know the effects of the loan to the society

Factors that lead to difficulty in meeting members loan requirement

  1. loan arrears /overdue debts
  2. lack of funds to loan to the member’s/financial constraints
  3. inadequate security from the member’s to secure the amount of loan applied for
  4. poor management
  5. unviable loan purposes

Benefits of withdrawing loan in kind in a society

  1. low cost –the society offers lower cost on products as compared to retailers
  2. guarantee-the member’s is assured that the products are secure in case of any fault for repair
  3. security-loan in kind is more secure than loan in cash e.g. in case of theft
  4. misuse –loan in kind id taken for a particular purpose but cash can be used for unplanned activity
  5. Ownership-once the loan is paid the loanee can claim ownership of the goods e. form requirement

Demerits of withdrawing loan in cash

  1. misuse/mismanagement –cash can be easily misused or mismanaged by the loanee
  2. insecurity-cash be easily lost /stolen than loan in kind
  3. unintended purpose-cash taken can be used for the purpose that was not intended for
  4. loan default-when the loanee invests in projects that don’t yield income, he/she may not repay the loan

Why the society should ensure that the loan is available in time to member

  1. to minimise cases of loan default
  2. to maintain members
  3. to ensure prompt loan repayment
  4. for high production
  5. reduces cases of misuse

Explain how funds realised by a saving and credit co-op society may be employed

Investing in the most viable project e.g. opening of new branches

Giving credit to members

Giving dividends to members and bonuses

Educating the member’s and the management of society with the funds

Improving the society infrastructures

Improving/developing social amenities/utilities in the community/charity work in the community

Giving scholarships to the needy

Increase its capital base thus increasing of its maximum borrowing power

Purchasing assets

Operational expenses

Reasons for preparation of a loan priority list

  1. to enable members manage their loan repayment because investments will be made in areas with high returns
  2. to enable members to become financially stable making the society also to have adequate funds to offer as loans
  3. to give priority to those projects that are most useful to the member’s needs
  4. it initiates a well-rounded devt for the area since each district potential is identified and funds are made available for the project.
  5. helps in identification of distinct resources for effective utilisation
  6. to generate high production by investing in high potential areas /sectors with the right project

Features of, loan priority list

  1. it contains projects which are arranged in the order of importance
  2. the projects are financed according to their order of importance
  3. it is prepared annually for each district
  4. it shows the loan repayment period for each loan purpose
  5. it shows the area in which the priority list is prepared for e.g. a certain district

Importance of preparing loan packages

  1. it enables the members to Utilise properly the loan funds lend to him hence avoid misuse which may lead to defaults
  2. it enables  the member to acquire loan from the society in accordance to the particular project or loan purpose
  3. enables the member to identify the most project that he/she will invest in
  4. enables the member to determine the cost of input to be used in production unit
  5. helps the member to compare the income before pre-loan and income after post loan

Reasons why govt prefer to channel funds for agricultural devt through UBS

  1. The UBS can be able to manage the funds provide for by the govt
  2. The UBS has got the ability to carry out the administrative duties of the funds
  3. The UBS is capable of making follow up to ensure that the funds are bearing utilised for the intended purpose
  4. UBS has access to a large number of member’s through their society hence have many members’ will get the funds as loans.

Reasons for preparing loan priority list

  1. helps the credit officer in devt, plan for each district during  their financial plan
  2. viability-LPL give the credit officer the importance of the project to be financed in a particular district
  3. repayment period-the credit officer is able to know the period in which 1st repayment is made
  4. loan default –LPL reduces chances of loan default since the importance of loan projects are known before loans are granted to district officer to be given to loanees
  5. to know the amount required in kind
  6. to know the total amount required
  7. to help the credit officer to scrutinize loan to be given to each district once in its financial year

Reasons for co-op union to maintain liquidity in the bank

  1. credit facilities
  2. accountability
  3. for security
  4. avoid misappropriation of funds
  5. to earn interest

Measure to minimise loan default

  1. Avoid overlending to member’s
  2. Charge high securities
  3. Giving loan in kind to avoid misappropriation of funds
  4. Provision of education on better loan usage
  5. Advice loanees on viable projects to invest in
  6. Proper timing- giving loans at every time
  7. Effective adm and proper loan recovery proceeds
  8. Educating and training member’s on loan usage
  9. Proper recording procedure in case of disputes
  10. Give loans for viable projects

Importance of member’s loan account in the UBS

  1. it shows loan balance
  2. it shows loan type
  3. it shows payment period
  4. it shows guarantors
  5. it shows security offered

Ways in which the co-op savings scheme safe guards member’s funds

  1. insurance cover
  2. provision of security guards e.g. G4S
  3. ensuring that safe are fire proof
  4. strong room
  5. safeguards of the strong room key
  6. banking with other banks
  7. large payments should be avoided in cash

Reasons for establishing banking section in a co-op which wants to participate in a saving scheme

  1. to mobilise members funds
  2. educate members
  3. provide appropriate credit facilities
  4. provide saving facilities

Factors to consider when renewing an insurance cover

  1. new branches –whether there have been new branches that have been established or started since the previous cover was taken
  2. new charged-especially in the mobile services must also be taken into consideration
  3. adequacy of the existing insurance cover
  4. limitations of the amounts kept-the charges in limitations of the amount kept by the UBS for the service should also be put into consideration
  5. amount in the strong room-the changes in the amounts which should be in the strong room overnight should be considered
  6. amount in transit-they should put into consideration limitations of amount which should be intrinsic at any one time
  7. other conditions spelt in the insurance policy


Services offered by co-op bank of Kenya

Explain the reasons for establishing a banking section in a co-op society  which want to participate in a savings scheme

Explain the ways in which co-op saving scheme safeguard the member’s funds

One of the requirements of a co-op society to participate in the co-op saving scheme is to establish a banking section. Explain the reasons for these requirements

Explain 6 reasons why co-op society are required to prepare loan priority list inorder access funds credit programmes

Explain the features of a loan priority list

Outline the importance of preparing a loan package

Explain 4 reasons why the govt prefer to channel funds for agricultural devt thro UBS

Explain the ways in which co-op members’ education would enhance effective loan recovery

Njara rural Sacco has been finding it difficult to meet member’s loan requirements. Explain the factors that could have created this problem for the society

Temu was granted a loan by his rural Sacco. The management committee directed that 60% of the loan should be withdrawn in kind. Explain the benefits that would accrue to Temu by adhering to his requirement

Explain the disadvantages of loan withdrawal in cash

Explain the reasons why the society should ensure that the loan is available to the member in time

One of the factors that may limit the ability of co-op saving scheme in Kenya to mobilise savings

Explain how funds realised by a savings and credit co-op society may be employed

Explain the reasons for preparing a loan priority list when seeking project funds through credit programmes

The co-op bank of Kenya has extended its services to its members. Explain the reasons that might have made the bank to take this action

Explain the advantages and disadvantages of decentralized banking system

Explain the advantages and disadvantages banking system

Define cheque

Conditions for a true cheque

Parties to a cheque

State and explain various types of cheques

Aspects to look into when a cheque is presented

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