Why SACCOs face liquidity problems

The liquidity of a Savings and Credit Cooperative Organizations (SACCO) refers to its ability to meet its short-term cash obligations, such as paying interest on deposits or meeting withdrawal requests. Liquidity is an essential aspect of SACCO’s financial management, as it ensures that it can meet its members’ cash demands in a timely and efficient manner.

Most SACCOs face liquidity problems due to a combination of internal and external factors. Here are the most common reasons why SACCOs may face liquidity problems and how to solve them.

  1. Loan Defaults

SACCOs provide loans to their members, and if a significant number of borrowers default on their loans, the SACCO may face liquidity problems.

Related: Securing Sustainable Lending: Credit Risk Mitigation for SACCOs in Kenya


SACCOs should ensure proper Credit Risk Assessment of their borrowers by evaluating their creditworthiness and ability to repay the loan and only granting loans to borrowers who are likely to repay. They should improve member financial literacy by offering financial literacy programs to their members to help them understand the importance of repaying their loans. This will help the members develop better financial habits, such as budgeting and managing debt. They can enforce loan repayment by regularly following up with their borrowers who have defaulted on their loans. They can work with borrowers who are having difficulty repaying their loans to restructure the loan terms. This can involve extending the loan term, lowering the interest rate, forgiving part of the loan, or penalty waiver to the borrowers. They can also collaborate with credit bureaus like Credit Reference Bureau (CRB) to obtain credit reports on potential borrowers, this will help in lending decisions.

  1. Poor Asset-Liability Management
Asset Management

SACCOs may face liquidity problems if they do not effectively manage their assets and liabilities. For example, if a SACCO has lent out a significant amount of long-term loans but relies on short-term deposits to fund its operations, may face liquidity problems if depositors suddenly withdraw their funds.


SACCOs should invest in asset liability management technology to improve their capabilities and manage their assets and liabilities more effectively by providing real-time data on liquidity, funding, and interest rate risk. Can also regularly monitor and review the risks and opportunities from their performance in Asset-Liability Management. This involves measuring their liquidity ratio and taking action to address any issues that arise. They can diversify their funding sources to reduce their reliance on a single funding source, members’ deposits. This can involve accessing alternative sources of funding, such as short-term loans from banks or issuing debt securities. They can balance their asset and liability maturities to ensure that they have sufficient cash reserves to meet their obligations as they become due by matching the maturities of SACCO’s assets and liabilities to reduce the risk of a liquidity shortfall.

  1. Poor Investment Decisions

 SACCOs may face liquidity problems if they make poor investment decisions.


SACCOs can develop an investment policy statement that outlines their investment goals, risk tolerance, and investment strategies. They can diversify their investment portfolio to reduce risk by investing in a mix of asset classes, such as stocks and bonds by diversifying within each asset class to reduce the risk of concentration. They can conduct thorough investment due diligence before making any investment decisions. They can regularly monitor and review their investment performance to identify potential risks and opportunities.

  1. Declining Membership

SACCOs rely on their members to deposit money and borrow loans. If a SACCO experiences a decline in membership or a decrease in member deposits, it may face liquidity problems.


SACCOs can offer mobile and online services to make it easier for members to access their accounts and conduct transactions. They can improve member engagement by offering personalized services and actively soliciting member feedback. They can enhance their marketing and outreach efforts to attract new members. They can develop strategic partnerships with other organizations to expand their reach and attract new members. Conducting market research to understand the needs and preferences of potential members will help them solve declining membership.

  1. External Factors

External factors like interest rate fluctuations, economic recessions, high inflation, or regulatory changes may lead to the liquidation of a SACCO. Economic recession can lead to increased loan defaults, reduced savings, and decreased revenue, which can negatively impact the liquidity of SACCOs. High inflation may lead to increased operating costs, reducing their profitability and liquidity. Interest rate fluctuations affect the borrowing and lending rates of SACCOs, which can impact their profitability and liquidity. Political instability can lead to reduced economic activity and decreased revenue for SACCOs, which can negatively impact their liquidity.


SACCOs can strengthen their risk management practices by regularly assessing their risk exposure and taking appropriate measures to manage risk. SACCOs can improve their loan recovery practices by adopting a more proactive approach to loan collection, that is early identification of potential defaulters and the use of effective debt recovery strategies. They can diversify their revenue sources by offering a wider range of products and services that are less sensitive to economic fluctuations and strengthening their capital adequacy by maintaining adequate levels of reserves and capital to absorb losses and maintain solvency.


SACCOs can manage their liquidity risk by maintaining adequate levels of liquid assets, diversifying funding sources, and developing contingency plans for funding shortfalls. They can also work with their regulators and central banks to access emergency funding facilities, such as the lender of last resort. Proper management of liquidity risk ensures that SACCO remains financially stable and can continue to provide valuable services to its members.

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