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Loans

The complete guide to SACCO loan management

Loans are a SACCO’s main source of income and its main risk. Managing them well means clear products, careful appraisal, proper approvals, accurate schedules and early action on arrears.

By the SaccoMonitor team · Updated · 10 min read

1. Loan products

A loan product sets the rules: amount range, term, interest rate and method, repayment frequency, fees, penalty rate and grace period, and security (guarantors, collateral, or a multiple of savings).

2. Interest methods compared

Example: UGX 1,000,000 over 6 monthly instalments at 2% per month.

Same loan, three interest methods
MethodHow interest is chargedInstalmentTotal interest
Flat2% of the original 1,000,000 every month186,667 every month120,000
Reducing balance2% of the balance still owed; equal instalments178,526 every monthabout 71,155
Declining balance2% of the balance still owed; equal principal of 166,667186,667 falling to 170,00070,000

3. Appraisal and approval

  1. 1

    Check capacity

    Income, existing loans and the proposed instalment.
  2. 2

    Check commitment

    Savings history and the savings-to-loan multiple your policy sets.
  3. 3

    Check security

    Guarantors’ own savings and loans, collateral value and documents.
  4. 4

    Approve in levels

    Larger loans need more senior sign-off. The person who captured a loan should not approve it.

4. Disbursement and repayment

At disbursement, fees are deducted and the repayment schedule starts. Repayments are allocated oldest instalment first — penalty, interest, principal — so it is always clear what has been paid. Anything paid beyond the balance should go to the member’s savings, not sit unallocated.

5. Arrears and penalties

Days overdueTypical action
1–7Reminder call or SMS.
8–30Visit; involve guarantors; consider penalty.
31–90Formal demand; consider rescheduling if the member can pay on new terms.
Over 90Recovery from guarantors or collateral; provision for loss.

Penalties should be assessed consistently, after a stated grace period, and waived only with a recorded reason.

6. Restructuring, top-ups and write-offs

A member who genuinely cannot keep up may be rescheduled; a member in good standing who needs more may be topped up — see loan rescheduling vs top-up. A loan that cannot be recovered is written off: the principal is charged to an expense account, and any later recovery is recorded as income.

Frequently asked questions

Flat interest is charged on the original loan amount for the whole term. Reducing-balance interest is charged only on the amount still owed, so it falls as the loan is repaid. At the same quoted rate, flat interest costs the borrower more.

The outstanding principal of all loans that have an overdue instalment, usually shown as a percentage of the total outstanding principal. PAR30 counts only loans more than 30 days overdue.

A common rule, used in SaccoMonitor, is oldest instalment first, and within each instalment penalty, then interest, then principal.

Related pages

SACCO loan management software

How SaccoMonitor handles each step.

Rescheduling vs top-up

Two ways to change a running loan.

Loan reports

Arrears ageing and portfolio at risk.

See it working in SaccoMonitor

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