1. Cash Flow Management Vs Pressure for Dividends By CPA Peter Waithaka Kariuki

2. CO-OPERATIVE PRINCIPLES (i) Voluntary and open membership (ii) Democratic member control (iii) Economic participation by member (iv) Autonomy and independence (v) Education, training and information (vi) Co - operation among co - operatives (vii) Concern for community in General

3. OBJECTIVES FOR WHICH CO- OPERATIVES ARE FORMED (i) To promote thrift among its members by affording them an opportunity for accumulating their savings and deposits and providing them with credit exclusively for provident and productive purposes, at fair and reasonable rate of interest; thereby enabling them to use and control their money for their mutual benefit.

4. OBJECTIVES FOR WHICH CO-OPERATIVES ARE FORMED (cont
OBJECTIVES FOR WHICH CO-OPERATIVES ARE FORMED (cont.) (ii) To ensure personal growth through the introduction of new products and services that will promote the economic base of the members. (iii) To ensure progress of members and Sacco society through continuous education programs on savings and proper use of credit, reduction of poverty, human dignity and co-operation.

5. IMPORTANCE OF CASHFLOW IN A CO- OPERATIVE
Daily costs
Loans to members
Withdrawals
Readiness to take up opportunities.
Compliance

6. SOURCES OF SACCO FUNDS
Entrance fee
Members Share capital
Members deposits (non-withdrawable, withdrawable)
Net Income (Turnover less exp./div.)
Loans from bank
Impact and availability of each source above.
As at close of 2016 total loans to total deposits by the DT-SACCOs stood at %

7. SOURCES OF FUNDS – BANKS
Shareholders Capital
Account holders deposits.
Retentions
Loans/Grants towards specific cause

8. COST/IMPLICATIONS OF FUNDS
Share Capital
Dividend
Reputation
Members Deposits
Interest on deposits
Cash outflow for loan
Withdrawal on demand

9. COST/IMPLICATIONS OF FUNDS
Loans from Bank
Interest on loan (CBR + 2% margin)
Variance in rates
Internal Funds (Retentions)
Return on Investment
Opportunity cost

10. Ksh. (Million) DT SACCOs Banks
DEPOSITS & CAPITAL STRUCTURE – SACCOS VS BANKS 2016
Ksh. (Million)
Indicator
DT SACCOs
Banks
Assets
393,499
3,695,944
Deposits
272,579
2,485,919
Capital Reserves
61,261
540,578
% of Reserves to Assets
15.6
14.6
% of Deposits to Assets
69.3
67.3
Source: CBK Annual Supervision Report 2016

11. SOURCES: SASRA Supervision Report 2016
Important Statistics from SASRA Supervision Report 2016
Total registered DTS
175
Able to maintain the prescribed core capital of Kshs 10 Million
168
Able to maintain prescribed core capital to total assets ratio of 10%
144
Able to maintain the prescribed ratio of core capital to total deposits ratio of 8%
169
Able to maintain and comply with the prescribed institutional capital to total assets ratio of 8% 69
SOURCES: SASRA Supervision Report 2016

12. Comparative interest rates on savings and deposits by DT- SACCOs and commercial banks
SOURCES: SASRA Supervision Report 2016

13. SOURCES OF FUNDS – SACCOS VS BANKS
SACCOS should adopt the approach of banks and give more value to shareholders than to depositors.
Greater ownership commitment by members.
Shift focus from short-term to long- term

14. SOURCES OF CASHFLOW CRISIS IN SACCOS
Unstainable terms for loans
Recovery failures
Failure to adhere to controls
Deviating from core business
Embezzlement of Sacco funds
Failure to put in place effective cashflow management

15. HOW SACCOS DEAL WITH PRESSURE TO DIVIDEND
Suspend loan disbursement
Introduce new requirements on members (e.g. remit current month’s deduction, bring organ. check off, etc)
Pay dividend to those who are vocal
Borrow from banks to pay dividend
Hide from members

16. WAYS OF IMPROVING CASHFLOW
Increase minimum contribution across
Introduce special saving schemes e.g. Save As You Earn, cluster method (based on salary), Save As You Borrow (Tiering deposits), saving scheme, holiday saving scheme, withdrawable saving account
Withdrawal and re-joining conditions (pros and cons)

17. WAYS OF MANAGING CASHFLOW
Manage new membership waiting period
Manage multiplier on deposits
Manage repayment period
Fix limits for loans
Adhere to rules relating to boosting of deposits

18. WAYS OF MANAGING CASHFLOW
Manage payment of dividends/Interest on deposit
Member participation in meeting member expenses (e.g. Ins.)
Set aside deposits/reserves for purpose of paying dividend later
Avoid committing cashflows to capital costs (building, offset to meet minimum share capital, etc)

19. IMPORTANCE OF DIVIDEND Generally the viability of any business entity is overwhelmingly evaluated on the basis of whether and how much of dividends it is able to return every year. One of the ways of attracting new members.

20. DIVIDEND PAYMENT TREND – SACCOS VS OTHER FINANCIAL INSTITUTIONS
However, Saccos are different from banks in some ways
Dual identity
Options of sourcing of funds

21. DIVIDEND PAYOUT POLICIES
Payout as much as possible (unhealthy for the organization’s balance sheet) – politically the best
Maintain a dividend payout of a percentage of Profit after Tax (balancing act) – common in banks
Pay minimal dividend and plough back surplus for growth (challenge for Saccos) – unpopular in Saccos
Decide every year - almost same as 1 above

22. OTHER OPTIONS OF GIVING BACK SURPLUS TO MEMBERS
Low cost credit upon increased retention
If all members were borrowers minimal dividend rate would not be an issue

23. TAX SAVINGS CONSIDERATION
On Interest on Deposit
On Dividend
On Bank Loan

24. STRIKING THE BALANCE
Analyze your clientele (savers/borrowers)
Analyze your product profile
Analyze your external credit options (cost)
Involve and move with the members

25. KENYANS REASONS FOR SAVING
Meeting day to day household needs
48.7
For emergency (burial, medical)
39.3
For education of self and others
32.8
For later in life/old age
21.7
For personal reasons (clothes, travel)
8.2
For starting a new business
6.3
For expanding your business
6.2
For improving a house
5.9
Purchase land
5.2

26. INCOME SPREAD FOR KENYANS
Average monthly income per individual (%)
Income Group % N
KSh 0 -1,500
13.20
2,722,393
KSh 1, ,000
15.00
3,111,800
KSh 3, ,500
25.00
5,187,860
KSh 7, ,000
22.20
4,617,787
KSh 15, ,000
14.80
3,083,724
KSh 30, ,000
8.40
1,747,622
Over KSh 100,000
1.40
290,320
Total
100.00
20,761,506
SOURCES: Fin Access Household Report 2016 S

27. ROLE OF FINANCE MANAGERS
Sober analysis of the Sacco’s financial/cashflow position
Objectively advising the CEO and Board on ideal alternatives
Education/sensitization of members on different alternatives available to them and their implications.

28. Thank you
Q & A