A Survey of Loan Amortization Practices by Saccos in Nairobi

Abstract

The study explored the loan amortization practices of SACCOs in Nairobi with a view of establishing the preferred loan amortization approach by SACCO members. In addition, the study was also to establish the determinants of making a loan amortization approach preference. The population compromised all SACCO members and SACCO management committees of Nairobi. From the survey it was evident that SACCOs have only used one type of loan amortization approach and 80% used CAM, 20% used CPM and none used GPM, hence this tended to limit the choice that a SACCO member could have in determining how to repay a loan. From the analysis, salary income is one of the key determinates of making a loan amortization preference on the part of the members whereas the key determinant in adopting a loan amortization approach by a SACCO was the simplicity of calculating the interest rate. Those earning Ksh. 60,001 and above mostly preferred the CAM payments while those earning below Ksh. 60,000 preferred CPM for emergency loans. It was also evident that initial loan amounts paid at a given time of taking up a loan was considered very important for purposes of making a decision to take a loan with a SACCO. This attests to the fact that higher Loan deductions would significantly affect the net income salary of an individual. Of the 10 SACCOs that responded 88.89% indicated that they adopted their loan amortization approach because of computational simplicity while the remaining 11.11% indicated higher cash inflows as a consideration for its adoption. It was further observed that over 80% of the members had borrowed from their SACCOs indicating that salaried employees relied heavily on credit from the SACCOs, hence the study recommended that SACCOs adopt different types of loan amortization approaches to enable all members maximize on their credit desires. Areas for further research that were recommended for study was the effects of adopting various amortization approaches by SACCOs.