Appraising a loan means checking whether a member can truly repay before you lend. The classic framework is the 5 Cs of credit, used by lenders everywhere to weigh risk in a balanced way.
Why it matters: Most defaults trace back to weak appraisal, not bad luck. Lending against collateral alone, or trusting figures you never verified, is how good SACCOs lose members' savings.
The 5 Cs
Character — the member's repayment history and reputation. Have they repaid before? What do guarantors and records say?
Capacity — the real ability to repay from cash flow. This is the most important C.
Capital — what the member has invested themselves (savings, own funds in a business).
Collateral — security you can fall back on, but it is a backstop, not the reason to lend.
Conditions — the loan purpose plus outside factors like the season, prices, or the local economy.
Focus on cash flow, not just security
Work out income minus living costs and existing debts to see what is left to repay.
Make sure the new instalment fits comfortably within that surplus.
Seizing collateral is slow, costly, and bad for member relationships — avoid relying on it.
Verify before you approve
Confirm income with payslips, bank or M-money records, or business books.
Visit the business or farm where it matters.
Check existing loans and guarantor commitments.
Common mistakes that cause defaults
Approving on collateral value while ignoring cash flow.
Taking stated income at face value without proof.
Ignoring how much the member already owes elsewhere.
Rushing approvals to hit lending targets.
In CAMS, appraisal notes and supporting documents attach to the loan application for review.
