Transcript
Joy: Welcome to SACCO Management — practical ways to run a healthier SACCO. I'm Joy, and with me is James. Today: liquidity, and the ratios that keep a SACCO healthy.
James: Happy to be here, Joy. Liquidity is simple to say and easy to neglect — it's just having the cash to pay members when they ask.
Joy: So a SACCO could be profitable and still get into trouble?
James: Exactly. You can look strong on paper, but if the cash isn't there on the day a member wants a withdrawal, that promise is broken. One bad day can undo years of trust.
Joy: Whose job is it to protect that?
James: It's a chain. The Board sets the policy — minimum reserves and how much of savings you may lend out. Management runs the daily cash flow. And the finance and credit committees make sure lending never outruns the cash you need for withdrawals.
Joy: You mentioned ratios. Which ones should a SACCO watch each month?
James: Five. Think of it as a small dashboard. The first is the liquidity ratio — your cash, bank balances and easily sold investments, as a share of savings and short-term deposits. A common minimum is fifteen to twenty percent. That's your power to pay withdrawals right now.
Joy: And the second?
James: The loan-to-savings ratio — total loans divided by total member savings. Aim for roughly seventy to eighty percent. Go much higher and too much money is locked up in loans, unavailable when someone wants their savings back.
Joy: Number three?
James: Capital adequacy — your retained earnings and reserves as a share of total assets. Keep a cushion of eight to ten percent or more. It absorbs losses and protects members' money when a year goes badly.
Joy: What about loans that aren't being repaid?
James: That's the fourth, portfolio-at-risk, or PAR. It's the value of loans overdue thirty days or more, as a share of the whole portfolio. Keep it below five percent. Rising PAR chokes off the repayments you rely on for cash.
Joy: And the last one?
James: Operating efficiency — your operating costs against average assets. Lower is better. High costs quietly drain the funds you'd otherwise lend or hold in reserve.
Joy: That's a lot to track by hand.
James: It is, which is why a PEARLS-style dashboard helps. In CAMS you can pull these figures each month and compare them straight against the Board's targets, so nothing slips.
Joy: You also talk about a minimum and a maximum for cash. Why a maximum?
James: Because idle cash earns nothing. Hold a written reserve you never drop below — sized for normal withdrawals plus a margin. But set a ceiling too. Anything above it should be lent to members or placed in short-term deposits.
Joy: And the seasons matter, I imagine.
James: Very much. School fees, planting, harvest, festive time — withdrawals spike. Build a simple cash-flow forecast for the months ahead, and arrange a standby line for emergencies. Never lend the reserve away just because a quiet month made cash look plentiful.
Joy: Any last caution?
James: Watch concentration. A few large depositors leaving at once can strain even a healthy society, so don't fund long loans with money members can pull out tomorrow.
Joy: The takeaway: watch the five ratios every month, hold a firm reserve, and never let lending outrun the cash your members are counting on. Thanks James, and thank you for listening to SACCO Management.