Transcript
Joy: Welcome to SACCO Management — practical ways to run a healthier SACCO. I'm Joy, and with me is James. Today: developing a new loan product.
James: Happy to be here, Joy. This is one where a little discipline early saves a lot of pain later.
Joy: So where does a new loan product actually start?
James: Not in the boardroom. It starts with a member need you've actually seen. Talk to members, look at your declined applications, notice where they're borrowing outside the SACCO — school fees, farm inputs, emergencies.
Joy: So the members show you the gap before you design anything.
James: Exactly. And once you spot it, size the demand. Roughly how many members would use it, and how often? If very few would, it may not be worth building.
Joy: Then how tight should the purpose be?
James: Very tight. One clear reason for the loan. A product that tries to be everything is hard to price and easy to abuse.
Joy: Let's talk design. What has to be nailed down?
James: Three things. Amount and term — sensible minimums and maximums, and a repayment period that matches how the member earns, whether that's harvest, salary, or a business cycle. Then security — guarantor and collateral rules that fit the risk. An emergency loan and a business loan shouldn't carry the same conditions.
Joy: And the third?
James: Pricing. Set the interest and fees to cover your cost of funds, your operating cost, and your expected losses. A riskier product must earn more, or it quietly drains the others.
Joy: Before you open it to everyone, though?
James: Pilot it. Run a capped number of members over a fixed period. If there's a design flaw, it costs you little. Watch the repayment behaviour closely — did members repay as expected, or did the terms invite arrears?
Joy: And then you adjust.
James: Adjust the amount, term, or pricing based on what the pilot showed, and only scale what actually worked.
Joy: Now, no product goes live on a manager's say-so, does it?
James: No. Review the controls first — eligibility, approval limits, appraisal steps. Then the credit committee or board formally approves the product and the pricing, and that decision gets minuted.
Joy: And you write it down.
James: You must. Add it to your loan policy with its terms, and update the supporting policies — appraisal, borrower follow-up, your scoring approach, and delinquency management. In CAMS, those terms become the rules the system actually enforces, so getting them right on paper matters.
Joy: Once it's live, are you done?
James: That's just the start. Track uptake — is it being used as expected? Watch portfolio at risk for this product on its own, not buried in the whole book. And check profitability — is the income really covering the losses and costs? Review it through the board at least once a year.
Joy: The takeaway: build every new loan product from a real member need, price it for its risk, pilot and approve it properly, and watch its PAR and profitability closely after launch. Thanks James, and thank you for listening to SACCO Management.