Why Sacco members are shunning guarantors for property as collateral

More savings and credit cooperative societies (Sacco) members are bypassing the guarantors' credit model by aggressively pursuing property ownership for collateral purposes, which some of them in turn use to take out loans to buy or construct their preferred homes, according to a new report.

While Saccos have always stood out as communal financial institutions with borrowing being dependent on the quality of guarantors, the report shows that a majority of members prefer to keep their transactions private. 

Additionally, the report compiled by AIS Capital Advisors notes guarantor fatigue, which limits accessibility to credit, such as mortgages or development loans. 

Further, the urgency with which the loans are applied discourages borrowers from depending on guarantors, as they may fail to come through at short notice.

For a purchase such as a house, this is critical as delay means more bids from competing customers, hence a higher selling price. 

The tradition in Sacco membership has always been that the more you and your guarantors have saved, the more you can borrow. This makes it easier even for a new member to borrow up to three times their savings once their guarantors agree to put a signature. 

Most times, guarantors are known to each other as members owing to how Saccos are formed. However, cases of default have made some members jittery to commit their savings to someone else's debt.

Additionally, with Saccos growing beyond the communities that first created them, having a tight-knit circle of members that one can depend on as guarantors is almost impossible. 

As such, property has become the first line of defence where members opt to purchase a piece of land which, once paid off, can be used as collateral. 

The report titled, Leveraging Sacco Data and Research to Strengthen the Financing of the Affordable Housing Value Chain by the Sacco Sector notes that those who are still able to use guarantors are founding members of the Sacco. 

The report published last month by the Financial Sector Deepening (FSD) Kenya, the co-authors note that property-based collateral is preferred over guarantors, mainly driven by privacy concerns, except for a few who were able to easily obtain guarantors. 

"Most members favoured using property as security rather than relying on guarantors, citing the difficulty of obtaining guarantors for high loan amounts and the desire to keep their borrowing activities private," reads the report co-authored by the Kenya Mortgage Refinance Company (KMRC) and the Sacco Societies Regulatory Authority (Sasra). 

The report says that while the guarantor model remains important for borrowers without sufficient collateral, it is seen as burdensome. This is the case particularly for those lacking strong social networks within their Sacco.

"Those who did prefer guarantor-backed products were typically long-standing members within the original common bond, able to secure guarantees quickly, sometimes within 24 hours for loan amounts as high as Sh6 million or more," the report says. 

The report says privacy and personal responsibility strongly influence collateral preferences.

From the members that were interviewed for the report, many expressed discomfort with others knowing about their borrowing activities and preferred to bear the responsibility themselves.

"This sentiment was reflected in comments such as 'I prefer to carry the burden on my own,' highlighting the value placed on independence in financial matters," the report says. 

"Some members strategically acquire property to avoid reliance on guarantors in the future."

It explains that members who had previously experienced defaults where guarantors’ deposits were called upon often sought to use Sacco loans to buy property that could serve as collateral for subsequent borrowing. 

"They also noted the impracticality of expecting friends or relatives to hold substantial deposits simply to act as guarantors," the report says. 

The members also mentioned guarantor fatigue as a factor that undermines the sustainability of the guarantor model. 

It notes that frequent guarantors whose deposits were negatively affected by default expressed a reluctance to participate in the system.

"This fatigue erodes willingness to guarantee even among close networks, further reinforcing the need for property-backed lending alongside the guarantor model," the report says. 

These findings explain why data from the Sacco regulator has consistently shown that land and housing take up the biggest chunk of loans taken out by members. 

The latest report, which covers 2024, shows the market share of loans borrowed by Sacco members for land and housing purposes, while shrinking, still holds the highest proportion of credit advances.

The Sacco Societies Regulatory Authority (Sasra) 2024 report shows that the amounts disbursed under the land and housing sector stood at Sh137.1 billion in 2024, from Sh126.1 billion in 2023.

The report shows that the Sh137.1 billion disbursed in 2024 makes up 25.26 per cent of the total credit and advances issued by regulated Saccos.

This is a drop from 27.39 per cent in 2023. Sasra, while noting that the highest proportion of loans issued by regulated Saccos was to lands and housing, pointed out a gradual drop over the years of the sector’s market share.

“It is noteworthy that although the proportion of loans and credit advances issued by regulated Saccos towards land and housing sectors remained the highest and most dominant, the same has been on a downward trajectory from a market share of 33.24 per cent in 2022 to 26.97 per cent in 2023 and 25.26 per cent in 2024,” the report says.

Of the Sh137.1 billion advanced, Sh67.33 billion was earmarked for housing purchase or construction, while the rest, Sh69.79 billion, was for buying land.

“The increase in the funding by regulated Saccos towards land and housing sectors is consistent with the findings of the Kenya National Bureau of Statistics Economic Survey, 2025, which reported that Saccos made the highest financing arrangements towards the real estate market at 31.8 per cent,” the report says.