15/07/2026
"The quality of a SACCO's loan portfolio will always reflect the quality of its lending decisions."
Non-Performing Loans (NPLs) are increasing at an alarming rate across many SACCOs, posing a significant threat to their financial sustainability. The impact is two-fold:
• Reduced profitability as interest income declines while impairment provisions increase.
• Cash flow constraints that limit the SACCO's ability to lend, meet member demands, and support future growth.
While guarantors and collateral remain important elements of the credit appraisal process, they should never be the primary basis for approving a loan. Sound lending decisions begin with a thorough assessment of the 4 Cs of Credit:
i. Capacity - Does the borrower have the ability to generate sufficient cash flow to repay the loan?
ii. Capital - What is the borrower's financial strength and level of commitment to the investment?
iii. Character - What is the borrower's repayment history, integrity, and willingness to honour financial obligations?
iv. Conditions - How do economic, industry, and borrower-specific factors influence the ability to repay?
A robust credit appraisal framework that prioritizes these fundamentals will significantly reduce default risk, improve loan portfolio quality, and strengthen the long-term sustainability of SACCOs.
At Zade Associates, we believe that the best way to manage non-performing loans is not through recovery - it's by preventing them through prudent lending decisions. Strengthening credit appraisal frameworks, enhancing loan monitoring and embedding robust risk management practices are essential to protecting profitability, preserving liquidity, and ensuring the long-term sustainability of SACCOs.
