MERU UNIVERSITY

OF SCIENCE AND TECHNOLOGY

SACCO LTD

CREDIT POLICY

10th MARCH 2018

Revised 2nd Edition 2018

 VISION
A premier saving and credit society for wealth creation and prosperity

MISSION
To create wealth and improve quality of life by leveraging on the synergy of pooled resources,
savings and investments by the members.

CORE VALUES
Transparency
Fairness
Quality
Progress

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FOREWARD
Meru University of Science and Technology (MUST) SACCO credit policy has been developed
through a consultative process spearheaded by the management team of the SACCO. From its
inception in 2010, the SACCO has continued advancing loan products guided by the prevailing
socio-economic needs of its members. The dynamics of members’ financial needs has necessitated
emergence of new products with specific terms and condition to ensure sustained SACCOs
liquidity as well as improved service delivery. Thus occasional review of the credit policy to align
the members’ expectation and the SACCOs growth aspirations will continue fostering managerial
best practices and compliance with existing laws.
This policy will strictly safe guard against any form of integrity as enshrined in the principles of
pooled resources through fair loan appraisals faithfully guided by approved terms and conditions
for each product. The policy will also enhance strengthening financial base of the SACCO by
instituting effective monitoring and control systems through updated records and prompt
communication to members on their loan obligations.
The spirit of this credit policy is to promote a lending environment that enables the members create
wealth by prudently saving, borrowing and investing in productive ventures. Rules and regulations
provided in the policy is only meant to cushion members against financial distress and SACCOs
bad debts. The principles of utmost good faith will apply all the time in making decisions regarding
the affairs of the SACCO.
The Management Board call upon the members to adhere to the provisions of the credit policy in
order to entrench in the management of the SACCO the culture of accountability, fairness and
honesty.

Dr. Guyo, S. Huka, PhD

CHAIRMAN

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TABLE OF CONTENTS
Vision ……………………………………………………………………………………..... 2
Mission ………………………………………………………………………...…………… 2
Core Values ………………………………………………………………………………… 2
Foreward …………………………………………………………………………………… 3

INTRODUCTION…………………………………………….………………………….…….. 5
1.1 Background ………………………………………………………………………………..... 5
1.2 Objectives …………………………………………………………………………………… 5
1.3 Regulations ………………………………………………………………………………….. 5
1.4 Access to the Credit policy ………………………………………………………………….. 5
1.5 Definition ……………………………………………………...………………………….… 5
1.6 Guiding principles of the credit policy…………………………………………...……..…… 5
1.7 Areas of Lending ……………………………………………………………………………. 6
1.8 General Lending Policies ..................................................................................................…... 6
1.9 Loan products……………………………………………………………………..………….. 6
1.10 Loan Rescheduling and Refinancing …………………………………………………....…. 8
2.0 CREDIT MANAGEMENT
2.1 Requirement for qualification of loans ……………………………………… …………….. 8
2.2 Loan Application ……………………...…..…………… ………………………………….. 8
2.3 Loan Appraisal …………………………………………...………………………………….. 8
2.4 Loan approval/ rejection ………………………………………..………………………….... 8
2.5 Loan Repayment ………..…….……………………………..………………………………. 8
2.6 Loan Security ………………………….……………………..……………………………… 9
2.7 Reports ……………………………………………..………..………………………………. 9
2.8 Default Management ………………………………………….. ……………………………. 9
2.9 Loan Recovery………………………………………………..…………………………...…. 9
3.0 Credit Committee ………………………………………….……………………………….. 10
4.0 Effective Date………………………..…………………….……………………………….. 10
5.0 Policy Review………………………………..…………….……………………………….. 10

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INTRODUCTION
1.1 Background
In MUST Sacco loans constitute a major business activity and generate a bigger percentage of the
Society’s income and equally, taking up the large proportion of the management’s time. There is
a potential of an error or irregularity in this area which may expose the Society to a risk of losing
its resources through the borrowers’ failure to repay the loans. The implications of the above would
be either the understatement of loans advanced to members, wrong management accounts, loss of
finance to the Society and ultimately accounts that will not give a true and fair view of the Society’s
loan balances at any one given point. This therefore, calls for thorough management of loans in
order to ensure that the risk of non-full repayment of loans is eliminated completely. This policy
is therefore aims at addressing the above and serves as the informative tool for both members and
staff of the Society.
1.2 Objectives
The objective of this policy is to provide guidance on the lending procedures to members of the
Society as well as act as a reference for best practices for the identification and analysis of risk in
lending propositions and for the monitoring and control of Society’s loan.
1.3 Regulations
This credit policy is within the guiding laws and rules which are contained in the;
i. The Kenyan Constitution 2010
ii. Meru County Cooperatives Societies Act, 2014
iii. Meru County Cooperatives Societies Regulation, 2016
iv. Co-operative Societies Act, 2004
v. Co-operative Societies Rules
vi. MUST SACCO By-laws

1.4 Access to the Credit policy

The policy will be available to MUST Sacco Society Limited members.
1.5 Definition
This policy is a guide to action and provides procedures and guidelines on how MUST Sacco
Society Limited should process loans, member qualification, application, approval, disbursement,
administration, monitoring and delinquency management.
1.6 Guiding Principles of the Credit Policy
i. Loans are given to bona fide members only;
ii. Loans are properly appraised and approved;
iii. Disbursement of loans is done as per approval terms and conditions;
iv. Interest income is collected and recognized in the accounting period that it is earned;
v. Proper records on loans are kept;
vi. Effective monitoring and control;

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1.7 Areas of Lending
i. Development;
ii. Education
iii. Asset acquisition
iv. Securities purchase;
v. Emergencies;
vi. Domestic consumables
1.8 General Lending
i. A variety of loan products shall be developed after a careful research has been done
and demand established to serve the needs of members.
ii. A member shall be allowed to run all loan products as long as the pay slip
accommodates.
iii. Total loan deductions for a member shall not exceed 2/3 of his/her basic pay.
iv. Loans will be disbursed on first come first served basis.
v. Members will be eligible for loans after six months of membership except for
emergency loan whose requirement shall be two months.
vi. A member applying for a loan should undertake to pledge future salary, benefits and
terminal dues from the employer towards loan repayment before the Sacco Society
grants such a loan.
vii. Eligibity for a loan is subject to the borrowers retirement age.

1.9 Loan Products

a) Normal/development loan
Conditions
i. Pegged on three times of the borrower’s normal shares
ii. This loan is repaid up to a maximum period of 48 months
iii. The society charges an interest of 1% per month on a reducing balance
iv. No ceiling on the amount on for loan
v. Loan application must be supported by the member’s latest two (2) pay slips.
vi. The loan MUST be fully secured by at least three (3)guarantors
vii. Processing fee of 0.4% shall be charged on the loan applied.

b) Emergency Loan
This product is given to cater for unforeseen happenings beyond a member’s control
Conditions
i. The loans are repaid within a period of 6 months.
ii. Interest charged at 3% per month on reducing balance method.
iii. No member shall have more than one Emergency loans at any one time

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 iv. The loan MUST be fully secured by one (1) guarantor.
v. Loan application must be supported by the member’s latest two (2) pay slips.

c) School Fees Loans

This product is for the purpose of paying School fees ONLY.
Conditions
i. The member MUST attach fees structure/s on the application form
ii. School fees loans are repaid within a period of 12 months.
iii. The SACCO charges an interest of 1% per month on reducing balance.
iv. The upper limit is determined by the member’s ability to repay.
v. Loan application must be supported by the member’s latest two (2) pay slips.
vi. The loan MUST be fully secured by at least three (3)guarantors
vii. Processing fee of 0.4% shall be charged on the loan applied.

d) Product loan
Conditions
i. The member MUST attach quotation on the application form
ii. Product loans are repaid within a period of 12 months.
iii. The SACCO charges an interest of 1% per month on reducing balance.
iv. The upper limit is determined by the member’s ability to repay.
v. Loan application must be supported by the member’s latest two (2) pay slips.
vi. The loan MUST be fully secured by at least three (3)guarantors
vii. Processing fee of 0.4% shall be charged on the loan applied.

e) Super Loan
Conditions
i. Pegged on four (4) times of the borrower’s normal shares
ii. This loan is repaid up to a maximum period of sixty (60) months
iii. The society charges an interest of 1.08% per month on a reducing balance
iv. Ceiling on the amount for the loan is Kshs.4 million.
v. Loan application must be supported by the member’s latest two (2) pay slips.
vi. The loan MUST be fully secured by at least three (3) guarantors.
vii. Processing fee of 1.5% shall be charged on the loan applied.
viii. Minimum monthly share contribution for amount above 2million is Kshs.3,000.
ix. Minimum shares is Kshs.300,000.
x. Capitalization of member’s dividends during the loan repayment period.

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1.10 Loan Rescheduling and Refinancing
i. To qualify for the top up, the member must have paid the normal and super loan for at
least 6 months.
ii. A commission of 500 will be levied on the principal balance.
iii. The top up amount requested is treated as a new loan
iv. Must be fully secured by guarantors.
v. No refinancing of product and school fees loans.
vi. No limits for refinancing of emergency loan
vii. Other terms and conditions of the original apply.

2.0 CREDIT MANAGEMENT

2.1 Requirement for qualification of loans
i. A member must have completed at least six months active membership
ii. Any boosting of savings by a member shall only be considered for a loan after three
months.
iii. A member who withdraws from the Society and rejoins later will be treated as a new
member for the purpose of this credit policy.
2.2 Loan Application
i. All applications for loan shall be made on prescribed forms by the Society.
ii. False information on application form shall lead to automatic disqualification.
2.3 Loan appraisal
All loans shall be appraised as per the terms and conditions of the loan type.
2.4 Loan approval/rejection
i. All loans shall be approved by the credit committee.
ii. No member of the loan approving committee shall be present when his/her loan is being
considered.
iii. Members will be informed of the decision passed.
iv. If a member is not satisfied with the decision passed by the Credit Committee, such a
member will be free to submit a written appeal to the Board within fourteen days from the
date a decision was passed by the Credit Committee.
2.5 Loan Repayment
i. Deductions for loan repayment shall commence not later than the month following that in
which the loan was paid to the member.
ii. A member may repay his/her loan and interest in whole or in part prior to its maturity.
iii. A member’s savings pledged as security for another member’s loan shall not be
surrendered to offset his/her outstanding loan, unless the former can provide alternative
security for the latter’s loan.

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 iv. Loan repayment period may not be extended beyond the period the member specified in
the loan application form.
v. Upon cessation of employment, a member is required to pay all existing loans in the
Sacco.
2.6 Loan Security
i. All loans should be fully (100%) secured.
ii. There will be no maximum number of guarantors, but the minimum shall be determined
by the terms and conditions of the loan.
iii. All guarantors must be members of the Society.
iv. The obligation of the previous guarantors shall cease upon completion of the loan or
change of guarantors but subject to new guarantors being accepted by the Society.

2.7 Reports
Reports shall be generated at all points of the loan application process.
2.8 Default Management
i. The guarantors shall be notified of the defaulted loan within 14 days after the default
occurs.
ii. A loan shall be considered to be in default if instalments are missed in whole or part and
remain unpaid for a period of 30 days.
iii. Amount in default (unpaid monthly installment) will attract penalty at a rate of 2% per
month.
2.9 Loan Recovery
i. The management shall make efforts to collect loans considered to be in default.
ii. Where the loan and interest balance is equal or less than the member’s savings, it shall be
recovered from the savings.
iii. Where a member defaults and the Society is unable to recover the loan from his savings,
the loan shall be recovered from the guarantors.
iv. No member shall be allowed to withdraw from the society if in default or has guaranteed a
loan in default until the loan is cleared.
v. Communication to loan defaulters shall be made through written notices.
vi. Services of debt collectors shall be engaged ninety days after the guarantor fails to honor
the obligation.
vii. When a member dies while repaying a loan that is not in default, the loan balance and
interest shall be paid by the insurance company upon notification and application.
viii. Where a member dies and has a loan that is in default, the loan shall be recovered from
member’s collateral and guarantors if inadequate.

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3.0 Credit Committee
There shall be a Credit committee that consists of three members of the management committee
none of whom shall be members of the Executive committee. The credit committee shall be chosen
at a meeting of the managing committee within seven days after election of the management
committee.

The credit committee shall:

i. The credit committee shall hold such meetings as business of the society may require, but not
less frequently than once a month.
ii. The credit committee shall inquire carefully into the character and financial conditions of each
applicant for a loan, and of his guarantors, if any, so as:
 To ascertain his ability to repay fully and promptly the obligations incurred by him.
 To determine whether the loan is for a worthy purpose and will be probable benefit to the
borrower.
 The credit committee shall endeavor to diligently assist members to solve their financial
problems.
iii. The credit committee shall make such reports to the management committee as it may require.

4.0 Effective Date

This policy takes effect from 10th March, 2018.

5.0 Policy Review

This policy shall be reviewed from time to time to ensure its relevancy and appropriateness but
not later than three (3) years.

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