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Rank: Member Joined: 9/4/2008 Posts: 48
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I get you loud and clear,mozenrat,but your analysis on interest is based on the flawed notion. that the guy in the sacco is essentially borrowing 200,000/- plus his 100,000/-,whilst the bank fellow borrows a full 300,000/-. The fact is they are all flat borrows of 300,000/-,at the relative interest rates of 12% and 18%,you should view the sacco fellow as follows,assuming they both have 100K under mattress. Interest Basis Alone (Sacco) Loan amount 300,000.00/- Initial Investment (From Mattress 100,000.00/- Net Gain 200,000.00/- Net Interest 3years 12% reducing balance on 300,000 58,714.55/- Total Payback 358,714.55/- Net Asset gain at the end of Loan period Shares at the Sacco 100,000.00/- Loan from Sacco 300,000.00/- Total Standing after 3yrs 400,000.00/- Less Interest 58,714.55/- Less Initial Investment 100,000.00/- Net Gain 241,285.45 Hence 12% Interest applies to an actual grant of 300,000/-,just like the bank,but at 12%. Interest Basis Alone (Bank) Loan amount 300,000.00/- Initial Investment (From Mattress 100,000.00/- Net Gain 400,000.00/- Net Interest 3years 18% reducing balance on 300,000 90,445.87 Total Payback 390,445.87 Net Asset gain at the end of Loan period Mattress Money 100,000.00/- Loan from Bank 300,000.00/- Total Standing after 3yrs 400,000.00/- Less Interest 90,445.55/- Less Initial Investment 100,000.00/- Net Gain 209,544.45 A whopping 32,000/- more,I used your calculator Learn something new everyday Learn Something New Every Day!
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@novestor
I suspect you did not read through the entire thread and that's why you are posting flawed premises.....
I repeat... the case study is one person,say novestor,who needs 300,000 for some project...
He already has 100,000.....
Should he throw the 100K in a Sacco to qualify for a 300k loan at 12%?
Or should he borrow 200K from a bank at 18% and add it to his 100K?
The guy only needs 300,000?... why should he borrow 300k from the bank and yet he already has 100k under his mattress... He'll only need to borrow 200k..
But he would have to borrow 300,000 from the Sacco becoz his original 100k goes in as contributions!!
Use the calculator again and tell me.....
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Rank: Member Joined: 6/15/2007 Posts: 17
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Walala hasn't this post spiralled into new frontiers on that note i must say it has been very informative.
Not taking account the interest calculations i see monzerates point
@ novestor you have to compare spades to spades
in simplicity 300K sacco @ 12% vs 300K bank loan @ 18% is a no brainer sacco takes the day before one even factors in extra charges by banks
but the reality in to qualify for a sacco u need to deposit 100K and use the X3 loan to fund whaterver u taking the loan for
on the other hand for a bank you only borrow the deficit 200K and thus the spade to spade comparsion of this two options is as monzerate had calculated
Actually this goes back to studies of finance inclusion of all relevant and opportunity costs.
whether the interst caluclation is right dont ask me let the interst gurus do the calculations. but this really is food for thought!!!!!
Never doubt that a small group of thoughtful,committed citizens can change the world. Indeed,it is the only thing that ever has. N we here are eager to change the investment world in kenya
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Rank: Member Joined: 3/6/2009 Posts: 172
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All these numbers are interesting but it seems we forget what a loan from a bank or your friend means to you.
A loan should only be taken as a means to make a profit. The only way to make a profit and be happy is to know exactly what you are borrowing and EXACTLY what you are going to pay bak and EXACTLY when you will be able to pay it back.
If you have any loan however great the interest that does not use any of the above,then you are increasing the risk in your investment.
Every time you borrow funds for you business,you are increasing the risk to your investment. In that case,if you borrow from a bank and do not even have a clue as to what you will be paying back because of their policies,then you increase your risk to your business two-fold.
I think that was the essential idea behind this topic.
I am sure there is a shylock somewhere that can even give lower interest rates than a bank or a sacco but the risk of having your teeth removed will make an investor run.
In short,when you sign a contract with a bank that does not give you specifics in their loans,then you have increased the risk of your business for no particular gain. That is why people in Kenya are losing money in banks but not in saccos. There is an extra risk you take borrowing from a bank and there is no reasonable payback for doing the same.
The sacco guy can plan for 2 yrs knowing he will pay back 500 bob every month. However,the bank guy does not have a clue what he will pay back on any day as the bank will be busy scheming another interest rate change eg from monthly APR,to weekly to even daily APR.
Monze that is the issue with Kenyan bank loans. I will advice everyone to go to saccos until banks change their lending policies.
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@nanfor..
I agree with you 100% totally kabisa....
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Rank: Elder Joined: 2/7/2007 Posts: 11,935 Location: Nairobi
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@Mozenrat, Aiiiiiiiii......We say no to bank loans,you say yes.......Nanfor says yes to sacco loans,you shout Hallelluyah.........!!!.......uko wapi Kaka....?? Yombo dhier....!! Nothing great was ever achieved without enthusiasm.
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Rank: Elder Joined: 6/17/2008 Posts: 23,365 Location: Nairobi
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Mozenrat,wow you put up a very spirited and consistent argument!!! Sacco loan is better in conclusion but you have significantly dymistified it....BINGO!!! The chief value of money lies in the fact that one lives in a world in which it is overestimated. ..."Wewe ni mtu mdogo sana....na mwenye amekuandika pia ni mtu mdogo sana!".
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Rank: Member Joined: 3/17/2008 Posts: 25
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Interesting analysis by all you financially inclined people... But sometimes simplicity is more powerful than plenty detailed analysis. That's what I think just happened here with Nanfor's summary... @ Nanfor Have you looked at African Diaspora Marketplace http://www.diasporamarketplace.org/ if you are seeking (matching) funds for your Sacco's initiative? I am assuming you live in the US.
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Rank: Member Joined: 3/6/2009 Posts: 172
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thanks MoKenya....Never seen that and it seems I will be late in that....I am in Kenya for a short time but would have loved to have seen this earlier as some of the bank practises I have found in Kenya are actually shocking to say the least....No wonder they make such impossible profits in such a small market.
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@Njung'e
The clue is right there in Nanfor and Mokenya's posts...
The discussion was all about demystifying loans.... both from Saccos and from banks....
Believe me.... I wouldn't have been surprised if the Sacco loan had emerged tops... but with a much smaller margin than most would expect....
Speaking as a bank customer and a shareholder....I'm quite okay with the way banks lend... After all their primary business is to make money for me the shareholder and anytime money goes out,it has to earn interest every second,of every minute,of every hour...
That said... I would not advocate borrowing money to start or boost a business from a bank.... precisely becoz,their model doesn't take into account any downturn that may affect my little kiosk.... Every minute that the money is out of the bank,it will earn interest... If I'm late by 1 day,the cash will earn interest... if I pay by cheque,the money will earn interest during the clearance period.... If the economy goes haywire,the interest rate will go up regardless of the performance of my kiosk....
My experience with Saccos on the other hand is that naweza jitetea... but I repeat,I do not delude myself about the interest that I pay to Saccos.....
However,based on the computations,if you had a assured income that hits the loan account on a specific day,then the choice should not be so simple.... I definitely think that people just need to be more aware,for truth be told,the devil is in the detail...
The bank contracts SPECIFY that the interest rate MAY vary.... so buyer beware...
The bank contracts SPECIFY that there are penalties for early payments (and no,hii siyo wizi,if you repay your loan early,they have to pay another salesman to sell that money to someone else)..so buyer beware....
Every minute you hold the money,it earns interest... so buyer beware...
The bank exists to make money for its shareholders.... so buyer beware...
Truth is,Bwana Njung'e,if I were this person and after determining that the loan would cost less at the bank,do you know where I would throw in the extra Ksh.4,500 in the first two years and the Kshs. 14,500 in the third year??? That's right... In a Sacco... coz this is not a black and white argument pitting Saccos against Banks... Its about a real life situation where one may require 300k at one point in his life...
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Rank: Member Joined: 10/11/2007 Posts: 213
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@ monzerat kudos for sticking to you guns and giving us that insight
However have ever tried to compare Vs gulf africa or first community bank?
No fine print,no sales comissions WYSIWYG!
Me first,U next
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@Waria...
Never have... but will look into it... Thanks...
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Rank: Member Joined: 11/6/2006 Posts: 276
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please list saccos with an available branches in the CBD for me... i think they are worthy holders of my 100k.
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Rank: Member Joined: 10/26/2008 Posts: 380
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@Monzerat
Thank you for insightful analysis. I have always assumed that SACCO loans are cheaper than bank loans. After doing the maths.. the bank loan is cheaper. However if you manage 15K monthly payments,the SACCO becomes marginally cheaper. Very insightful analysis though..
Nevertheless,i think i would rather pay that extra 5K or 10K for the convenience of the SACCO vs the bank,anyday.
Sacco
Initial Loan
300,000.00
300,000.00
300,000.00
450,000.00
Monthly payments
7,500.00
10,000.00
15,000.00
15,000.00
Interest on deposit
8%
8%
8%
8%
Repayment period (months)
51
36
22
36
Interest per month on Reducing balance
1%
1%
1%
1%
Total Payments
384,440.11
358,714.55
335,700.54
538,071.82
Interest Charged
84,440.11
58,714.55
35,700.54
88,071.82
Interest from deposits - compounded
38,691.86
25,971.20
15,153.43
38,956.80
Total Borrowing costs over period
45,748.26
32,743.35
20,547.11
49,115.02
Value after repayment period
Initial amount
100,000.00
100,000.00
100,000.00
150,000.00
Loan Amount
300,000.00
300,000.00
300,000.00
450,000.00
Borrowing costs
(45,748.26)
(32,743.35)
(20,547.11)
(49,115.02)
Total Value
354,251.74
367,256.65
379,452.89
550,884.98
Bank
Initial Loan
200,000.00
200,000.00
200,000.00
300,000.00
Monthly payments
7,500.00
10,000.00
15,000.00
15,000.00
Repayment period (months)
34
24
15
22
Interest per month on Reducing balance
1.5%
1.5%
1.5%
1.5%
Total Payments
256,780.82
239,635.69
224,833.07
354,441.88
Interest Charged
56,780.82
39,635.69
24,833.07
54,441.88
Arrangement fee (3%)
6,000.00
6,000.00
6,000.00
9,000.00
Insurance (0.3%)
600.000
600.000
600.000
900.000
Total Borrowing costs over period
63,380.82
46,235.69
31,433.07
64,341.88
Value after repayment period
Initial amount
100,000.00
100,000.00
100,000.00
150,000.00
Loan
200,000.00
200,000.00
200,000.00
300,000.00
Extra Payments paid by Sacco
127,659.29
119,078.86
110,867.47
183,629.94
Borrowing costs
(63,380.82)
(46,235.69)
(31,433.07)
(64,341.88)
Total Value
364,278.47
372,843.17
379,434.41
569,288.06
Net gain (Bank over sacco)
10,026.73
5,586.51
(18.48)
18,403.08
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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@Mkimwa
Kudos man,you have outdone yourself....
You've really dug into the details....
Anyway,you've hit the nail on the head...
I would review each case on its individual merits... if the difference between the two figures is marginal in my eyes compared to the convenience or as someone put it here 'risk to my business' then I would,of course,prefer the Sacco option...
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Rank: Elder Joined: 4/22/2009 Posts: 2,863
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@ Mkimwa Thank you for that analysis.......at least we are now three in this. As i said in my previous posts,saccos are good but there is definitely room for improvement. One way of enhancing the saccos( now that the figures are out there for all to see) is to push them to charge interests only on the figure which is over and above your savings. Afterall what is the use of the guarantors? That has been my argument,notwithstanding other sacco merits which are of course well documented. Remember with banks none of the money that you borrow belong to you. WOULD RATHER DIE FIGHTING 4 MY RIGHTS THAN LIVE FOREVER WITHOUT ANY RIGHTS IF YOU EXPECT ME TO POST ANYTHING POSITIVE ABOUT ASENO, YOU MAY AS WELL SIT ON A PIN
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Rank: Member Joined: 9/7/2007 Posts: 168 Location: Nairobi
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@all
By the way,it is all a matter of perception and preference. Like I had earlier said,you could still borrow more from the bank and use part of what you have borrowed to invest in the stock market within the same period that you'll be repaying the loan so that you can off-set the interest.
We should think beyond the norms as wel as outside the box.
each day is a gift from God; I dont know if I will be here tomorrow; should I be,I'll make the most of it for God's glory; should I be not,pick up and keep the legacy
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Rank: Member Joined: 3/23/2007 Posts: 127
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@waria... perhaps you could share more insights on the two banks... i presume we are talking about islamic banking.
@all... i loved the math... and the conclusion... did not see that one coming... gr8 stuff
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Rank: Veteran Joined: 5/18/2008 Posts: 796
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Having recently changed employers, I had to resign from my old Sacco and have to join a new one and am slowly realizing that I've been away from the market for too long.. After scouting around, I'm finding that now a lot of Saccos are charging 1.5% a month on loans(18 p.a) - compare this to the rates being offered by Banks now.  The Loan-"giving" Deposit-taking ones are no longer allowed to go into investments???? and have to establish separate Investment Saccos and I have to save in two different vehicles to gain from both worlds??? Is there any future in this? Should I sign up? 
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Rank: Elder Joined: 2/22/2009 Posts: 2,449 Location: Africa
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Remembered this informative discussion and thot i'd put it out there for those who missed it
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