VICOBA, SACCOS and microfinance: which is which

VICOBA: your own group's money

A VICOBA is a community savings and lending group. Members meet regularly, buy shares or save an agreed amount, and lend out of the pooled fund. At the end of a cycle — commonly a year — the fund is shared out, and each member gets their savings back plus a share of what the group earned from interest.

The money is the members' own, so the interest paid by borrowers comes back to the members as profit. Loans are small and short, the rules are whatever the group wrote down, and enforcement is social — which is both its strength and its danger.

What to check: is there a written constitution, a lockable box with three different keyholders, a passbook for every member, and minutes of every meeting? Groups fail on bookkeeping far more often than on bad luck, and the failure usually takes a friendship with it.

SACCOS: a registered member-owned society

A savings and credit co-operative society is a formal, registered body owned by its members. You join, you save, and after a qualifying period you may borrow a multiple of your savings, often with another member as guarantor. Rates are usually lower than a commercial microfinance lender's, and any surplus is returned to members as a dividend.

The trade-offs are time and access. You usually cannot borrow immediately after joining, the loan is tied to how much you have saved, and getting your savings out can take notice. For a person with steady income who can plan a few months ahead, it is often the cheapest formal credit available.

What to check: registration, audited accounts, when the last annual general meeting was held, and whether members can actually see the books. A society that has not held an AGM in two years has a problem whether or not anybody has noticed yet.

Microfinance institutions: a business that lends

A microfinance service provider is a company whose business is lending. It is licensed and supervised, it is not owned by its borrowers, and its interest is its revenue rather than a dividend that comes back to you.

What you get in exchange is speed, size and structure: you can walk in without a savings history, borrow more than a group would lend, and get a written schedule and a receipt for every payment. For a business that needs money this month rather than next quarter, that is usually the point.

What to check: the licence and its number, which is exactly what the directory on this site carries for every registered Tier 2 provider in the country.

Choosing between them

Need a small amount, have time, and trust the people around you? A VICOBA is cheap and builds a savings habit. Have steady income and can plan? A SACCOS usually wins on price. Need a specific sum on a specific day, or more than a group can carry? That is what a licensed microfinance institution is for.

Many people use more than one, and that is sensible — but count the installments together. Three small loans from three places is one large loan that nobody has assessed as a whole, and it is the commonest way a manageable debt becomes an unmanageable one.