Credit policy essentials for deposit-taking SACCOs: classification and provisioning

Every deposit-taking SACCO in Kenya must have a written credit policy approved and kept current by its board. It must also classify its loans into five risk grades every quarter and hold a provision of between 1% and 100% of each loan, depending on how far behind the borrower is. These rules are in Parts VI and VII of the Sacco Societies (Deposit-Taking Sacco Business) Regulations, 2010, the version published on SASRA's website (SASRA). This guide sets out what the policy must cover and how the numbers work.

What the credit policy must contain

Regulation 28(2) lists eleven items the written credit policy must cover:

1. Loan procedures and documentation.
2. Requirements for granting a loan.
3. Permitted loan purposes and acceptable collateral.
4. Loan concentration limits.
5. Loan types, interest rates, repayment frequency and conditions.
6. Maximum loan size for each product.
7. Where collateral is used, the maximum loan as a percentage of its value.
8. How the borrower's ability to repay is appraised.
9. Terms and conditions for insider lending.
10. Approval limits for each officer and committee.
11. Guarantor requirements.

Under regulation 28(5), the board is responsible for keeping the policy up to date with how the SACCO actually lends. Regulation 45(3) adds that the policy must set out the write-off procedure.

The regulations also set hard limits that the policy should repeat, so that staff apply them:

• No single member may owe more than 10% of the SACCO's core capital (reg. 35(5)).
• External borrowing may not exceed 25% of total assets unless SASRA waives the limit (reg. 35(1)).
• Insider loans must be approved or ratified by the board, with the applicant out of the room. The terms may not be better than those offered to other members, and SASRA must be told within 14 days of approval (reg. 36).
• No lending against a member's own shares, and no member may be allowed to over-commit as a guarantor (reg. 32(2)).
• A rejected applicant must be told the reasons in writing within 14 days (reg. 38(1)).
• Any new loan product needs SASRA's prior approval (reg. 34).

How loans are classified

Regulation 41(3) sets five grades based on arrears:

Grade	Unpaid for	Or instalments outstanding	Provision (reg. 44)
Performing	Up to date	None	1% (general)
Watch	1–30 days	One	5%
Substandard	31–180 days	Two to six	25%
Doubtful	181–360 days	Seven to twelve	50%
Loss	Over 360 days	More than twelve	100%

Three related rules often cause errors in practice:

• Interest suspension. Once a loan is substandard or worse, its interest must be suspended and not counted as income (reg. 42(1)).
• Restructured loans. A restructured loan can move back to a better grade only after six months, or six instalments, of sustained performance. No loan may be restructured more than once in its life (reg. 41(4)).
• Quarterly reporting. The SACCO must review the whole portfolio every quarter (reg. 39). It must send SASRA a risk classification return (Form 4) by the 15th day of the month after the quarter ends (reg. 46).

Worked example

Below is an illustrative SACCO with a loan book of KES 100 million. The figures are invented for the example. For simplicity, balances are shown before interest in suspense.

Grade	Balance (KES)	Rate	Provision (KES)
Performing	85,000,000	1%	850,000
Watch	6,000,000	5%	300,000
Substandard	5,000,000	25%	1,250,000
Doubtful	3,000,000	50%	1,500,000
Loss	1,000,000	100%	1,000,000
Total	100,000,000		4,900,000

The non-performing loans (substandard, doubtful and loss) are 9% of the book but need about 77% of the provision (KES 3.75 million). If one KES 2 million loan moves from watch to substandard, the provision on it rises from KES 100,000 to KES 500,000. That is why accurate arrears dates, and resisting the urge to restructure loans just to improve their grade, matter so much to reported surplus.

What to do next

1. This quarter: compare your credit policy line by line against the eleven items in regulation 28(2) and list any gaps for the board.
2. Before the next Form 4 return (due by the 15th day after quarter end): test a sample of loans. Check that the arrears days match the grade, that interest on substandard and worse loans is suspended, and that no loan has been restructured twice.
3. Each board meeting: review insider loans and confirm SASRA was notified within 14 days.
4. Each year: have the board formally re-approve the policy, and check SASRA's guidelines and circulars and acts and regulations pages for any amendments.

For a structured review of your credit policy and loan book, see our SACCO advisory services or the ten warning signs that a SACCO needs a governance diagnostic.

General information only, based on the regulations as published by SASRA and checked on 9 November 2026. It is not legal advice; confirm current requirements with SASRA.

Sources

1. SASRA, Sacco Societies (Deposit-Taking Sacco Business) Regulations, 2010 (Legal Notice 95 of 2010)
2. SASRA, Acts and regulations
3. SASRA, Guidelines and circulars

General information, not professional advice. Rules change; check the sources above or ask us before acting. Last reviewed 9 Nov 2026.