Sahakari Loan Process and Interest: Step-by-Step Guide

A sahakari loan is only as safe as its paperwork. The money leaves on one day, but it comes back over months or years, through changes of staff, committees and sometimes the borrower's circumstances. The loan cycle below is a good model for any saving and credit co-operative, and it shows what your software should capture at each step.

Step 1: Application and eligibility

The loan starts with an application from a member, not a person off the street. Record the member number, the amount requested, the purpose, the repayment period and the proposed guarantors. Your own bylaws and loan policy decide eligibility, for example how long someone must have been a member or how much savings and share capital they must hold. Good software shows the applicant's share, savings and any existing loans on the application screen, so the committee sees the full picture without asking staff to dig through registers.

Step 2: Guarantors and collateral

Keep each guarantor as a linked member record rather than a name typed in a note. That way, you can later answer a simple but vital question: how many loans has this person guaranteed? For collateral such as land, record the owner, plot details, valuation date and where the original documents are held. Scan the papers and attach them to the loan file. A collateral list that only exists in the manager's memory is a risk to the co-operative.

Step 3: Committee decision

The loan committee approves, reduces or rejects. Record the decision date in BS, the approved amount, the interest rate and the conditions. A good system separates the person who enters the application from the person who approves it, so one staff member cannot create and release a loan alone. Link the decision to the meeting minute number where possible so the auditor can follow the trail.

Step 4: Disbursement and deductions

On the disbursement day, the system should post one voucher that shows the gross loan, any service charge or insurance deducted at source and the net amount paid. Unclear deductions are a common source of member complaints. Print a disbursement slip for the member to sign, and generate the repayment schedule at the same time.

Step 5: Instalment schedule and interest

Most sahakaris use either equal instalments of principal and interest or reducing balance interest on the remaining principal. Whichever method you use, the schedule must be generated by the system from the stored rate, not typed by hand. Show the member a printed schedule with BS dates. When someone pays early or late, the interest should be recalculated from the actual dates according to your policy, not rounded by hand.

• Flat interest: interest on the original principal for the whole period, simple to explain but costly for the borrower as principal falls.
• Reducing balance: interest on what is still owed, usually seen as fairer and widely used.
• Monthly or quarterly posting: choose one and apply it consistently across all loans of the same product.

Interest rate limits and permitted methods can be set by the regulator or by your own general assembly. Confirm the current position with the Department of Co-operatives or your auditor rather than assuming.

Step 6: Collection, receipts and fines

When a payment arrives, the receipt should split it automatically into fine, interest and principal in the order your policy states. This is one of the most disputed parts of sahakari practice, so insist that the order is configured, shown on the receipt and applied the same way to everyone. If collectors take payments in the field, their entries should reach the same loan account that day.

Step 7: Follow-up and recovery

Overdue loans need a calm, documented process: a reminder by SMS or WhatsApp, a call, a written notice, a visit by the committee and, finally, the action allowed by your rules and the law. Record every contact on the loan file with the date. Your software should list overdue loans by how late they are, for example up to 30 days, 31 to 90, and beyond, so the board knows where to focus. Legal steps depend on circumstances, so take proper advice from your lawyer or the regulator.

Step 8: Closing and release

When the last payment clears, close the loan in the system, release guarantors and return collateral papers against a signed receipt. A loan that is paid but still shows open will appear in your overdue lists and embarrass you in front of the member.

What to ask your software to show

1. The full loan file: application, guarantors, collateral, decision and schedule.
2. A live overdue list by ageing band.
3. The split of each payment into fine, interest and principal.
4. A statement a member can read and trust.

Your next step

Take one live loan from your register and see whether the whole story can be told from a single screen. Our sahakari software is built around that cycle. If you lend mainly to non-members, see our loan management software. Send us a WhatsApp message on +977 9846280400 and we will show the loan cycle with your own interest rules.

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