How to run loans in a savings group: the complete guide
How to lend to members safely — loan products, eligibility, limits, committee review, interest, repayment schedules, arrears and where the interest goes.
Lending is what turns a pile of savings into a fund that works for its members. Interest from loans flows back to savers, and members get affordable credit from people who know them. It's also where most group funds get into trouble. This guide covers how to lend so both happen: members benefit, and the fund stays safe.
1. Start with loan products
A loan product is a type of loan with its own rules. Having a few fixed products makes decisions consistent. For example:
| Product | Rate (per year, flat) | Max term | Max amount |
|---|---|---|---|
| Emergency | 5% | 3 months | GHS 2,000 |
| Personal | 10% | 6 months | GHS 5,000 |
| Business | 15% | 12 months | GHS 15,000 |
| Education | 8% | 24 months | GHS 10,000 |
Interest can be charged flat or on a reducing balance — the difference matters. See flat vs reducing-balance interest.
2. Set eligibility rules
Write down who can borrow. Common rules:
- Good standing — no missed contributions (how standing works).
- Minimum membership — often six months.
- Credit score above a threshold — see fair credit scoring.
- One open loan at a time.
Rules applied by the system (rather than debated case by case) are what make lending feel fair.
3. Set borrowing limits
A simple, fair formula: limit = savings × multiplier, adjusted by credit score, between a minimum and maximum. For example, 3× savings, scaled by score, never below GHS 1,500 or above GHS 12,000. Members can see exactly why their limit is what it is.
4. Use a two-step approval
- Credit committee reviews the application: eligibility, score, amount, purpose. It recommends approve or decline, with notes.
- Fund manager makes the final decision, checking that the fund has the cash, and disburses.
Nobody reviews or approves their own loan. This separation is one of the most effective protections a fund can have — more in treasurers and committees.
5. Agree the repayment schedule up front
When a loan is approved, the member should see every instalment and due date. With flat interest, each instalment is the same: (principal + interest) ÷ number of months.
6. Handle arrears consistently
Decide in advance what happens when an instalment is missed: reminder, grace period, penalty, status change to overdue, and eventually default and recovery. The detail is in handling late loan repayments.
7. Account for it properly
- Disbursement: money moves from cash to loans receivable.
- Repayment: cash comes back, split into principal, interest income and any penalty income.
Keeping these separate is what lets you report accurately to members. See double-entry bookkeeping for savings groups.
8. Share the interest with members
Interest earned belongs to the members. Most funds distribute it periodically as dividends in proportion to shares — shares and dividends explained.
9. Keep a safe cash buffer
Don't lend out everything. Keep enough cash for expected welfare claims and withdrawals. Review how much is out on loan every month.
A lending policy checklist
- Loan products with rates, terms and maximums
- Eligibility rules written down
- Borrowing limit formula
- Credit committee and final approver named
- No self-approval rule
- Repayment schedule shared at approval
- Arrears and penalty process
- Maximum share of the fund on loan
- How interest is distributed
Go deeper on each part: setting loan limits, guarantors, the loan application and approval process and handling bad loans.
AwaFund runs this whole flow: members apply from their phones and see their eligibility checklist and limit, the committee reviews with the applicant's credit profile alongside, the manager approves, the schedule is generated, and repayments split themselves into principal, interest and penalties in the books.
Frequently asked questions
How much of the fund should we lend out?
Most groups keep a cash buffer for welfare claims and withdrawals and lend out the rest carefully. Lending no more than roughly half to two-thirds of savings is a common, conservative starting point.
Should members be able to borrow more than they've saved?
Many groups set the limit as a multiple of the member's savings — often two to three times — adjusted by their track record. Borrowing against your own savings keeps risk contained.
Who gets the interest?
In most member funds, interest belongs to the members — it's added to the fund and shared out as dividends in proportion to each member's shares.
This guide is general information to help groups organise themselves. It isn't financial, tax or legal advice — rules for savings groups differ by country, so check with a qualified adviser for your situation.