By Renson Ireri
With the continuous growth of Deposit-Taking Saccos in Kenya, and the positive reception given to the Sacco societies concept by Kenyans of different status, regions, age and professions, the future of the co-operative movement is very bright and needs to be well nurtured.
Whereas the banking industry continues to face a myriad of challenges that have led to either stagnation or decline in profitability and assets of most banks, the Deposit-taking Saccos have continued to register impressive growth in membership, assets, revenue and dividends to shareholders. This growth has an overall impact on the individual and national economy and calls on all of us to encourage and support the Deposit-taking Saccos in their business. There are five key intervention areas that need to be emphasized on in order to support this growth.
First, there is need to help the Saccos fully automate their processes and embrace as many channels as possible. They should be supported fully by the regulator, SASRA, in their drive to venture deeper in the alternative business channels like Mobile banking, Agency banking, ATMs and internet banking. This will make the Sacco business more convenient to their customers, most of whom usually reside far from the mainstream commercial banks. The software vendors should design more robust and customized systems for the Saccos to help them realize this potential.
Secondly, the DT-Saccos should to be facilitated with clearing of financial instruments for their customers. Currently, in case a Sacco wants to clear an inward or outward cheque or EFT for their customers, they must ride on the platform of a commercial bank that participates in the Automated Clearing House (ACH), run by the Central Bank of Kenya. Since Saccos can issue cheque books and receive cheques from their customers, they need to be either admitted in the ACH or be allowed to develop their own national clearing system to enable them to serve their customers better.
Thirdly, there is need to come up with a pooled fund to cushion the Saccos in case the demand for loans by their customers exceeds the available deposits and savings. The idea of seeking external loans from the commercial banks is not good in the long run. Since bank loans to Saccos are priced higher than what the latter advance their customers, overreliance on the funds borrowed from banks to finance the Sacco core business will ultimately make the Sacco products expensive to their consumers, hence compromising the pleasant growth that we continue to witness. The proposed pooled fund should be sourced from cheaper sources, both within and outside the country. While still at this, the Saccos ought to formulate a clear policy on deposit mobilization from their customers, by developing enticing fixed and call deposit products.
Fourthly, governance and management of the Deposit-taking Saccos needs to be well regulated and streamlined. With the registered growth in the movement, the managers of these institutions should be properly vetted, with the fit and proper tests fully administered. The threshold for one to qualify to sit in the Board of Directors of the DT-SACCOs needs to be raised to include levels of education, experience in leadership, shareholding in the Sacco and fidelity to the by-laws and objectives of the Sacco. The same eligibility criteria should be extended to the Chief Executive Officer and the other senior staff in the Sacco with more emphasis of education and experience. Once this vetting is complied with, there will be no Board nor Management capture leading to very strong synergies within the institutions.
Lastly, but not the least, the DT-Saccos need to develop very clear short term and long-term strategic plans for their business. This will also need to be complimented by well-articulated and clear policy manuals that will guide their day-to-day operations. The key manuals are: Credit policy manual, Human resource and governance manual, Operations manual, Finance and investment manual, Marketing and education manual and Information Technology manual. With this in place, the Deposit- taking Saccos in Kenya can only grow from strength to strength.
Mr Ireri is the Business Development Manager at Payconnect Limited. He is also a leading consultant within the Sacco Movement.