The government has pledged to support the formation of Sacco Central, a platform which will see Savings and Credit Cooperatives (Saccos) borrow from each other to save them the trouble of going for expensive loans from other financial institutions.
The platform will mainly assist Saccos to share data and do inter-Sacco lending the way inter-bank lending works between commercial banks.
The Kenya Sacco Central is a corporate Sacco (secondary cooperative) whose members are primary cooperatives and its purpose is to provide specialized shared services to its members.
The shared services including Sacco Central Liquidity and Sacco inter-lending, shared technology platform, access to Kenya National Payment System, and inter-operability of shared digital channels and branches.
The Sacco Central initiative will give the Saccos an opportunity to negotiate on interest that will be charged on the loan facility.
This will help Saccos to address potential challenges which occur when a lender is unable to meet their immediate liquidity demands owing to shortfalls in cash.
“When they (Saccos) have one of their own called a cooperative, they should be able even to negotiate on the rates; so inter-Sacco lending will assist them through that platform,” Dolphin Aremo, the Nairobi County Director of Co-operatives, told Sacco Review in a recent interview.
Aremo noted that the Sacco Central will have 9 board members. In the interim, there is a board chaired by Hazina Sacco National Chairman Evans Kibagendi deputized by Shirika Sacco chairperson Prof Esther Gicheru.
She added that the Chief Executive Officers (CEOs) of member Saccos will form the technical team which is currently headed by Harambee Sacco CEO Dr. George Ochiri.
In February this year, Cooperatives and Micro, Small and Medium Enterprises Development Cabinet Secretary (CS) Simon Chelugui said the government will implement the framework to allow Saccos to lend to one another.
He pledged to support the initiative that will create efficiency and enable smaller Saccos to access modern technology for them to access the National Payment System (NPS).
“This idea has been under discussion for the last five years but unfortunately it has received a lot of resistance from some mainstream financial institutions because it would mean that Saccos, which deal with the mass market, would become more competitive,” observed Chelugui.
The Sacco sub-sector is expected to borrow significantly from the banking sector in the design and implementation of inter-market lending.
In the model, commercial banking spaces extend loans to one another for maturities of one week or less, the majority being overnight. Such loans are made at the inter-bank rate, which is called the overnight rate if the term of the loan is overnight.
In this concept, banks are required to hold an adequate amount of liquid assets, such as cash, to manage any potential bank runs by clients.
If a bank cannot meet these liquidity obligations, it will need to borrow money in the inter-bank market to cover the shortfall.
Some banks on the other hand, have excess liquid assets above and beyond the liquidity requirements. These banks will lend money in the inter-bank market, receiving interest on the assets.
Such loans are extended at pricing levels referred to as the ‘inter-bank rate’, which is the rate of interest charged on short-term loans between banks.
By Roy Hezron
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