How SACCOs can be profitable amid digital disruption

In recent times, rumors have swirled around how some Savings and Credit Cooperatives (Saccos) have been hit by a run, and  while it might be true that some Saccos might have issues, it is not true that these financial institutions as a vehicle for lending and saving are on trial.

True, like a savings instrument, Saccos might have lost favour among Kenyans as their mobile phones elbowed them out, according to the 2024 Household Survey. However, Saccos have remained profitable.

Analysis of audited results for more than 100 companies — listed and non-listed — showed that deposit-taking Saccos were doing well, unlike microfinance banks (MFBs), which made losses in 2024.

Only two Saccos slid into losses. This was a far cry from ten that saw their profits increase. The leading profit-makers in the year to December 2024 include Kenya Police Sacco Society and Stima.

Metropolitan Sacco, for example, was supposed to be a co-operative society for teachers, particularly from Kiambu.  It opened its membership to the public, which brought some positivity in terms of financial strength, but also exposed it to external factors.

Moreover, Saccos have been hit with a tough economic environment including for Metropolitan Sacco, with the collapse of Nakumatt and Uchumi Supermarkets, which employed lots of their members.

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Sacco earnings have also been squeezed by stringent financial reporting standards. Almost all deposit-taking societies have been hit by the IFRS 9.

IFRS 9 replaced the old International Accounting Standard (IAS) 39 for organizations that deal with financial assets, which rather than looking at expected credit loss instead focuses on incurred credit loss.

Saccos Societies Regulatory Authority (SASRA) in their supervisory report warned that the sector is facing unprecedented competition from mobile lending applications taking away their business.

“The Sacco sector must brace itself for stiff competition from other financial service providers; particularly, with the growth in popularity of the digital credit services that principally specialises in unsecured micro-credit loans, a forte hitherto associated with Saccos,” The report said.

Inadvertently, Saccos also came into competition with banks for deposits after the Banking (Amendment) Act, 2016 set the interest rates payable on deposits held by commercial banks to not less than 70 per cent of the CBK base rate. However, the rate cap has since been repealed.

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Saccos have been one of the key pillars of financial inclusion, with many Kenyans saving and getting credit from them.

According to the Sacco sub-sector Demographic Study Report, 2023, the financial sub-sector has a total population of slightly over 4.97 million members.

Besides eight banks and microfinance banks, other primary mortgage lenders in the government’s affordable housing programme are Saccos.

Apart from banks Johnstone Olteita, the chief executive of Kenya Mortgage Refinance Company (KMRC) in an earlier interview said there was also need to focus on Saccos.

“There was greater understanding that Saccos don’t do mortgages in the country, but they nonetheless lend to individuals and majority of funding they provide actually goes into housing,” he said.

Banks have also not been offering affordable housing. Saccos can build capacity if they are offered liquidity, they will offer concessional financing to banks.

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Primary mortgage lenders made an undertaking that they will not lend at more than nine per cent for mortgages being refinanced by KMRC.

But Saccos might lend at even lower rates as they are lending to people they know, thus are likely to incur less administrative costs.

By roping in Saccos and microfinance banks into the mortgage space, KMRC hopes there will be increased competition in a sub-sector that has been dominated by banks.

“If a bank does not appear to be playing ball, then you go to a Sacco. That kind of competition is good for a customer, it gives you more opportunities and more options,” said Oltetia.

By Mwiti Munyua

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