Inter-Sacco lending facility almost complete

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Mar 8, 2017
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By Jackson Okoth

An American consultancy appointed to assist the Sacco Societies Regu­latory Authority (SASRA) set up a facility to allow Saccos lend to each other like banks do, is almost completing the task.

Madison-based Dave Grace & Associ­ates is expected to provide a roadmap for establishment of central liquidity facility for Savings and credit Cooperative Societ­ies (Saccos). The platform is to be opera­tional before the end of this year.

“The establishment of a central finance facility for Saccos is still work in progress. A consultant hired to do this job has been on it for the last four months and is almost concluding the work,” said John Mwaka, Acting SASRA Chief Executive Officer.

He made these remarks at a recent Sacco stakeholders meeting in Mombasa that discussed some of the opportunities as well as challenges facing the industry.

Plans to set up an inter-lending facility for Saccos comes at a time when the sector is faced with difficult choices following a move by banks to cut their lending rates.

Industry sources told Sacco Review that while Mwalimu National has a com­mercial banking license; it is still unclear whether teachers will be willing to share the inter-lending facility that Spire Bank has access to, with other Saccos.

Co-operative Bank of Kenya also can also offer an inter-lending facility for Sac­cos but the bank is also a player in the Sacco industry and thus will be reluctant to offer this platform to the competition.

Although Kenya Union of Savings and Credit Co-operative Organization (KUSC­CO) Limited has a Central Finance Fund where Sacco members can access, there is a general feeling that the KUSCCO plat­form remains unregulated and therefore pose significant risks to most Deposit-Taking Saccos.

Owing to lack of a Central Finance Facility, most DT Saccos are faced with persistent illiquidity problems. Borrowing from commercial banks remains the only option. But bank loans are expensive for many of these Saccos.

“Only the establishment of an inter-Sacco lending facility will solve this prob­lem. Discussions and plans are at very ad­vanced stages to establish this platform,” said Peter Njuguna, the Head of Supervi­sion at SASRA.

He added that the Sacco regulator has also drafted a policy document that will guide discussions on how Saccos can par­ticipate in the national payment system. At present, Saccos are not able to issue cheques directly to their members and can only access the national payment system by partnering with commercial banks.

“A number of Deposit-Taking Sac­cos face liquidity challenges and have been forced to source for external funding which is expensive. A study is thus being undertaken to determine viability of es­tablishing a Central Liquidity Fund,” Ali Noor Ismail, Principal Secretary, State De­partment of Co-operatives, Ministry of In­dustry, Trade & Co-operatives said while addressing top Sacco officials at a recent stakeholders’ workshop in Mombasa.

A number of Deposit-Taking Saccos have been under severe liquidity constrains with the regulator having to withdraw the Front Office Service Activity(FOSA) li­cense for a number of Societies, advising them to revert to back office operations.

“We have eight Saccos which have had their licenses withdrawn due to inability to meet capital ratios and having a compro­mised credit quality,” said Njuguna.

Dave Grace & Associates will explore the possibilities of having SASRA directly fund Saccos through a discount window modeled alongside that of the Central Bank of Kenya (CBK).

Already, National Treasury has in­dicated that it has set aside undisclosed amount of cash to be used in setting up an inter-lending facility for Saccos.

Although the Sacco industry was eye­ing the Central Finance Facility, operated by KUSCCO, the lobby is reluctant to sur­render the facility.

A move by National Treasury and SASRA to set up a parallel central finance facility to provide Saccos with short term liquidity comes after the industry failed to come up with its own platform, including a cheques clearing system similar to the one run by Kenya Bankers Association (KBA).

One option being explored to end il­liquidity in Saccos and allow their entry into the national payments system include identifying one commercial bank to act as a clearing and settlement bank for all the Saccos. This idea could help avoid the nasty competition among Saccos when each is allowed to issue and clear their own cheques.

Not all Sacco executives agree that time is ripe for the societies to enter the national payment system of even ac­cess their own in­ter-sacco lending facility.

“We are among Saccos that have yet to part­ner with any com­mercial bank for purposes of issu­ing per­sonalized cheques. This is because our mem­bers trans­act their business through the FOSA accounts. The idea of an in­ter-Sacco lending facility appears far-fetched,” said David Mategwa, Kenya Police Sacco Society Limited National Chairman.

The amount of cash flowing within DT Saccos is said to be dismal to warrant a fully-fledged inter-Sacco lending facility.

Incidentally, while the idea of estab­lishing Co-operative Bank of Kenya was for the institution to serve as the bank for co-operatives, it has since transformed its structures and is now having the features of any other commercial bank.

It therefore treats Saccos just like one of its customers as it seeks for business from other segments of the economy.

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