Much-hyped Common Bond hits the rocks

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By Azael Masese

The Government will put brakes on expansion of Savings and Credit Co-operatives (Saccos) to ensure there is regulated growth and financial stability in the sub-sector.
Senior Deputy Commissioner in the State Department of Co-operatives Geoffrey Njang’ombe said loan repayment is posing a serious challenge hence the need to take the necessary steps.
“We are going to be very strict on the areas of operations and the common bond to ensure there is stability in the sector,” he said.
Societies that seek to open the common bond, he stated, have to be specific on the type of members they want to recruit as they open new branches in the country.
Njang’ombe, who is in charge of registration and regulation, said that though there is nothing wrong with expansion, the main problem comes on loan repayment.
“Opening the new bond is presenting a big challenge on loan repayment and there is a general feeling that this model is not the best for the sacco,” he noted.
“The Sacco Act is very clear as it does not allow any player to deal with non-members such as including people who are not teachers to become members,” he exclusively told Sacco Review.
Members, he argued, might take advantage of the loose connectivity with the sacco to evade paying the loans they owe the societies.
“If they were to have the same arrangement, then they may have to introduce stringent conditions especially when giving out loans.
The check off system largely employed in Saccos where teachers are the main members, is working effectively, he said, adding that without it societies will struggle to remain stable.
“They may require the loans to be secured other than the normal collaterals applied,” he added.
The bulk of Kenyan societies started off by having teachers as their core members.
With time however, they have rebranded and recruited from outside the catchment area including the business community.
Others derived their formation and eventually registration by virtue of their members being tea or coffee farmers and to some extent dairy farmers.
“With the need to grow, they have opened new branches countrywide as well as recruited members from the business community and other sectors,” he noted.
One qualifies to get a loan after the bank conducts due diligence on a member. On the other hand, a sacco member who is eligible qualifies to get a loan three times of their savings.
Defaulting in loan repayment has emerged as a key challenge for a number of Saccos. To tame this menace, some have registered with the Credit Reference Bureau as others seek the services of auctioneers to recover the loan.
The Sacco Supervision Annual Report 2016 indicated an increase on the non-performing loans from Sh13.21b in 2015 to Sh15. 57b in 2016.
This contributed to the increase of the total loan portfolio at risk, measured as a ratio of the non-performing loans to gross loans at 5.23 per cent in 2016 compared to 5.12 registered in 2015.
The ratio is above the World Council of Credit Unions (WOCCU) recommended maximum of 5 per cent and far much higher than the Sacco Societies Regulatory Authority’s recommended maximum of 3.

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