Legal limitation has increased Saccos’ loan portfolio risks
By Jackson Okoth
The process of blacklisting Sacco loan defaulters by Credit Reference Bureaus (CRB) will soon become mandatory. This is as soon as the Sacco Societies Act is amended to allow societies to share both positive and negative information of their members with the CRBs.
These proposals are contained in the Sacco Societies (Amendment) Bill 2018, which has already gone through the first and second reading.
A bill tracker 2019 of the 12th Parliament shows that the bill has already been endorsed by the National Assembly’s Departmental Committee on Trade, Industry and Co-operatives.
The bill, sponsored by Leader of Majority Aden Duale, intends to align the Sacco Act 2008 with the Banking Act and Microfinance Act, bring credit information sharing under a single regulatory framework.
“With the inclusion of this, we will not have people moving from one Sacco to another because Saccos will be able to share information amongst themselves, especially on good and bad members,” Kieni MP Kanini Kega told members of this departmental committee.
As matters stand, Societies are giving out good and bad information to credit reference bureaus as a SASRA requirement after resolutions are adopted at annual membership meetings.
“It is important to note that any rules meant to improve asset quality by financial institutions are positive both for the institution and the good borrowers,” said Gerald Muriuki, an analyst at Genghis Capital Limited.
Presently, Saccos continue to share Credit Information as third parties because of legal limitation denying the industry the full benefits of Credit Reference Bureaus.
Credit Information Sharing will enable Saccos to limit their loan portfolio risks and ease the burden on loan guarantors who end up losing their deposits when a member defaults.
With these amendments to the Sacco Societies Act, Saccos will be able to access the entire database in the possession of CRBs.
But even as more Saccos list loan defaulters with CRBs, the Sacco industry has mixed reactions on whether this is the right path to take when dealing with loan defaulters in Saccos.
“While listing with CRBs will stop serial defaulters shifting from one lender to another, the Sacco lending model relies on non-withdrawable deposits which act as a guarantee against any loan defaults,” said Allan Kawa, CEO of KITE Sacco.
He added that registration of positive information is good for members and it is only those that are blacklisted that will be adversely affected.
“Members should take listing with the CRB as a positive development because it promotes financial discipline. Being registered with CRB does not mean members will not access loans. This is a negative perception,” said Mackline Wamukota, CEO of Ng’arisha Sacco.
Fears have been expressed that blacklisting Sacco loan defaulters with CRBs could affect loyalty of affected members. This is because those affected could move to other lenders, not bothered with their CRB records, and obtain credit.
“I do not think CRB is achieving much considering that one can access credit elsewhere and then settle the defaulted loan,” said Agnes Munyi-General Manager-Bandari Sacco.
Non-performing loans increase
A SASRA Supervision Report, 2018 shows that there was an increase in the non-performing loan ratio to 6.30 per cent in 2018 from 6.14 per cent recorded in 2017.
The increase was mainly due to reported increases in the provisioning for loans under the doubtful and loss categories which increased from Sh 4.92 billion in 2017 to Sh 5.27 billion in 2018; and from Sh 5.47 billion in 2018 to Sh 8.99 billion in 2018 respectively.
“Blacklisting defaulters is good. There are borrowers who will not repay their loans if there isn’t an efficient and ruthless mechanism in place. Sometimes it is not just reckless borrowing but also careless lending that is not rational and is emotional rather than fiscal, not well researched or thought out,” said Edwin Otieno-Chairman of Elimu Sacco.
He gives instances where lenders roll out products that are not meant to benefit members but the society. In the end, the borrower defaults leading to huge loan repayment defaults.
“This is why any measures that can secure finances lent out by societies is a step in the right direction,” said Otieno.
“In this country we have suffered from conmen, who hop from one Sacco to another without declaring their debts. Once this is passed, it will make it difficult for the men and women of this country who want to bankrupt Saccos. Saccos are everything for any developing country,” Mavoko MP Patrick Makau, a member of the departmental committee.
