August 17, 2022

Sacco Review|The Leading Newspaper for Co-operative Movement in Kenya

The Leading Newspaper for Co-operative Movement in Kenya

Sacco loan defaulters cornered


By Jackson Okoth.

It is a race against time for Sacco loan defaulters as the noose tightens on their necks.
This follows recent disclosures by the Principal Secretary, Ministry of Industry, Trade and Co-operatives Ali Noor Ismail that the Ministry is working on a plan together with the Central Bank of Kenya (CBK) and the Sacco Societies Regulatory Authority (SASRA) to ensure that Saccos gain full access to the Credit Information Sharing Framework, come September 2018.
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 defaulters who end up losing their deposits when a member defaults,” said PS Ali. Turn to According to Commissioner for Co-operative Development Mary Mungai, plans are underway to ensure that Saccos access the entire database in the possession of CRBs by next year.
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 Society Limited.
He expressed fears that listing with CRBs could affect loyalty of affected members. This is because those blacklisted could move to other lenders, not bothered with their CRB records, who could provide them with credit.
“Blacklisting loan defaulters is not a guarantee that they will not access credit elsewhere. We have credit providers who only look at one’s ability to repay, especially the salary slip when advancing unsecured loans,” said Kawa.
He added that dealing with loan defaulters is only through guarantors.
“We have few Saccos that accept collateral as security when advancing loans to members while majority of Saccos use a member’s non-withdrawable deposits as security. The only challenge is when a loanee goes abroad, leaving the burden of loan repayments to guarantors. This brings instability to the business,” said Kawa.
As part of the legislations to implement reforms in the financial sector, the Government published the Sacco Societies (Amendment) Bill, 2016 in the Kenya Gazette Supplement No. 97on 24th June 2016.
The Bill contained key reforms which had been proposed to be introduced in the Sacco subsector vide the Budget Policy Statements for the 2015/2016 and the 2016/2017 Fiscal Years.
The Bill went through the first reading in the National Assembly; and was thereafter subjected to stakeholders’ public consultation processes in 2016.
The Bill went through the second reading; the committee stage and third reading in the National Assembly during the first quarter of 2017; and the same is earmarked to be finalised later.
The Government published both the Sacco Societies (Amendment) Bill, 2016 and FinanceBill 2016 (Clause 51) to allow the sharing of both performing and non-performing loans; and to expand the institutions in which credit information may be shared to include DT-Saccos, other co-operative societies, commercial banks, microfinance institutions, public utility companies and any other institution mandated to share credit information under any written law.
The Annual Report on performance and operations of DT-Saccos in Kenya, 2016, mentions that while the Finance Bill 2016 was successfully passed into law and became operational on 1st January 2017, the Sacco Societies (Amendment) Bill 2017 is, however, pending before Parliament.
According to the Credit Reference Bureau Regulations 2013, non-performing loans (underpaid for 90 days) will be listed with CRB. Financial institutions are supposed to share credit information of their customers with CRB to guarantee sound financial services delivery.
Sacco Society’s Authority (SASRA), the sector regulator has already signed a memorandum of understanding (MoU) with other financial regulators to be sharing credit information.
The other financial regulators include Insurance Regulatory Authority (IRA), Retirement Benefits Authority (RBA), Capital Market Authority (CMA) and Central Bank of Kenya (CBK).