Sacco Micro-Credit facility fails to take-off

By Jackson Okoth

A growing number of deposit-taking Saccos are reviewing their strategy on recruitment and lending to members involved in the informal and micro enterprise sectors.
This has been occasioned by the high default rates by members from informal businesses.
One such player is Wanandege Sacco Society, which has stopped recruiting members from the business community and shifted its focus to only salaried persons.
“We are spending a lot of money and time to collect payments from those in the business community. This is why we have decided to stop any further transaction with SMEs. We are just recovering our loans and then shutting down the door on them,” said Boniface Muthama- CEO Wanandege Sacco Society Limited.
Industry players attribute this to the increase in non-performing loans in the Sacco sub-sector, as indicated in recent SASRA bulletins, partly due to failure by farmers and those running informal businesses, to service their Sacco loans.
Others like Baringo County-based Boresha Sacco Society, which opened its doors to farmers, are hard hit.

Bonface Muthama, Wanandege Sacco CEO

“I blame cartels in the agriculture sector for the poor returns to farmers. While we funded a lot of maize farmers in parts of the Rift Valley in the last season, cartels have made it difficult for them to service their Sacco loans. However, we are not going to close the micro credit section of the Sacco. We will, instead, seek ways of stabilizing the farmer and the micro credit business,” said Moses Chebor, CEO Boresha Sacco Society Limited.
Already, SASRA is advising Boresha Sacco to reduce amounts of loans it can disburse to a farmer while offering them appropriate training and skills.
“We have already received support from the regulator and advice on how to lend to the farmer. We intend to conduct seminars and workshops to educate farmers on use of appropriate seeds, soil preparation and recommended fertilizers, farm chemicals and machinery,” said Chebor.
He blames poor leadership within various parliamentary committees for the mushrooming criminal gangs, such as those involved in the theft of coffee bags in Central Kenya, as well as cartels in the maize, coffee and pyrethrum sectors.
Experts attribute the trend by Societies to open their common bonds and attract more members and deposits to intense competition from commercial banks and other financial service providers.
It is this pressure that is pushing many of these deposit-taking Saccos to open up their doors or ‘common bond’ in order to attract non-traditional members.
For instance, many teacher-based Saccos have since re-branded and are now recruiting members outside the teaching fraternity.
Bingwa Sacco, which is farmer-based, is now seeking the attention of civil servants, business persons, doctors, teachers and other professionals. Boresha Sacco, which was initially a society for teachers, is now recruiting farmers.
But while many deposit-taking Saccos have re-branded and opened the common bond, there are those who have either not joined the bandwagon or are more cautious when dealing with ‘outsiders’.
A number of these Saccos who have opened their door to non-traditional members have put in place more rigorous and elaborate systems and procedures to accommodate farmers, business people and other non-salaried people.
With its huge balance sheet and capacity, Stima Sacco has gone a step further to ensure that any loans disbursed to members in the informal sector do not become a liability.
“Those members who are not on the check off system are prone to default on their loan repayments. This is why we ask for additional collateral and security such as log books, title deeds, bank guarantees, share certificates among other terms and conditions before giving loans,” said Stima Sacco CEO Useki.
Stima Sacco has also introduced the Know Your Customer (KYC) policy in its lending and makes use of data shared on the Credit Reference Bureau (CRBs) platforms to check on the financial character of potential members.
“We have taken all these precautions to strengthen our knowledge on the kind of people coming on board and where we can locate and get them when needed, using the list of references,” said Useki.
While a general decline in the level of economic activity in 2017 is blamed for the rise in the level of non-performing loans in the Sacco sub-sector, there are other dynamics behind this trend.
“We have customers to the Saccos who are different from the traditional members that we have been used to. Standing orders mature at different dates so many loans appear unpaid at the time the SASRA report is done. There are also Saccos that have gone into lending to non-traditional members but lack the capacity or preparedness to deal with this segment. All these dynamics, including a depressed economy in 2017, could explain why the level of non-performing loans in the Sacco sub-sector, is on the rise,” said Useki.

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