Saccos cut returns on members’ savings for third year running


By Sammy Chivanga

Savings and Credit Cooperative Organizations (Saccos) have cut returns on members’ savings and share capital for the third year running.

Sacco Societies Regulatory Authority (Sasra) report on Saccos shows that deposit-taking (DT) Saccos last year paid an average of 6.01 % on the deposits, a drop from 6.72 % in 2019.

The cuts came due to Sacco’s enhanced need to preserve cash and strengthen their capital positions to weather the economic storms that accompanied Covid-19 pandemic such as layoffs, salary cuts and sharp decline in revenues.

Despite the cuts, DT-Saccos remained the comparatively competitive financial deposit taking institution in terms of offering a return on customers’ money.

The high overall retention by DT-Saccos in the wake of uncertainties associated with the after-effects of Covid-19 pandemic on the national economy helped Saccos to post increased capitalization.

The core capital in absolute terms increased to Sh97.74 billion in 2020 from Sh79.20 billion in 2019 an increase of 23.41 %.

The core capital of Saccos is built through recruitment of new members to contribute additional share capital, through retention of surplus to increase the reserves and retained earnings, or through receipt of grants and donations.

Last year’s pace of growth in core capital was faster than the 6.49 percent growth that was posted in 2019, showing the impact of the cut on dividends and rebates.

Sacco members are the owners of their respective DT-Saccos by virtue of having invested the minimum prescribed share capital. The investment earns a dividend whenever surpluses are declared enabling Sacco members to derive financial benefits from their DT-Saccos both as customers through interest on the deposits held and as owners through dividends paid on the shares held.

High retention of earnings also helped Saccos to comply with Sasra regulations that require all DT-Saccos to maintain the prescribed minimum core capital of not less than Sh10 million.

The regulations also require the Saccos to maintain minimum core capital to total assets ratio, core capital to total deposits ratio and institutional capital to total assets ratio of 10 percent, eight percent and eight percent respectively.

The core capital to total assets ratio hit 15.57 percent from 14.23 percent while core capital to total deposits ratio reached 22.65 percent from 20.82 percent.

The institutional capital, which reflects the level of retention of surpluses by DT-Saccos, also increased to 11.39 percent last year from 10.63 percent in 2019, reflecting the overall growth in capital reserves by the sector.

Strong capital buffers are critical in ensuring Saccos withstand stresses such as loan defaults and exits of some of the members, without having to rely on borrowings or resorting to shut down operations. This is seen as a way of saving members from the agony that befalls them when licenses of weak Saccos are revoked leading to a painful liquidation process.

The liquidation process is usually marred with acrimony since it takes a long process for members to recover their savings and erodes the confidence of other Sacco members.

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