By Jackson Okoth
The National Treasury has indicated that it has set aside an undisclosed amount of money to be used in setting up an inter-lending facility for Savings and Credit Co-operative Societies (Saccos). However, its move to create what will be known as a Central Finance Fund (CFF) is being frustrated by the slow pace of the Sacco industry to set up the required structures.
“Although we already have a central finance facility run by the Kenya Union of Savings and Credit Co-operatives (KUSCCO) Limited, the lobby group is reluctant to surrender this facility so that it can be better funded and be accessible to all Saccos,” said Moses Chebor – Chief Executive Officer – Boresha Sacco Society Limited in an interview in Eldama Ravine.
The fear is that while KUSCCO is basically a lobby group, relinquishing its Central Finance Fund could end up crippling the organization since this CFF is its largest source of funding. Financial capital for KUSCCO’s Central Finance Fund is sourced from regular deposits by Saccos. KUSCCO pays a reasonable interest on these deposits, which is disbursed quarterly to member societies.
Industry observers maintain that the fact that large Saccos such as Mwalimu National is able to acquire a commercial bank implies that there is sufficient cash within the Sacco industry that players can lend and borrow among themselves.
“We might be left with no choice but set up a parallel central finance facility that will provide the Sacco industry with short term liquidity,” said Chebor.
The Sacco industry is also mulling with the idea of setting up a cheque clearing system – similar to that run by Kenya Bankers Association (KBA), to assist Saccos in the clearing and payment of cheques. This process is currently handled by commercial banks on behalf of Saccos – who have no access to the cheque clearing house run by KBA.
“In order to avoid offering competition to commercial banks in this cheque clearing business, we may have to think about using one commercial bank to act as a clearing and settlement bank for all the Saccos. The idea is to avoid the nasty competition that will arise when Saccos begin issuing and clearing their own cheques,” said Chebor.
Incidentally, there are captains and top chief executives in the Sacco industry who feel that it is still premature to discuss or even imagine that Saccos can have their own cheques, let alone run a cheque clearing house parallel to that operated by commercial banks.
“We are among those Saccos that have yet to partner with any commercial bank for purposes of issuing personalised cheques. This is because our members transact their business through the FOSA accounts. The idea of an inter-Sacco lending facility appears far-fetched,” said David Mategwa, Chairman – Kenya Police Sacco Society Limited.
He added that there is hardly any Sacco with excess liquidity that can lend to another Sacco in financial distress. “The amount of cash circulating among Saccos is still dismal,” said Mategwa.
Commercial banks are said to be well aware of the plan by Saccos to set up their own inter-lending and cheque clearing facility and are busy plotting to counter this move.
Although Saccos have a central finance fund managed by KUSCCO, it still lacks the necessary muscle to service the needs of the entire Sacco industry. This means that it will take a while before big Saccos, which have partnered with commercial banks for purposes of issuing cheques, meeting their liquidity shortfalls or even doing electronic funds transfers, alter this arrangement.
Incidentally, while the idea of establishing Co-operative Bank of Kenya was for the institution to serve as the bank for co-operatives, it has since transformed its structures and now operates just like any other commercial bank. It therefore treats Saccos just like one of its customers as it seeks business from other segments of the economy.
But not all are pessimistic with these new developments in the Sacco business.
“ Allowing Saccos to issue cheques to their members and also have a cheque clearing house will make societies more attractive to corporate clients, especially those who operate huge current account balances. Cheques are the way to go for Saccos who have already partnered with commercial banks,” said Isedorius Ochola Agola, Chairman of Coast Association of FOSAs (CAFOSA).
“We are still waiting for guidelines and details from the regulator in order to understand how the Saccos will issue their own cheques or even borrow cash from each other. We also need to carry out research on cost and benefit analysis and come up with policies and by-laws that will enable us access and use a Central Liquidity Facility (CLF). But all I can say is that it is still early days,” said Alex Irungu, CEO, Mentor Sacco Society Limited.
Experts maintain that use of cheques is on the decline as the financial sector gets more sophisticated and innovative. However, commercial banks stand to lose if Saccos establish their own cheque clearing system of a Sacco inter-lending facility that is larger than that currently operated by KUSCCO.
“The setting up of a Central Liquidity Facility is bound to hurt commercial banks, who will be forced to engage Saccos more in terms of coming up with more competitive rates and better propositions,” said Faith Mwangi -financial analyst with Standard Investment Bank (SIB).
She added that while it will take a while before Saccos can have their own cheque clearing house, it must be known that Saccos are growing fast in size to the extent that we now have societies that are larger than some tier three commercial banks.
“We are therefore bound to see even more rapid development for Saccos in the coming years as they grow in financial muscle and strength,” said Ms Mwangi
Not all players in the financial sector are getting cold feet on learning of prospects by Saccos to have their own inter-lending facility and a clearing house.
“ A move to allow Saccos to have an inter-lending facility or issue their own cheques is definitely the way to go for the entire financial sector. We do not view this as a move to take away the business from MFIs but an encouragement for us to deal with a more stable and sophisticated Sacco industry that is also closely regulated,” said Symon Kamore – CEO SMEP Microfinance Bank Limited.