Why financial agencies need to invest in professional managers

The financial landscape in Kenya is characterized by a diverse array of institutions like banks, insurance companies and Saccos that cater to the financial needs of individuals and businesses.

At the heart of the effective functioning of these organizations lies the crucial element of professional management.

 This article explores the unique characteristics of banks, insurance companies and Saccos and emphasizes on the indispensable role of professionally trained managers, particularly in Saccos.

Banks offer a comprehensive suite of services, including savings and checking accounts, loans, investment products and payment services. They operate under a stringent regulatory framework, overseen by the Central Bank of Kenya.

One of the defining features of banks is their ability to create money through the fractional reserve system, allowing them to expand credit and stimulate economic growth. This power comes with the need for professional management to navigate complex financial instruments, risk management and regulatory compliance.

Insurance companies specialize in mitigating risks by offering a wide range of insurance products: they provide financial protection to individuals and businesses against unexpected events.

The Insurance Regulatory Authority (IRA) oversees compliance and solvency requirements in this sector. Professional management is paramount for insurance companies to accurately assess risk, set premiums and ensure the financial viability of the insurer. Actuaries, underwriters and claims professionals are examples of trained experts in the industry.

Saccos are community-based financial cooperatives that promote savings, provide affordable credit and foster financial inclusion. They are member-owned and operate on a not-for-profit basis since their primary focus is members’ financial well-being.

The institutions are regulated by the Sacco Societies Regulatory Authority (SASRA) which sets standards of governance, financial management and member protection.

Saccos pool members’ savings and provide loans using these funds. Thus, the efficient operation of Saccos relies heavily on prudent financial management and governance.

Why Saccos need trained and qualified managers

  • Complexity of financial management: Saccos handle a range of financial services, including savings mobilization, loan origination and investment management.
  • Governance and member protection: Saccos operate under a cooperative model, with members’ interests at the forefront. Trained governance professionals can facilitate transparent decision-making, accountability and member protection, aligning with the principles of good corporate governance.
  • Risk management: Saccos face risks which trained risk managers can assess, mitigate and monitor hence safeguard the Sacco’s financial stability and members’ savings.
  • Financial sustainability: Saccos rely on sound financial management to ensure their long-term sustainability; hence trained professionals can help in developing investment strategies, diversifying income sources and maintaining prudent financial ratios.
  • Compliance and regulatory adherence: SASRA regulations demand stringent compliance with governance and financial management standards, hence trained compliance officers will ensure Saccos adhere to these requirements.
  • Enhanced member trust: Members are more likely to trust Saccos that demonstrate professional competence in their operations.
  • Improved financial performance: Professional management leads to better financial planning, risk assessment and investment decisions, contributing to the Sacco’s financial health.

The author is the director, School of Business and Management Studies at The Technical University of Kenya.

He can be reached at miruka.gem@gmail.com or @Gills_Kenya on Twitter.

By Prof. Ogutu Miruka

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