It is about time the mandate and jurisdiction of Saccos got reviewed
That SACCOs have made an immense contribution to the economy is a fact that many local economists agree on.
Statistics indicate that as of 2014, Saccos had an asset base of Sh301.5 billion and total deposits of Sh205.9billion. Saccos membership across the country is slightly over 4 million.
This is a remarkable growth by any standards if compared to that of mainstream financial institutions which appear stuck and are back to the drawing board to try and figure out the way forward for growth.
Saccos continue to remain competitive in the interests they charge their membership in respect of loans and other credit facilities compared to interest rates charged by banking institutions.
Saccos on average charge 3 percent lower than the mainstream financial institutions while their interest rate spread is much smaller compared to banks—a pointer that they are giving the depositors (members) more value for interest they earn from lending out their deposits compared to banks.
This is despite the fact that Saccos rely on commercial banks loans for on-lending to their customers and for various business activities they engage in, a trend that is a one way relationship since banks rely on Saccos deposits for their own on-lending.
SACCOs have been able to extend the level of financial inclusion that traditional financial institutions here read as banks were not able to. Before the current competitive environment, banks feared going ‘low end’ until recently when the dynamics changed. Despite the perceived risks, Saccos took the opportunity head on with a great following.
The recent prudential rules and regulations setup by the Sacco regulating authority have also done well to preserve and prevent the sector from anomalies that may come with such a business.
But despite these overwhelming success stories, Saccos in Kenya continue to be treated as second generation citizens in the financial circles.
A chat with the mainstream financial institutions, the regulatory authorities, customers and other interested parties reveal an interesting trend.
One is that mainstream financial institutions will do anything to bar Saccos from venturing into their foray or perceived customer zones. Instead of seeing Saccos as entities that they can leverage on to grow their business, banks are increasingly viewing the entities as competition that should be kept at an arm’s length.
There is currently a cold war of sorts between mainstream financial institutions and Saccos and the Sacco regulate seems to have been absorbed into it.
As the awareness of financial services has increased among the populace, so has the option of informed choice. There exists competition for customers between Saccos and banks in a way never previously witnessed. As banks are forced to change from being ‘bossy’ to ‘customer friendly,’ Saccos are cashing all the way due to the image of ‘faster loans,’ ‘low interest rates,’ ‘less loan securitization demands’ among others.
But despite this, Saccos have been relegated to the shadows of banks with a constant image painting of being ‘weak’ ‘inferior’ financial institutions.
In the wake of recent liquidity concerns in mainstream financial institutions some leading to banks going under receivership, SACCOs have more or less held their ground and continued to grow.
In fact, it is now common knowledge that some Saccos have displayed remarkable levels of corporate governance that beats some mainstream financial institutions.
This has lead to a school of thought that suggests that Saccos need to be given a bigger space to play and that such competition will wake the banks up and ultimately it is the customer who gains.
There exists an undue overdependence on banks by Saccos. This structure needs to be re-looked and overhauled.
As it stands, Saccos have huge loan portfolios while the banks have huge deposit portfolios. Saccos still go to the banks for deposits at a premium.
Saccos are not allowed to do foreign exchange business. Saccos are not allowed to go to clearing houses. Saccos are not allowed to undertake trade financing. Saccos are not allowed to issue cheques unless through a bank. The list of what Saccos cannot do stretches far and wide and in some instances for no reason at all. The government itself cannot bank tax money with Saccos despite the very prudential guidelines that are in place and also the immense benefit that Saccos have to their members compared to banks.
Imagine what would happen to the economy if Saccos banked as themselves as opposed to through another financial institution? Imagine what would happen if the government deposited tax money with Saccos? What would happen if Saccos were allowed to do trade financing? Issue cheques?
In addition to the above restrictions, it is becoming increasingly difficult for Saccos to transform into a bank. As currently constituted, a Sacco needs to transform into a microfinance entity before becoming a bank. The reasons for this route do not hold water. Also the argument that Kenya is overbanked does not count as each serves a particular set of clientele.
In the end, what matters for the financial sector is adherence to corporate governance, strict conformity to the prudential guidelines. The issues of which is a bank and which is a Sacco need not be overemphasized as long as these key areas are implemented and adhered to.
Aron is a Kenyan economist and a strategic communications consultant