This year, the world celebrates the 74th International Credit Union Day set aside to reflect on the global history and achievements of savings and credit cooperatives — also known as credit unions.
It is also an opportunity to consider the challenges Saccos face and possible solutions to the same for the betterment of the members.
This year’s theme for ICU Day is “empower your future with a credit union”, which was purposely chosen to underscore the work ahead to deepen and broaden financial inclusion.
The World Council of Credit Unions asserts that Saccos have the perfect business model to financially empower the estimated 1.4 billion unbanked people globally.
In its 2021 Credit Union Statistics Report, WOCCU reports that Saccos serve 393 million members globally, representing 12.7 per cent penetration rate across in 118 countries.
Notably, North America leads with 51.8 per cent, implying one in every two economically active adults is a member of a Sacco in spite of the sophisticated financial sectors in these economies. The US credit union system has 131 million members, translating to a 61 per cent penetration rate.
Africa’s penetration rate of 15.7 per cent, translating to about 45 million members, is not bad, with Kenya enjoying a commanding lead of about 10 million members, emphasising the popularity of Saccos amongst households and their enterprises.
A keen observer will note that the penetration rate of Saccos in a country has a close association with the respective government’s policy in the development and regulation of the industry.
An official stance that seeks to ensure financial stability, efficiency and competitiveness of the entire deposit-taking market, regardless of the type or nature of financial institutions operating, has resulted in inclusive and sustainable growth and development in the entire deposit-taking market, including Saccos.
These credit unions offer huge economic benefits in savings mobilisation and efficiency in credit for the households and their enterprises, especially the micro and small entrepreneurs (MSEs).
The development of Kenya’s Sacco industry is no exception as the government formally recognises the credit unions as an integral part of the financial system.
The financial services sector development plan has been consistently defined around three dimensions: Financial stability, efficiency and inclusion. While financial stability and inclusion has to a large extent been achieved, efficiency, especially in access to credit by MSEs, has been elusive. Financial Sector Deepening Kenya Finaccess 2021 survey observed that while the country has made major progress in enhancing formal access to financial services by households, this has not resulted in efficiency gains. MSEs continue to struggle with high cost of credit.
It is thus a welcome development for the government to address efficiency in the credit market for the sake of households whose livelihood is solely MSEs in multiple sectors of the economy. President William Ruto has consistently stated the goal as a single digit rate of interest for credit and recognised that Saccos are integral to this policy target.
The government’s ultimate objective is to empower MSEs by addressing the multiple challenges they experience, one of which is costly credit and other barriers to affordable loans. It is logical that appropriate interventions in that segment of our economy will enhance productivity for the good of all.
The Sacco Societies Regulatory Authority in its 2021 supervision report notes that the 361 Saccos served six million members with a gross loan portfolio of Sh609 billion to the individuals and their enterprises. This including land and housing at 27 per cent, education 21 per cent, agriculture 17 per cent, trading 12 per cent, consumption and social services eight per cent; and manufacturing and service industries eight per cent.
These loans were funded from members’ Sh565 billion deposits and Sh118 billion capital reserves.
This underscores Saccos’ significant role in the country’s credit market and its resilience, despite the structural and policy challenges they experience such as the internal and external shocks that have continued to negatively impact the economy such as erratic weather patterns and Covid-19.
It is this proven cooperative business model where small traders, smallholder farmers and ordinary citizens come together in solidarity that the opportunity lies for sustainably empowering the ordinary households and their MSEs.
The rebirth of a Ministry of Cooperatives with an additional responsibility of developing MSEs is a strategy to leverage and scale the impact of the co-ops and the enterprises through forward and backward linkages; unlocking efficiency gains through economies of scale.
The proposed hustler fund, for instance, is a form of ‘credit guarantee’ to de-risk these micro-borrowers and enable scaling up access to credit by formal lenders like Saccos who by design will also address the second objective of growing up savings in the economy.
The industry is also hopeful that the regulatory policy reforms on the Sacco shared services mechanism and a deposit guarantee fund will be fast-tracked, given their significance in enhancing efficiency and financial stability of the industry.
The writer is the CEO of SASRA
