Kuscco targets Sh10bn loan fund for societies

Kenya Union of Savings and Credit Co-operatives is planning to increase the amount for lending to Savings and Credit Co-operatives (Saccos) in distress to Sh10 billion.

Managing Director George Ototo said the Sh4 billion Central Access Fund would reach the new target by the end of next year.

He said the high interest rate environment that hit the financial markets last year resulted in a liquidity crunch among the Saccos demanding alternative sources of financing.

“Quite a number of Saccos patronise this product and it is operated on the normal Sacco model where you save then borrow. They borrow because it is the only alternative credit source,” said Mr Ototo. About 1,700 societies have access to the fund.

Last year interest rates rose as the Central Bank of Kenya mopped up excess money from the market in a bid to stabilise the shilling.

This pushed up the cost of borrowing from commercial banks, where Saccos borrow from for onlending, forcing some co-operative societies to revise their interest rates upwards.

Saccos are allowed by law to lend up to three times their deposits and can borrow from other sources including commercial banks up to 25 per cent of their capital base for onward lending.

Mr Ototo said that an inter-lending credit facility is also expected to be operational for Saccos by the end of next year, making available an alternative channel that co-operative societies can use to get funds.

Sacco Societies Regulatory Authority Chief Executive Officer Carilus Ademba said that as at the end of last year Saccos could not satisfy a demand for loans of between Sh30 billion and Sh40 billion because of inadequate of funds.

“A number of people who applied for loans were not successful because there was no liquidity. Saccos could not go to go to commercial banks because of high interest rates,” Mr Ademba said.

Mr Ademba said that in 2010 about Sh15 billion was provided to Saccos from outside the sector but this dropped to Sh5.6 billion last year.

This, he said, reflected a huge funding gap that inter-lending facility among saccos could help bridge.