Ideas & Debate

How to make deposit taking saccos vibrant

DT-saccos should be facilitated with clearing of financial instruments
DT-saccos should be facilitated with clearing of financial instruments for their customers. FILE PHOTO | NMG 

With the continuous growth of deposit taking savings and credit cooperative societies in Kenya, and the positive reception given to the sacco societies concept by Kenyans of different status, regions, age and professions, the future of the co-operative movement is very bright and needs to be well nurtured.

Whereas the banking industry continues to face a myriad of challenges that have led to either stagnation or decline in profitability and assets of many banks, except the ones in tier 1, the deposit taking saccos ( DT-saccos) have continued to register impressive growth in membership, assets, revenue and dividends to shareholders.

This growth has had an overall positive economic impact on the individual members of these saccos and national economy in general. This, therefore, calls on all of us to encourage and support the deposit taking saccos in their business.

There are five key intervention areas that needs to be emphasized on to support this growth.

First, there is need to help the saccos fully automate their processes and embrace as many payment channels as possible. They should be supported fully by the regulator, SASRA, in their drive to venture deeper in the alternative business channels like mobile banking, agency banking, ATMs and internet banking.


This will make the sacco business more convenient to their customers, most of who usually reside in areas where the commercial banks don’t find it viable to open branches. The software vendors should design more robust and customised systems for the saccos to help them realise this potential.

Secondly, the DT-Saccos should be facilitated with clearing of financial instruments for their customers. Currently, in case a sacco wants to clear an inward or outward cheque or EFT for their customers, they must ride on the platform of a commercial bank that participates in the Automated Clearing House (ACH), run by the Central Bank of Kenya.

Since saccos can issue cheque books and receive cheques from their customers, they need to be either admitted in the ACH or be allowed to develop their own national clearing system to enable them to serve their customers better.

This limitation has made it difficult for saccos to embrace the PesaLink model of sending money from one financial institution to the other through the mobile phone despite the huge potential that they have in that space and their willingness to adopt this new technology.

Thirdly, there is need to come up with a pooled fund to cushion the saccos in case the demands for loans by their customers exceeds the available deposits and savings. The idea of seeking for external loans from the commercial banks is not good in the long run.

Since bank loans to saccos are priced higher than what the latter advance their customers, overreliance on the funds borrowed from banks to finance the sacco core business will ultimately make the sacco products expensive to their consumers, hence compromising the pleasant growth that we continue to witness.

We have continued to witness many erstwhile strong saccos suffer from extremely low liquidity and high gearing ratios due to excess borrowing from the bank. The proposed pooled fund should be sourced from cheaper sources, both within and outside the country.

While still at this, the saccos ought to formulate a clear policy on deposit mobilisation from their customers, by developing enticing fixed and call deposit products to cushion against high demands for loans.

Fourthly, governance and management of the deposit taking saccos needs to be well regulated and streamlined. With the registered growth in the movement, the managers of these institutions should be properly vetted, with the fit and proper tests fully administered.

The threshold for one to qualify to sit in the board of directors of the DT-Saccos needs to be raised to take into account levels of education, experience in leadership, shareholding in the sacco and fidelity to the by-laws and objectives of the sacco.

The same eligibility criteria should be extended to the chief executive officer and the other senior staff in the sacco with more emphasis on education and experience. Once this vetting is complied with, there will be no board or management capture leading to very strong synergies within the institutions.

Lastly, but not the least, the DT-Saccos need to develop clear short-term and long-term strategic plans for their business. This will also need to be complimented by well-articulated and clear policy manuals that will guide their day to day operations.

The key manuals are: Credit policy manual, human resource and governance manual, operations manual, finance and investment manual, marketing and education manual and information technology manual. With this in place, the deposit taking saccos in Kenya can only grow from strength to strength.