Saccos are turning to the agency business and partnering with financial technology (fintech) companies in efforts to fend off competition from other financial sector players such as digital credit providers.
Saccos increased their number of agents by 20.9 percent to 4,038 in 2023, from 3,340 a year earlier, while the number of transactions made by these agents on their behalf more than quadrupled to 7.8 million from 1.89 million in 2022, data from the sector regulator says.
This is coming from a near-zero base just over two years ago, highlighting a strategic shift in Saccos' business, in addition to adopting technology to stave off other financial industry players that are swiftly eating into the market traditionally reserved for cooperatives.
“In addition to the use of technology, Saccos are progressively adopting agency business model to transact Sacco business instead of the often-costly brick and mortar physical branches,” the Saccos Societies Regulatory Authority (Sasra) said in a recent report.
A large number of banks, mostly microfinance lenders serving almost the same market as Saccos, have gradually been moving away from the agency business model as the industry becomes increasingly digital.
Last year, for instance, microfinance banks shed 277 agents or about 25 percent, reducing their total number of agents from 1,198 in 2022 to 921, while those of other banks grew at a constant rate of 5.6 percent as in 2023, but a slowdown from previous years.
Saccos say the agency banking model works better for them than it does for banks, given the nature of the market they serve, which is largely made up of low- and middle-income people, most of whom live in remote areas.
“Looking at the clients that banks are targeting, yes, there are some areas where we’re targeting the same membership, but for us, our focus is on the low-income to middle-income earners,” said George Yongo, CEO of Imarika Saccco, which started using agents about two years ago.
“The idea of the Sacco agency for us was to try and make sure that we bring the services close to the members, especially the ones that are in remote areas. And that’s just one of the new strategies,” he added.
The regulator says the grassroots savings institutions are also increasingly collaborating with fintech companies, which have themselves eaten into the small loans and savings market traditionally reserved for Saccos.
“Regulated Saccos have continued to embrace the use of technology and partnerships with fintechs as well as commercial banks, in order to enhance efficient service delivery to their members,” Sasra said.
Fintechs are technology-enabled financial services firms that digitise functions such functions as savings, credit, investment, bridging traditional barriers to financial inclusion.
According to Mr Yongo, Saccos such as Imarika are working with fintechs mainly to automate their operations, including lending and saving, and to offer new services such as mobile banking, loyalty programmes and customer relationship management (CRM) systems.
“It is a win-win relationship for both the Saccos and the fintechs. We have something they don’t have and they have something we don’t have,” said Mr Yongo.
“What we have is the membership, which they don’t have, and what they have is the technology, which we don’t have. So, we can both benefit from collaborating rather than competing for the same market.”
The Saccos have been facing stiff competition both from banks and digital credit providers (DCPs), which have increased in number and garnered more users since they were reined in by the Central Bank of Kenya (CBK).
Available data from the CBK and Sasra show that gross loans extended by banks have been growing faster than those of Saccos, highlighting the fierce competition for a share of the interest income from borrowers in the country.
