The government says it will implement a framework allowing savings and cooperative societies (Saccos) to lend to one another in six months, allowing them a platform similar to the inter-bank market run by commercial banks.
Inter-market lending frameworks among lending institutions are critical in addressing potential challenges such as runs, which occur when a lender is unable to meet their immediate liquidity demands owing to shortfalls in cash.
Cooperatives and Micro, Small and Medium size businesses Cabinet secretary Simon Chelugui said despite the hurdles faced in the past, Kenyans can now expect to have the framework in place by August.
“This idea has been under discussion for the last five years and unfortunately has received a lot of resistance from some mainstream financial institutions because it would mean that Saccos, which deals with the mass market, would become more competitive. The sacco movement has Sh1.5 trillion worth of assets and so it is a very important player in financial services,” said Mr Chelugui.
If it sees the light of day, the framework will help address the challenges of skewed liquidity within the sacco sector whereby whereas some players might be awash with cash others could be grappling with the scarcity of the same amidst heightened demand for cash.
The Sacco movement is expected to borrow significantly from the banking sector in the design and implementation of this inter-market lending framework.
In the inter-bank market, players within Kenya’s commercial banking space extend loans to one another for maturities of predominantly a week or less.
Such loans are extended at pricing referred to as the ‘interbank rate’.
“We are calling it Sacco Central and it will be a shared facility, which will help provide core banking and it will enable saccos to borrow from one another. As we speak today, the World Bank came forth and sponsored a study to operationalise this and as we speak, the design is ready and I am just waiting for a presentation on a policy framework to guide the operation,” said Mr Chelugui.
As of the close of 2021, there were 361 saccos regulated by the Sacco Societies Regulatory Authority with Sh807.1 billion worth of assets of which the sector loan book accounted for Sh609.0 billion.
