More than 1.18 million Kenyans stopped making monthly contributions to savings and credit cooperative societies (saccos), suggesting a difficult recovery of the jobs market following the Covid-19 economic hardships.
Data from the regulator, the Sacco Societies Regulatory Authority (Sasra), shows 19.7 percent of the 5.99 million saccos members did not transact on their accounts for more than six months last year.
This came in a year when official data reported 926,100 jobs were added in the formal and informal sectors last year.
The growth in jobs came on the back of easing of Covid-19 restrictions, which had led to 736,000 job losses in 2020, suggesting a net hiring gain of 190,000 positions.
“During the year ended December 2021, there was a marginal increase of 3.03 percent of the membership in saccos from 5.82 million members reported in 2020 to 5.99 million members in 2021,” Sasra chief executive Peter Njuguna wrote in the annual supervision report.
“A large proportion of the members numbering 1.18 million were, however, reported as dormant, implying that they had not conducted any transactions with their respective saccos for more than six months.”
The findings are an indication the share of dormant accounts in both deposit-taking (DT) and non-withdrawable deposit-taking (NWDT) saccos were yet to return to pre-pandemic levels.
Inactive members surged 79.55 percent to 1.37 million, or 25.09 percent, of the 5.47 million DT-sacco membership in 2020 when companies resorted to layoffs, pay cuts and unpaid leave to stay afloat amid pandemic shocks on earnings.
The regulator’s data shows dormant accounts in 176 deposit-taking (DT) saccos, however, fell 22.26 percent to 1.07 million members from 1.37 million members in 2020.
The inactive accounts in 2021 remained higher than 764,472 accounts or 16.95 percent of the total membership in 2019 and 676,052 members (16.12 percent) a year earlier.
On the other hand, the dormant accounts in 185 non-withdrawable deposit-taking (NWDT) saccos — which came under the watch of Sasra last year — grew 52.69 percent to 114,930 accounts.
During the year, non-performing loans (NPLs) stood at Sh54.73 billion, a default rate of 8.99 percent of Sh608.75 billion loan book for the 361 saccos.
NPLs for DT-Saccos grew 16.08 percent year-over-year to Sh46.27 billion, prompting the credit unions to set aside Sh33.65 billion as provisions against likely losses.
“Comparatively, DT-Saccos had the lowest NPL ratio at 8.86 percent for the period ended December 2021 compared to an NPL ratio of 8.39 percent recorded for the period ended December 2020,” Sasra wrote in the report.
“The NWDT-Saccos, on the other hand, had their NPL ratio at 9.78 percent during their first year of regulations, and although their NPL ratio for the year ended December 2020 was not recorded (since they were not under the prudential regulation), it is apparent from the analysis that …(they) had a poor quality of loans when compared to DT-Saccos.”
The mounting defaults are a reflection of the struggles of workers and businesses in an economy recovering from a coronavirus-induced slump.
This has added the burden on active members in a business setting where loans are mostly secured by guarantees and not securities such as cars, homes and land.
Total deposits in the 361 saccos grew 9.80 percent to Sh564.89 billion in 2021. Deposit-taking saccos accounted for 83.95 percent of the deposits, or Sh474.25 billion, which is a 9.92 percent growth over Sh431.46 billion last year.
“The average membership in NWDT-Saccos is quite low compared to the average membership in DT-Saccos,” Sasra wrote in the report.
“Saccos being member-based socio-economic enterprises which thrive better on economies of scale. Such low average membership in individual saccos brings to fore the question of their sustainability particularly in view of stiff competition within the financial sector space from other financial service providers.”
The saccos grew assets 9.92 percent to Sh807.11 billion. DT-Saccos grew their assets at a higher pace of 10.10 percent to Sh691.09 billion, while the value for non-deposit-taking entities rose at a slower 8.90 percent to Sh116.02 billion.
Sasra, however, barred four credit unions from taking deposits from the public over failure to meet minimum operating standards.
This marked the first time since 2019 that Sasra deregistered deposit-taking saccos after 13 escaped with warnings to comply with conditions in 2020. The four deposit-taking saccos whose licences were not renewed had a combined assets of Sh1.02 billion and Sh560 million in total deposits in 2020.
The deregistered saccos are Nairobi-based Comoco, which controlled Sh650 million assets and Sh350 million deposits, Nyamira Tea (Sh210 assets), Nyanyuki Equator (Sh120 million) and Mombasa’s Uchongaji (Sh40 million).
The revocation of the licences is an indication the four unions were experiencing serious liquidity problems and other corporate governance challenges that required strong action.
The regulator said the saccos whose licences were not renewed “failed to maintain the minimum standards required for a Sacco to undertake deposit-taking business” without specifying the conditions which were not met.
The regulator requires, among other things, that all DT-Saccos maintain at all times minimum core capital of not less than Sh10 million.
DT-Saccos are also required to maintain core capital to total assets ratio at not less than 10 percent. Core capital to total deposits and institutional capital to total assets have both been set at a minimum of 8.0 percent.