For the first time in seven years, the savings and credit co-operative societies' (saccos') returns have fallen below two percent of their assets, signalling the struggle to sweat member contributions.
An analysis of data from the Sacco Societies Regulatory Authority (Sasra) shows the return on assets for the year ended December 2021 sank to 1.59 percent of sacco assets, down from 2.65 percent the previous year.
The last time sacco return on assets (ROA) dipped below 2.0 percent was in 2015 when it stood at 1.89 percent.
Saccos' assets are primarily composed of net loans and advances, cash and cash equivalents, financial investments, prepayments and sundry receivables, and property and equipment.
The societies mainly derive their incomes from loans to members, which increased by 9.67 percent in 2021 to reach Sh608.75 billion from the Sh555.05 billion reported in 2020.
This was a slower growth than the 13.16 percent reported in 2020 and was blamed on the after-effects of the Covid-19 pandemic that are still being felt in the subsector and erratic weather patterns.
“The income from loans constitutes the highest proportion of the total incomes at 86.12 percent which is a marginal increase from a proportion of 86.07 percent,” Sasra said.
Saccos' performance is measured on the ability to sweat their assets to generate returns for members, paid annually as dividend and interest.
Rachuonyo Teachers has been the best sacco at mobilising their resources to generate good returns, earning gross revenues of about Sh50 million, which is 35.7 percent of its Sh140 million assets.
The other top performers are Kenya Achievas, Nyambene Arimi, Visionpoint and Lengo.
Those with the lowest return compared to assets include Ndosha, Lamu Teachers, Shoppers, Orient and Taqwa.
Currently, the 176 saccos have 5.54 million members and rely on them for deposits, which they use to loan to other members. Loans are capped at three times a member's savings.
The funds also have to be backed by member guarantees to cover the entire sum in case of a default, which limits the ability of the societies to scale lending.
This may, however, change in the future if the societies can increase their liquidity and focus on loaning small businesses and not just their membership.
In the Kenya Systematic Country Diagnostic report, the World Bank said capacity building and liquidity support could be provided to saccos to help them provide products suitable for MSMEs and to lend based on data and cash flow rather than deposits.
This would mean saccos would not be limited to loaning just three times members' savings and offer bigger loans to individuals and small businesses taking away a huge chunk of bank loans.
The sector has been making slow progress towards enhancing liquidity, underscored by the move by 52 saccos to endorse an inter-sacco lending market and eventual integration into the national payments and Clearing system.
Sasra is setting up the central liquidity facility (CLF) where saccos can lend and borrow money from each other thereby severing ties with commercial banks whose loans are considered ‘expensive.’
The move is set to leave commercial banks staring at close to Sh2.33 billion losses in interest income on loans granted to the co-operative sector.
But even as saccos would want to expand loans to make more money, the societies are dogged by defaults which water away the revenues made through provisioning.
Sasra said deposit-taking saccos had a non-performing loans (NPL) ratio of 8.86 for the period ended December 2021, mainly driven by failure of employers in remitting member repayments, the Covid-19 pandemic and erratic weather patterns.
The NPLs forced saccos to double provisions over the last one year to Sh10.6 billion in 2021, up from Sh5.08 billion. A total of Sh3.40 billion was reportedly owed by various employer institutions to the 361 regulated saccos in operation in the country.
About 63.34 percent of the non-remitted funds owed are related to loan repayments which means that the subject loans have since been classified as non-performing by the saccos and provisions made, thereby reducing the surpluses and profitability of the saccos.
Even though there was a general reduction in the non-remitted amounts which had stood at Sh5.05 billion in 2020, failure to remit Sacco deductions has been a huge problem, especially for public universities and colleges.
Over the last two years, the government has been employing a multi-thronged policy, legal and administrative measures aimed at reducing the problem of non-remitted funds owed by government institutions to the Sacco subsector.
In November 2019 President Uhuru Kenyatta issued a directive designating such non-remitted Sacco funds as pending bills which government entities are required to budget for and give priority in paying.
Sasra said it is evident that the measures being taken are bearing fruits but at a very slow pace, not sufficient to spur the growth of the Sacco subsector, thereby calling for a rethink of the measures.
The regulator says proposals aimed at addressing the problem were incorporated in the draft Cooperative Bill, which was subjected to a stakeholder consultations process and validation in the course of the year 2021.
“The Authority thus looks forward towards the final approval of the draft Bill, its legislation into law and implementation, as the measures therein will go a long way in reducing the non-remittance problem in the Sacco subsector,” Mr Murathe said.
For members looking for a good Sacco that is not dogged by corporate governance issues or lower returns sometimes comes with so much pain.
Besides low returns, non-remittances of loan payments, some Saccos have also been dogged by poor corporate governance that is also driving up defaults.
Unlike a bank where one can shop for a new lender show up and draw their funds and transfer to a better institution, the Regulations 2010 for DT-SACCOs as well as the Regulations 2020 for NWDT-SACCOs provides that a Sacco shall refund a member the savings or deposits within 60 days after the member has served the Sacco with a notice of withdrawal.
A Sasra analysis of Sacco complaints however shows that these legal provisions are never honoured by the Saccos in respect of which the complaints relate.
The main reason for delayed settlement of claims for refund of savings and deposits of members within the prescribed time, is perennial liquidity challenges.
“For the third year running the largest proportion of complaints related to members who were seeking a refund of their savings and deposits or transfer of shares,” Sasra said.
