Saccos inching closer to lending each other

Sacco Societies Regulatory Authority (Sasra) chief executive Peter Njuguna

Sacco Societies Regulatory Authority (Sasra) chief executive Peter Njuguna. FILE PHOTO | NMG

Deposit-taking Savings and Credit Cooperative Societies (Saccos) have moved closer to setting up a central liquidity facility to enable them to lend to each other to meet unexpected or unusual short-term cash flow shortfalls.

The Sacco Societies Regulatory Authority chief executive Peter Njuguna says his agency is drafting amendments to existing laws to pave way for approval by the National Assembly to set up the inter-Sacco lending window.

He says the process of drafting the legal framework for establishing and regulating the proposed system is being handled through a multi-agency team of largely financial services regulators and has been endorsed by the Cabinet.

The proposed creation of the Central Liquidity and Shared Technology platform, which has been on the cards since 2016, is expected to reduce the Saccos' reliance on costly bank loans to maintain monthly statutory cash-flow ratios.

Once set up, the Central Liquidity and Shared Technology platform will help about 175 deposit-taking Saccos arrest temporal liquidity shocks and imbalances by having societies with excess cash lend to those in need.

“The initiative will strengthen the capability of Saccos to handle payment services for the members. It has an element called shared digital platforms,” Mr Njuguna said.

“It’s something that is very critical to us and a priority to me. It’s our prayer that the amendments will be fast-tracked [in the National Assembly].”

The majority of DT-Saccos rely on expensive bank loans to maintain the regulatory 15 percent liquidity ratio of savings deposits and short-term liabilities under Section 30 of the Sacco Societies Act and rule 13 of the Sacco Societies Regulations 2010.

Deposit-taking Saccos are under the law required to file a liquidity statement report every month, detailing the liquid assets as well as the balance of liquid liabilities.

The regulator, however, directed the societies to file daily reports in 2020 to enable it “monitor and assess the impact of Covid-19 pandemic on the performance of DT-Saccos”.

The latest industry data shows the 175 DT-Saccos maintained a liquidity ratio of 48.50 percent, the lowest on record according to the publicly-available data from 2016.

The Sasra’s annual supervision report shows the liquidity ratio has been falling since 2017 at 54.10 percent to 52.68 percent in the year that followed and 50.92 percent in 2019.

“Despite having maintained the liquidity ratio above the prescribed minimum in the aggregate, it is however noteworthy that some DT-Saccos were, however, not able to maintain the ratio at or above the prescribed minimum,” Sasra wrote in the Sacco supervision annual report for 2020, published January this year.

“In general, the number of DT-Saccos complying with the liquidity ratio has been increasing over the year, thus evidence of the ability of DT-Saccos to meet their respective short-term obligations owed to their membership.”

Six of the 175 DT-Saccos breached the minimum liquidity ratio of 15 percent, but the number was lower than nine in 2019 and 26 societies the year before.

The short-term lending facility for Saccos will enable them to meet unusual and unexpected short-term cash obligations at a relatively cheaper cost.

DT-Saccos’ total deposits rose 13.41 percent to Sh431.46 billion in 2020, while gross loans increased 13.16 percent to Sh474.77 billion against an asset base of Sh627.68 billion, according to the latest industry statistics.

The creation of the liquidity facility will finally put to an end the dragging process which started in early 2016 when Sasra hired American consultancy, Dave Grace & Associates, to guide its development, drawing on experience from the US and Canada.

President Uhuru Kenyatta in July 2019 ordered the Co-operatives ministry, the Treasury and the Central Bank of Kenya to fast-track the process of setting up liquidity facility “which would enable Saccos to participate in the National Payment System and allow them to come up with more innovative products for Kenyans”.

Lack of a central settlement framework and connectivity to national payment system infrastructure have seen the societies rely on commercial banks for members to access cashless payments like the ATMs.

Sasra’s latest data shows 112 DT-Saccos relied on Co-op Bank’s Sacco-Link ATM service for members to get cash-less payments in 2020.

“To ward-off competition and mitigate against incidences of massive transfer of funds from the

DT-Sacco system to the banking system which reduces liquidity of the DT-SACCO system… several DT-Saccos have partnered with commercial banks to enable their members access ATM services,” Sasra says.

“In the partnership, the DT-Saccos normally open and maintain ATM settlement accounts in commercial banks with sufficient funds to enable their members to access their respective individual savings accounts held in the Sacco through the usage of ATMs cards.”

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