Individuals and households are increasingly borrowing more from Saving and Credit Cooperative Organisations (saccos) and microfinance banks than commercial banks as Kenyans seek loans at lower interest rates.
Total loans issued to private households by Saccos and microfinance banks were recorded at Sh600.70 billion out of Sh1.12 trillion issued to the sector by the financial institutions as of January 2023, according to data from the Central Bank of Kenya (CBK).
This represents 53.8 percent of the net credit disbursed to individuals and households who mostly borrow against their payslips, where banks had distributed Sh515 billion
Industry players have linked this to lower interest rates and terms.
Saccos and microfinance banks have also gained preference in loan applications due to quick access of loan facilities for members.
For banks, any raise of the central bank rate (CBR) by CBK signals a higher cost of funds, prompting them to raise their rates on customer loans.
“Commercial banks’ interest rates can change depending on how CBK dictates, whereas Saccos do not change.
Saccos are also charging an average of 12 percent on reducing balance which will mean six percent to seven percent annually at the end of the loan serving,” said Philip Oyuko, chairman of Kimisitu Sacco.
There are 176 saccos licensed for deposit-taking for the year to December 31, 2023, and another 183 licenced as non-deposit operations where they take deposits from members only in the form of share capital.
The deposit-taking saccos had 5.47 million members with total deposits of Sh431.46 billion in 2020.
There were 14 microfinance banks with loan books valued at Sh9.08 billion and Sh50.4 billion worth of deposits in December 2021.
Loan growth by the saccos and microfinance banks has been increasing over the year, adding Sh67.3 billion in the 12 months to January from the period ended January 2022.
This is compared to Sh37.3 billion added by banks over the same period.
Commercial banks were charging households an average interest rate on loans of 13.27 percent on overdrafts.
Smaller businesses were charged 13.35 percent and are perceived to be riskier compared to large companies at 13.30 percent.
CBK’s data shows that Saccos and microfinance have hinged on the sector for their business, with private households holding the larger loan portfolio representing 73.2 percent of their total loan book.
Private households only represent 9.3 percent of the total loan book by banks. Saccos have also been attractive due to their payment of dividends and interest on deposits, unlike banks.
Several Saccos made generous payments to members for the financial year that ended December 31 on improved surpluses, increased membership as well as enhanced member deposits.