Sasra mulls over a system for societies to lend each other

What you need to know:

Sasra has hired an American consultancy to advice on setting up of a system for saccos to lend each other like banks do.
Dave Grace & Associates is expected to guide the development of a central liquidity facility to help financial co-operatives meet short-term obligations.
An overnight and short-term lending facility for saccos is likely to hit the earnings of commercial banks.

The Sacco Societies Regulatory Authority (Sasra) has hired an American consultancy to advice on setting up of a system for saccos to lend each other like banks do.

Madison-based Dave Grace & Associates is expected to guide the development of a central liquidity facility to help financial co-operatives meet short-term obligations.

Sasra chief executive John Mwaka said they target to have it operational by end of this year, saying it will cut saccos’ reliance on expensive bank loans to maintain the regulatory 15 per cent liquidity ratio.

“Informed by experiences in other places such as Canada and the US and contextualising these to Kenya, the consultant is expected to explore and make recommendations on viable options for establishing a central liquidity facility for deposit-taking saccos,” said Mr Mwaka in an interview with the Business Daily.

“The existing credit facilities have exorbitant rates as the lenders do not appreciate the sacco business to tailor-make credit facilities suiting their business,” he said.

Sasra has in the past two years withdrawn the licences of three deposit-taking saccos and placed another under receivership in what was linked to liquidity challenges.

Saccos do not participate in the interbank market and there is currently no central liquidity facility tailored to meet the needs of Kenya’s 181 licensed deposit-taking unions, or allow them to lend each other.

An overnight and short-term lending facility for saccos is likely to hit the earnings of commercial banks.

Sasra is banking on the facility to arrest temporal liquidity shocks and imbalances by having credit unions with excess cash lend to those in need.

The sacco central liquidity facility will also help inform monetary policy decisions and complement the interbank market as an effective guide in pricing loans, savings, mortgages, futures, options and swaps.

Sasra rules require deposit-taking co-operatives to file a liquidity statement report at the end of every month detailing the liquid assets as well as the balance of liquid liabilities.

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Mr Mwaka said the consultant will help Sasra prepare a policy paper guiding the establishment, operations of the borrowing window and propose necessary legal amendments to current laws to house this innovation.

Dave Grace & Associates will also explore the possibilities of having Sasra directly fund saccos through a discount window modelled along that of the Central Bank of Kenya.

“The target is to have policy proposal in this year’s budget speech,” Sasra said.

The Kenyan sacco sector’s loan book grew nearly a fifth to hit Sh228.5 billion as at December 2014.

A total of 3.01 million Kenyans belong to credit unions.

Deposit-taking co-operatives held assets worth Sh301.5 billion and customer deposits totalling Sh205.9 billion in the year under review.

Sasra last year revoked the licences of three deposit-taking saccos - Ntiminyakiru Sacco Society, Ogembo Sacco Society Ltd and Isiolo Teachers Sacco Society Ltd - due to failure to meet minimum capital requirements and poor corporate governance framework.

Sasra in October 2014 placed Kiambu-based Jijenge Sacco Society Ltd under statutory management due to liquidity challenges, high external borrowing and inability to meet obligations to depositors and other third parties.

About seven deposit-taking co-operatives have a bigger loan book than some of tier-three lenders including UBA Kenya, Habib Bank AG Zurich, Middle East Bank and Transnational Bank.