Stima Sacco is set to become the first cooperative society to tap into the debt market through a Sh5 billion corporate bond issue to finance its mortgage business.
The sacco, ranked third in the country, in asset base did not give timelines for the issue but indicated it was seeking regulatory approvals.
“To support our expansion plans we are looking at alternative fund raising. We are planning a Sh5 billion bond,” said Paul Wambua the chief executive of Stima Sacco.
Stima plans to grow its asset base tenfold in the next five years to Sh250 billion, riding on member recruitment and business diversification.
Management said it had identified mortgage financing and insurance as prime areas to venture into.
Stima has been developing residential properties for its members with new plan now meant to finance buyers.
Its managers have disclosed intentions to offer long-term loans of between 10-15 years at fixed interest rate with reducing balance.
A member will be required to raise a maximum of 20 per cent of the purchase price of the unit as a deposit with the Sacco financing the remaining amount pegged on the buyer’s contribution in the co-operative.
Mortgage financing is low in the country with total number of mortgage accounts well below 30,000. The low uptake has been attributed to high-interest rates and lack of long-term funding.
South African rating agency GCR said Stima had entered into partnership with KCB to bankroll the development of the purchased land and construction of houses.
The sacco recently received a credit rating of BB+ with a stable outlook from GCR, a pre-requisite for seeking debt funding.
“The ratings of Stima reflect its growing local franchise, built on member-based lending targeting employees in the energy sector, which was later expanded to include allied industries, small- and medium-sized enterprises and other salaried employees in the wider business community,” said GCR in the report.
Stima became the first co-operative society to go for a credit rating in 2014. The sacco plans to open four new branches before end of year and 30 outlets in the next three years.
Issuance of the bond will mark increased aggressiveness by co-operative societies to compete in the financial markets.
Unaitas Sacco has declared plans to convert to a commercial bank by end of 2018 while Mwalimu National last year bought a majority stake in Equatorial Commercial Bank.
Their expansion has, however, faced regulatory queries as the supervisory framework seems to lag the industry aspirations.
The bond by Stima Sacco will have to be approved by Sacco Societies Regulatory Authority (Sasra), Capital Markets Authority and Nairobi Securities Exchange. Stima has a five per cent market share in the Sacco sector with 55,854 members.