Saccos resist loans cost cut push despite banks 29-year low rate

Savings and credit cooperative societies (saccos) will not be in a hurry to adjust loan interest rates despite that of banks falling to a record 29-year low, partly triggered by coronavirus pandemic.

Central Bank of Kenya (CBK) shows that lending rates fell to average 11.92 percent in April, the lowest since the regulator started disclosing the rate in July 1991.

Saccos are downplaying fears that banks’ rate fall will blunt cooperatives’ attractiveness to members.

Most Saccos price loans at between 12 percent and 14 percent. Lower rates have been among the selling points for Saccos especially with rates of some banks having hit as high as 25 percent at some point.

Kenya Union of Savings and Credit Cooperatives (Kuscco) managing director George Ototo has downplayed the latest development saying banks still retain other charges on loans and rank below Saccos on ease of access to credit for customers.

“The CBK rate is only indicative and does not reflect the actual cost of credit from banks. There are still costs such as processing fee, insurance, application and appraisal fee. All these combined may give an average rate of 15.2 percent,” said Mr Ototo.

“If Sacco members will choose to bring down rates, it will only be a democratic decision and not to be dictated by what other financial institutions have done.”

Loans and advances to members by Saccos regulated by Sacco Society Regulatory Authority rose by 12.1 percent to Sh402 billion last year, latest data from Economic Survey shows.

Mr Ototo explained that falling rates in banks also raise the risk of upward revision of price when the economy recovers from Covid-19 pandemic. This is in contrast with many Sacco loans whose rates are kept constant.

“Majority of people who have run to banks because rates went down have had to run back to be salvaged from those loans when economic conditions change and the rates spike. It may not be any different now,” said Mr Ototo.