Job cuts slow sacco savings growth to seven-year low

Member deposits in Kenya’s savings and credit co-operative societies (saccos) grew by 11.27 percent to Sh380.44 billion last year, the slowest pace in seven years, underscoring the economic hardship facing the country.

Sacco Society Regulatory Authority (Sasra) data shows that the 2019 performance marked a fifth straight year of slowdown in deposits — a trend which if prolonged may result in higher cost of borrowing since deposits is a key source of lending to members.

Private sector-based saccos were the most affected, posting a 6.76 percent deposit growth to Sh37.26 billion while farmer-based ones realised an 8.85 percent rise in deposits to Sh37.63 billion.

This is in contrast with government and teachers-based saccos whose deposits grew at 10.41 percent and 14.42 percent respectively to hit a combined Sh281.1 billion or 74 percent of total deposits.

The slowed growth in deposits comes in the period in which corporate Kenya has been hit by job losses, leading to a rise in dormant membership in saccos.

“Saccos are not immune to economic hardships because they operate in the same ecosystem. So if the economy is not doing good, you expect saccos to be affected,” said Sasra CEO John Mwaka.

The number of dormant members in saccos rose by 40.1 percent from 482,526 to 676,052 in 2018 on increased job cuts and delayed salaries from struggling entities.

Sasra has not disclosed the dormant membership for 2019 but going by the economic fallout due to the Covid-19 pandemic, the situation is likely to worsen this year amid job cuts and suppressed activity in key economic sectors, including tourism and manufacturing.

Loss of income or reduced earnings erodes savings power, leaving saccos deprived of liquidity due to low deposits.

Last year’s performance is the slowest since 2013 when deposits grew at 7.5 percent before hitting a high of 19.38 percent a year later.

The slowed deposit mobilisation has expanded the gap between gross loans and deposits to Sh39.11 billion -- the highest -- in contrast with Sh32.37 billion the previous year.

Loans and advances to sacco members have remained above the deposits, rising by 12.1 percent last year to Sh419.55 billion.

The growth rate of the gross loans portfolio exceeded that of the total deposits, implying that the demand for loans by members exceeds the pace of savings and deposit mobilisation.

Mr Mwaka reckons that the mismatch between deposits and loan requirements may push up cost of borrowing especially among established saccos with huge loan demands.

“This is an undesirable situation as saccos are forced to fund the deficit from external sources, which often than not turns out to be quite expensive,” says Sasra.

The regulator’s prudential framework has set external borrowing to a maximum of 25 percent of total assets.

However, last year saw five saccos breached this while the borrowings of another 32 were between 10 percent and 25 percent.

Saccos aspire to have over 90 percent of their loans and advances portfolio to be financed principally by deposits.

Having a minimal or no portion of the loans and advances being financed through external borrowing allows saccos to offer affordable rates to members, making them competitive against microfinance banks and commercial banks.