Position Of Cooperative Movement in Kenya’s Economy

Savings and Credit Cooperative Organizations (SACCOs) are arguably the oldest form of banking in Kenya. Most of these organizations began as traditional table-banking groups with little or no formal organization but with structures of leadership, unwritten policies and a circuit of meetings in which deposits were received from members. Today, many such groups have formalized and are registered with Sacco Societies Regulatory Authority (SASRA). This development in the financial service sector has transformed Kenya’s economy through the convenience of savings and access to credit that is in SACCOs. In rural areas where agriculture creates the most number of jobs, the cooperative movement has been recognized by the government as a vital institution for mobilization of material resources for development. At a minimum, SACCOs offer savings accounts and loans. Deposit-based loans are usually sized at three to four times the amount of the member’s savings held at the SACCO. What makes the model unique is that loans are secured by the members’ deposits, and oftentimes by guarantees who also have deposits in the SACCO. The loans are fairer in their pricing and easier to access when compared to bank loans. Moreover, SACCOs pay higher interests on deposits than Banks, and members with SACCO shareholding enjoy guaranteed dividend payment annually. SASRA’s 2019 report highlighted resilience in SACCOs despite COVID-19 related constraints in the economy. For instance, total deposits held by Deposit Taking (DT) SACCOs stood at Kes.545 billion in 2020, a 13.4 % improvement on Kes.380 billion recorded in 2019. The growth reflects resilience in Saccos despite a difficult year that saw economic activates crippled by the global pandemic. Gross loans stood at Kes. 474.8 billion in 2020 from Kes.429.6 billion in 2019 being a record growth of 13.2%. The government of Kenya has been driving reforms to enhance governance, financial soundness, and sustainability of SACCOs consistent with policy developments articulated in cooperatives development policies (CDP) of 2019. Some of policy reforms that were initiated include: creation of a central liquidity facility and a shared technology platform, operationalization of deposit guarantee fund for SACCOs, establishment of SACCO Fraud Investigation Unit, and prudential supervision of non-deposit taking SACCO commodity referred to as Back Office Services Activities (BOSA SACCOs). These legal amendments have been drafted and submitted to National Treasury which has been included in Financial Bill for 2021. This is a milestone in ensuring that the capital investment in Saccos is protected.

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