Savings and credit co-operative societies (Saccos) in Kenya are now competing for a slice of banking services with commercial banks.

Over the past two months, two of Kenya’s largest Saccos — Unaitas and Stima Sacco — have partnered with different banks, allowing their members to open current accounts and clear cheques.

This has seen them overcome legal challenges that make it impossible for them to access the national payment system, denying them cheap deposits from their members. Sacco executives said seeking partnerships with commercial banks was a route they were planning to take.

The trend will, however, deny Co-operative Bank, Kenya’s fifth lender by profitability, a key income stream and also tilt the scales in the favour of Saccos. Co-operative Bank is the main banker for Kenyan Saccos.

Direct access

Unaitas and Stima Sacco said that partnering with commercial banks will keep money within the institutions, which are popular for cheaper loans and help solve one of the challenges faced by the alternative financial institutions that have kept consumer deposits in banks.

“In the long run, it should be in the interest of the country for as many players as possible to be able to access the national payment system,” said Paul Wambua, the chief executive officer of Stima Sacco.

He said that the Sacco members, who include former employees and immediate associates of companies and organisations in the energy and allied sector including Kenya Power, Kenya Electricity Generating Company, Energy Regulatory Commission, Ketraco and others, can now enjoy the same services they get from a bank.

“For example, when we give loans now, we do not have to transfer that liquidity or funds to another financial institution like a bank,” said Mr Wambua, adding that in the past the Sacco had to write a cheque or wire the money to another financial institution denying it liquidity.

Unaitas last month partnered with ABC Bank, which is now providing the link that allows the Sacco’s 104,000 members have current accounts and clear cheques through the commercial banks’ clearing house.

READ: Unaitas partners with ABC Bank for cheque clearing service

The move came about a month after Stima Sacco, which ranks among the top 10 in the country in terms of assets, partnered with Family Bank to offer the same service to its over 15,000 members.

Currently, Saccos cannot directly access the national payment system, which is under Central Bank of Kenya’s supervision, and cannot therefore directly access the clearing house.

Carilus Ademba, chief executive officer, Sacco Societies Regulatory Authority (Sasra), said amendments to the current laws will need to be made for Saccos to access the national payment system directly adding that banks will only join up with Saccos that they have confidence in.

“Banks will not clear cheques if they do not have confidence in the Sacco because a cheque is a liability. In the long run we intend to introduce some amendments and to set up the liquidity fund,” he said.

Since Sasra begun requiring that all deposit-taking Saccos to have a core capital of not less than Ksh10 million ($117,647) two years ago, licensed Saccos have launched recruitment drives and share promotions.

Saccos like Unaitas, which traditionally focused on customers in rural areas (Murang’a), are now focusing on new clients in urban areas to drive their growth.

“Saccos have no choice but to move away from the traditional model of giving loans. It’s about looking for commercial banks that are flexible and adaptive to new innovations to allow us tap into new income streams,” said Jacob Kimathi, the chief executive officer of the Nation Sacco.

Kenya has the most advanced Sacco movement in the East African region and has taken steps to strengthen the financial institutions through independent regulators, but the challenges faced by the alternative financial institutions in countries such as Uganda and Rwanda are similar.

In Uganda for instance, the Uganda Co-operatives and Savings Credit Union, which seeks to be the country’s Sacco umbrella body is still financially weak and is expecting to break even in the 2012/2013 financial year.

It is still trying to personal Saccos in that country, many of which have governance and operational challenges, to become members and in its most recent strategic plan disclosed that most of its members are financially unsustainable to a point that they cannot even pay membership fees.

Dividends paid out

Banque Populaire du Rwanda, which started as a credit society, has turned out to be one of the region’s success stories although many others, including those being supported by the government — which seeks to create at least one Sacco in each administrative sector, also called Umurenge — are faced with governance and administrative challenges.

Apart from offering members loans at relatively cheaper rates than banks, Saccos also pay dividends to their members and interest on deposits at higher rates than those paid on saving accounts.

Boresha Sacco, formerly known as Baringo Teachers’ Sacco, for instance, said it will pay interest on member deposits at 9 per cent, dividends on share capital at 10 per cent and a bonus on equity shares at 5 per cent for the period ended December last year.

Mwalimu Sacco, a national sacco for teachers, the largest in the country as at the end of 2011 with assets worth Ksh19.3 billion ($226.94 million) had deposits worth only Ksh15.4 billion ($181.2 million).

A total of 21 of deposit taking Saccos in Kenya held assets worth more than Ksh2.07 billion ($24.3 million), which was the total asset base of Jamii Bora Bank, one of the smallest banks in the country.

Comparatively, CBK data shows that deposits in the banking sector increased by 14.2 per cent to Ksh1.76 trillion ($20.48 billion) as at the end of December last year from Ksh1.54 trillion ($18.12 billion) as at the end of December the previous year supported by aggressive mobilisation of deposits by banks, remittances and receipts from exports.