Regulator proposes mergers of saccos in Kenya

Tuesday August 09 2022
sacco members

Stima Sacco members queue outside the Kimathi Street premises on February 28, 2022, following the FY 2021 AGM meeting that saw members earn rebates and dividends for their savings. PHOTO | DIANA NGILA | NMG


Kenya’s Saccos regulator has recommended voluntary mergers of the institutions to reduce unnecessary competition and improve financial positions. This week, the Sacco Societies Regulatory Authority (Sasra) said some savings and credit societies have failed to meet their obligations to members because of weak cash flows.

The regulator, in its annual report for 2021, says time has come for Saccos to start a policy dialogue on voluntary mergers and consolidation.

“Despite being social enterprises in their nature and formation, Saccos are principally economic businesses which will thrive and be sustainable to meet members’ obligations when they enjoy economies of scale,” the regulator says in the report.

“In the absence of such consolidation, and given the opening of common bonds (field of membership) by nearly all the financially endowed and larger Saccos, particularly the government-allied ones, it is clear that the smaller Saccos shall feel the heat of competition with their larger counterparts eating into their market pie more and more,” added the report.

According to the regulator, several Saccos are facing liquidity crises that have led to persistent complaints by members seeking loans, a refund of their savings and deposits, or the transfer of shares to other institutions.

The report shows that of all the complaints lodged to the authority by Sacco members, a massive 55.76 percent of them were related to delayed refunds on savings. In 2020, such complaints constituted 41.84 percent of all complaints.


Regulation for Deposit Taking Sacco Societies (DT-saccos, 2010) as well as the Regulations for Non-Withdrawable Deposit-Taking saccos (NWDT-saccos, 2020) provide that a Sacco shall refund a member the savings or deposits (less any outstanding dues owed to the Sacco Society) within 60 days, after the member has served the Sacco with a notice of withdrawal.

“The complaints analysis shows that these legal provisions are never honoured by the Saccos in respect of which the complaints relate,” the regulator says. “The main reason for delayed settlement of claims for refund of savings and deposits of members within the prescribed time is perennial liquidity challenges.”

According to the report, delayed refund of savings and deposits to members exiting Saccos can trigger a liquidity run-in by other members.

“Saccos are thus called upon to ensure that they have adequate liquidity management plans that cater for the unexpected application by a member for a refund of their savings and deposits to avoid the backlashes and supervisory enforcement actions associated with failure to make timely refunds of savings and deposits,” the report says.

The report notes that stiff competition in the national financial sector driven by heavy capital expenditures in marketing, competitive pricing, digital financial products, and service, has meant that only large and well-resourced financial institutions which enjoy economies of scale shall survive in the long run.

This reality has seen mergers and acquisitions taking place in the commercial and micro-finance banking sector, which is the key competitor of saccos in the mobilisation of savings and credit provision business.

According to the regulator, there are too many small Saccos that are potential targets for mergers and acquisitions. For instance, there are 49 agriculture-based Saccos in the country, but which control less than 10 percent of the subsectors’ total assets and total deposits.

Equally, there are over 107 private sector-based Saccos whose assets and deposits portfolios are less than 13 percent of the sector's total assets and total deposits.

There are also 88 community-based ones, which have a proportion of the sector’s total assets and deposits at about 11.84 percent and 12.86 percent respectively.

This implies that 67.59 percent of all Saccos control a paltry 36 percent of the sector’s assets and deposits while the remaining 32.41 percent of all SACCOs — being those 117 government-based — control a huge 64 percent of the sector’s assets.

It is not uncommon to find two or more NWDT-Saccos drawing membership from the same employer or similar faith and religious-based organisations.

“To enjoy economies of scale, these small Saccos can amalgamate, merge, or consolidate with each other based on similarities of fields of membership or common bonds, so as to enjoy economies of scale and compete effectively, not just within the sector’s space but also within the national financial sector space,” reads the report.

Last year, Saccos’ loan loss provisions increased to Ksh10.6 billion ($89.83 million) from Ksh5.08 billion ($43.05 million) in 2020 implying that there was a deterioration in the quality of loans which was mainly attributed to Covid–19 pandemic, erratic weather patterns and non-remittance which affected repayment of loans.

The non-performing loans ratio increased to 9.77 percent in 2021 from 5.22 percent in 2020.

Last year, they were owed Ksh 3.4 billion ($28.81 million) composed of Ksh 2.16 billion ($18.3 million) being non-remitted loan deductions constituting 63.34 percent of the total non-remitted funds and Ksh1.25 billion ($10.59 million) being non-remitted Back Office Service Activity (Bosa) deductions.