Kenyan saccos join National Payment System to lower cost of credit

Saturday January 21 2023
Kenya's Harambee Investment Co-operatiive Society sacco

Kenya's Harambee Investment Co-operatiive Society members during a past AGM. Kenyan saccos are set to join the National Payment System (NPS), which will allow them to clear cheques and begin lending to one another in a bid to lower the cost of credit. PHOTO | FILE | NMG


Kenyan savings and credit co-operative societies (saccos) are set to join the National Payment System (NPS), which will allow them to clear cheques and begin lending to one another in a bid to lower the cost of credit.

The plan, which has been adopted by President William Ruto’s administration as part of its financial inclusion agenda, seeks to reduce saccos’ over-reliance on banks for funding and other commercial services such as cheque processing and issuance.

If successful, the policy shift would impact banking institutions, which have relied heavily on saccos for third party business such as issuing of cheque books, processing of personal cheques and trade finance services. Saccos also rely on banks for treasury management, electronic funds transfer (EFTs) and real time gross settlements (RTGS).

Banks will also face a hit on their loan books as saccos begin lending to each other through the Central Liquidity Facility (CLF), an equivalent of the interbank market.

According to Kenya’s Sacco Societies Regulatory Authority (Sasra), externally borrowed funds are often expensive and subject to changes in interest rates.

Lack of a consensus


The process of incorporating saccos into mainstream financial services has dragged for close to seven years, largely due lack of a consensus among industry players.

The EastAfrican has learnt that the Ruto administration has prioritised admission of saccos into the National Payment System as part of the government’s financial inclusion agenda. Discussions on the modalities of implementation are currently going on between the National Treasury and the Ministry of Co-operatives, Micro, Small and Medium Enterprises (MSMEs) Development.

According to the regulator, the vision for an inter-sacco lending is still ‘valid’ and the progress is ‘encouraging’.

“It is something that the saccos have really pushed and we are hoping the new government can actualise that vision,” Sasra’s chief executive Peter Njuguna told The EastAfrican last week.

On January 14 during the 47th annual general meeting, Cabinet Secretary for Co-operatives and MSMEs Simon Chelugui told members of New Fortis Sacco in Nyeri County the government is set to establish a Ksh1 billion ($8.13 million) Central Liquidity Facility for saccos in a bid to ease access to financial services and deepen inclusion. The CLF is expected to be in place within a year or earlier.

About 50 saccos out of 890 have committed to the establishment of the facility and there are efforts to admit more.

“Getting the consensus around the industry is never easy because this is an industry that is growing and some of the players are very far ahead while others are far behind,” said Njuguna.

The CLF allows saccos to team up and develop capacity to serve their members.

The sacco sub-sector contributes close to seven percent to Kenya’s GDP.