Boost for Saccos as cabinet gives nod to inter-lending facility

More than 30,000 Savings and Credit Co-operative Societies (Saccos) in the country could soon launch an inter-lending facility, following the cabinet’s recent approval of a framework for a multi-billion Central Liquidity Facility (CLF).

This long-awaited initiative aims to enhance access to emergency funds for Saccos. The CLF will serve as a shared services platform, improving member services and providing a safety net against financial risks. Sacco members view this development as a game-changer for Kenya’s Sh1.5 trillion Sacco sector, as it promises to enhance operations significantly and positively influence the financial landscape.

The facility is designed to improve liquidity in the Sacco sub-sector by enabling short-term borrowing between Saccos and facilitating access to the National Payment System.

Similar to models already employed by banks, it will help mitigate liquidity risks, allowing Saccos facing temporary cash shortfalls to borrow from those with excess liquidity.

This initiative is expected to reduce reliance on costly external borrowing, enabling Saccos to offer more competitive loan rates to their members. Increased liquidity will empower Saccos to expand their loan portfolios, catering to a broader range of member needs. Notably, the Sacco sub-sector contributes nearly 30 per cent of the country’s annual national savings. Plans for the CLFbhave been in discussion since 2016.

Current regulations mandate that Saccos maintain a 15 per cent liquidity ratio of monthly savings deposits and short-term liabilities.

Presently, deposit-taking Saccos with surplus funds deposit them in banks, which often offer lower interest rates than inter-lending would provide. The new fund is anticipated to enhance operational efficiency in deposit mobilisation and reduce funding costs over the medium to long term, giving financial cooperatives a competitive edge. Additionally, it will provide a shared technology platform, reducing Sacco’s reliance on expensive bank loans for maintaining monthly cash-flow ratios.

In a memo from the Cabinet, chaired by President William Ruto last week, the presidency announced that amendments to the Sacco Societies Act of 2008 were approved last week.

These reforms, now before Parliament as the Sacco Societies (Amendment) Bill, 2023, aim to modernise financial and technological operations, particularly benefiting smaller Saccos.

Key reforms include a Sacco shared services framework that allows these institutions to pool resources, adopt fintech solutions, and enhance cooperation while retaining operational independence.

The CLF will facilitate inter-Sacco transactions, short-term lending, and participation in the National Payment System.

A centralised data repository is also expected to improve regulatory oversight and efficiency.

Additionally, reforms to the Deposit Guarantee Fund are expected to enhance protection for Sacco deposits, reduce the risk of government bailouts, and strengthen the cooperative financial sector. 

“By lowering operational costs, fostering innovation, and boosting public confidence, these reforms position Sacco as vital players in Kenya’s financial inclusion and economic empowerment agenda,” the Cabinet stated.