Saccos invest in Government securities to boost returns
Savings and Credit Cooperative Societies are increasingly becoming major players in the country’s domestic debt market, analyses based on the 2022 financial performance indicate.
The Government is overburdened with foreign debts, and with the need for development and recurrent expenditure, budget deficit has become a reality.
In the past, the Government appealed to Saccos to consider investing in its securities, notably Treasury bills and bonds and raise the much-needed capital for either short, mid or long-term projects.
Though Saccos have a core mandate of lending to their members to invest in income-generating activities and other development projects, a number have excess cash and can lend to the Government.
Treasury bills are the most common where individuals and businesses invest in Government for the short term, which matures after three months, six months or one year. On the other hand, Treasury bonds are long-term investments, usually ranging from one year to 30 years, and one can invest a minimum of KSh50,000.
For the Government, internal borrowing will ease the pressure on external borrowing, whose interest rates are high as the money goes to develop other economies.
The National Police Deposit Taking Sacco partly attributed its asset base growth from KSh44 billion in 2021 to KSh48.9 billion in 2022 to invest in the Government.
“This is attributable to growth in the loan book by 9.4 per cent and increased investment in government securities from KSh350 million in 2021 to KSh1.3 billion in 2022,” noted Board Chair David Mategwa.
Hazina Sacco Board Chair Evans Kibagendi told the delegates during the Society’s annual delegates meeting that they invested KSh720 in Treasury bonds in primary and secondary markets.
“The Board had to look for alternative avenues of investing our excess cash to give returns that would support us into the future. In the year ended, our investment in Treasury bonds was one such decision,” he said.
Tower Sacco, one of the fastest-growing deposit-taking Saccos in the country, also saw its investment with the government increase by the close of 2022.
The Ol Kalou-headquartered Sacco reported an investment in government securities of KSh1.05 billion, an investment that did not exist in the previous year.
For Safaricom Sacco, interest from Government securities, according to its 2022 financial statement, stood at KSh5.3 million, unlike the year earlier when no interest was reported.
Investment in Government can also be long-term or short-term, and the former attracts higher interest rates compared to the latter.
During the 100 Ushirika Day celebrations, retired President Uhuru Kenyatta prevailed upon Saccos to lend it money. The former head of state stated that rather than seeking external debts, Saccos could lend to the Government, and the interest earned could form a good source of income.
“I do believe that cooperatives can be major players in developing our social infrastructure as well. There is no reason why cooperative savings cannot be used to build roads,” retired President Uhuru told the 100 Ushirika gathering at the KICC in 2022.
Kenyatta said that the interest paid on foreign debt could instead be retained in the local economy and its multiplier effect will be larger.
However, some Sacco actors argue that lending to the Government can be more organized with the establishment of the Central Liquidity Facility.
Once this is in place, market forces such as interest rates will then influence where Saccos can invest its huge deposit reserves.
Saccos are required to maintain 15 per cent of their deposits for operations, and once proper structures are in place, they can lend to the Government instead of the cash lying idle.
Other than housing and other development projects, the Saccos were urged to think of funding social development such as roads and rail transport.
Some Saccos have overgrown the cooperative model hence the need for proper systems for long-term lending.
According to the Sacco Supervision Annual Report, 2021, a number of Saccos have positive cash accumulation, which can be used to buy Government securities.
By diversifying their revenue streams, Saccos are increasingly exploring how to cushion themselves from any shocks.
Some of the country’s top Saccos based on their wealth index include Mwalimu National, Stima Sacco, Kenya National Police DT Sacco, Harambee Sacco, and Unaitas. Others include UN, Imarisha, Tower, Ukulima, and Afya Saccos. The order is not based on the descending or ascending size of their asset base.
