The Sacco Societies Regulatory Authority(SASRA) has proposed draft guidelines on mergers and amalgamations, which provide a clear framework for Savings and Credit Cooperative Societies (SACCOs) that intend to undertake this critical process.
This disclosure was made at the recent Annual Sacco Subsector Regulatory Policy and Legal Roundtable, 2024, organized by SASRA at Lake Naivasha Resort.
“Some Saccos have been facing compliance challenges simply because they are relatively small and cannot benefit from the economies of scale. I want to remind them that mergers and amalgamation have proved to be remedies for growth and development in the Sacco industry the world over,” said Hon Simon Chelugui, Cabinet Secretary, Ministry of Co-operatives and Micro-Small and Medium Enterprises (MSMEs) Development.
He told Saccos’ top leaders attending the forum that it was high time for the industry to begin a conversation on how to come together to build on synergies to surmount challenges that affect its operations and achieve a vibrant, strong, and stable Sacco instead of promoting small entities that struggle to meet business and compliance obligations.
“Mergers and amalgamation should not be looked at as a tool for the struggling Saccos but also as a business growth model where desiring entities can also come together to tap on opportunities to enhance their growth,” said Chelugui.
While the banking sector has adopted mergers and acquisitions as a tool to assist those facing liquidity challenges, the same has not been replicated in the Sacco Sector, where these financial societies are owned by members with a common bond.
It is time Saccos open to the idea of mergers, which ensure the sub-sector remains strong. There in no need of having financially distressed institutions that struggle to meet members’ demands
SASRA’s Supervisory Reports, published annually, usually list Saccos that have failed to meet their obligations to members because of liquidity or weak financial flows.
SASRA first suggested dialogue on mergers and consolidation in its 2021 Annual Report.
“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 said in this report.
Opening the common bond by many financial Saccos and large players has increased the level of competition in the sector as these larger players eat into the catchment of much smaller Saccos.
With no room to merge or consolidate, smaller Saccos continue to experience liquidity pressures.
Experts note that stiff competition in the financial sector, driven by heavy capital expenditures in marketing, competitive pricing, digital financial products, and services, has meant that only large and well-resourced financial institutions that enjoy economies of scale survive.
This scenario has forced mergers and acquisitions in the banking sector and microfinance institutions, which are Saccos’s closest rivals in the credit market.
“To enjoy economies of scale, smaller 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,” said SASRA in its 2021 report.
“It is time Saccos open to the idea of mergers, which ensure the sub-sector remains strong. There in no need of having financially distressed institutions that struggle to meet members’ demands,” said Peter Njuguna, SASRA CEO.
