Rising Default Rates
The Sacco Societies Regulatory Authority (SASRA) is advocating for a mandatory Credit Information Sharing (CIS) system to improve financial sustainability among Savings and Credit Cooperative Societies (SACCOs). SASRA CEO Peter Njuguna emphasized the importance of legislating full-file sharing, stating that it would help bridge the existing information gaps and enable SACCOs to make more informed lending decisions.
During his address at the SACCO Leadership Forum organized by Metropol in Nairobi, Njuguna pointed out that the CIS framework has been in existence for nearly two decades, with efforts mainly focused on raising awareness and enhancing capacity. He noted that the lack of progress is not due to reluctance but rather the need for appropriate legislation.
According to Njuguna, mandating full-file sharing would align SACCOs with other financial institutions that already employ risk-based pricing models. Metropol CRB CEO Gideon Kipyakwai supported this viewpoint, stating that full-file sharing could improve borrowers’ creditworthiness and decrease the current Non-Performing Loans (NPLs) rate, which is at 8% for SACCOs.
“When SACCOs, digital lenders, microfinance banks, and commercial banks utilize data and analytics for credit scoring, it enhances creditworthiness,” Kipyakwai explained. “This could lower NPLs and potentially lead to reduced interest rates.”
In the last three years, regulated SACCOs have reported portfolios at risk exceeding 8%, with increasing NPLs posing a threat to profitability and asset quality. This trend has been attributed to selective borrowing within the sector, prompting CIS Kenya CEO Jared Getenga to warn against selective listings of borrowers with Credit Reference Bureaus (CRBs). He urged SACCOs to adopt a more inclusive approach to data sharing.
“The benefits of the CIS framework are significant for both lenders and borrowers, but only if there is comprehensive data submission. Incomplete data can leave consumer credit profiles fragmented, negatively impacting credit scores,” he said.
Despite its potential advantages, SASRA has observed that the SACCO sector has been slow to fully embrace credit referencing, creating gaps in credit decision-making processes. The regulator also highlighted the challenges of implementing effective credit-scoring systems, which have hindered responsible lending and long-term financial stability.
To enhance membership growth and resilience, industry leaders have encouraged SACCOs to adopt technology, innovate products, and diversify income sources. They argue that these initiatives will bolster liquidity and promote financial inclusion throughout the sector.
