The 2023 Ushirika Day celebrations council awarded the best-performing cooperatives based on various categories.
Cooperative Alliance of Kenya (CAK) commissioned Co-op Consultancy and Bancassurance Intermediary (CCBI) to adjudicate.
Participating cooperatives were categorized depending on type, sector, license status, and asset size.
Cooperatives based on type included Sacco societies, housing and investment cooperative societies and marketing cooperative societies.
When categorized by sector, the participants were employer-based, agriculture-based and community-based Saccos.
On license status, this comprised of licensed deposit-taking (FOSA) Saccos, authorized Non-withdrawable deposit-taking Saccos, and the Non-Sasra regulated Saccos.
Saccos categorized under asset size are further classified into Tier -1, Tier-2, Tier-3, Tier- 4 and Tier -5.
Tier-1 are very large Saccos with total assets above KSh10 billion, while Tier-2 are large Saccos with total assets of between Ksh4 billion and Ksh5 billion.
Tier-3 Saccos are medium Saccos controlling an asset base of between Ksh2 billion and Ksh4 billion, and Tier-4 are medium Saccos with an asset base of between Ksh1 billion and Ksh2 billion.
Saccos categorized Tier-5 are small Saccos whose asset base is Ksh1 billion and below.
It was thus possible that a Sacco that won a trophy in 2022 under employer-based Tier 1 appeared under employer-based Tier 2.
During the exercise, 478 Saccos were invited, and 103 responded, while 315 housing and investment cooperatives were invited, with 3 responding.
Thirty marketing societies were invited, and one participated, bringing the total to 823.
Out of this, 107 responded, translating to 13 per cent.
Upon receiving the submitted questionnaires, CCBI visited all the societies that responded in May and June 2023 to verify the data provided.
The verified data was collated and analyzed as per set criteria, and the awarding was done on ten categories.
They include capitalization, deposit management, credit management, efficiency, technology optimization, best managed, risk management, best in social/environmental impact, and best in investments(applicable to housing and investment societies).
Capitalization
The adjudication considered the total shareholders’ funds, which comprise share capital and reserves as a percentage of total assets. It considered the Society’s rate of retention of surplus, which is reflected in the institutional capital.
The parameters will encourage the societies not only to grow their share capital but also to retain more of their earnings to build on their institutional capital for growth.
Total shareholders’ funds as a percentage of total assets and institutional capital as a percentage of total assets were each given 50 per cent.
Best in deposits management
The award was for societies that are best in managing their members’ deposits, accumulating them towards building strong financial stability for onward lending.
It considered the growth in deposits-BOSA and FOSA- as well as the average deposits per member and deposits utilization. The growth in deposits parameter was to reward societies with low deposits but with a high growth rate.
Growth in deposits had a weight of 40 per cent, and average deposits were arrived at by dividing total deposits by total membership and had 30 per cent. Deposit utilization, calculated by loans to deposits ratio, was weighted at 30 per cent.
Credit management
The parameter was used since their core business is to provide credit to their members. It considered six parameters in analyzing this growth, where growth in loans, members with loans and default management carried the highest weighting.
External borrowing was calculated as a percentage of total assets, bearing in mind the prudential guidelines on the same.
Societies that are able to fund operations through internally generated funds were rated highly as this reduces their financial cost, while societies with more than 25 per cent borrowing to asset ratio were rated below 100 per cent as an indication of high dependence on external borrowing.
Default management is critical in ensuring that societies collect their debts when they fall due to avoid liquidity problems and maintain a quality loan book.
Most efficient
This category measured how well societies utilized their resources, measured as total expenditure as a percentage of total income, including interest paid on members’ deposits.
It also considered how fast the societies processed their loans as well as if they had any loan backlog and budget utilization.
The cost-to-income ratio, calculated as total expenditure excluding interest on members’ deposits as a percentage of total income, was given a higher weighting of 60 per cent.
Loan processing efficiency, the period taken to process loans and the amount of loan backlog was awarded 30 per cent as budget variance had 10 per cent.
Best in risk management
Since societies are involved in high-risk businesses, they are required to employ high-level risk management measures. The adjudication team thus measured the level of risk management through three parameters. Insurance coverage, which carried a weighting of 40 per cent, looked at the existence of various insurance policies, including cash, loan guard, deposits, fidelity, fire and burglary, public liability, medical cover, Group personal accident, and group life.
It evaluated the existence of business policies covering various aspects of the business which included operating manuals, credit policy, HR policy, Finance & accounts, ICT, savings, audit, board charter, information preservation, risk management and business continuity policies.
Best in Technology optimization
To remain competitive in the market, the adjudication underscored the need for societies to embrace technology to ensure that their services are more accessible to their members and that their members are served more efficiently at minimal costs.
This will also ensure increased awareness by the members about the societies’ processes. It noted an impressive improvement in the uptake of technology among societies compared to previous years.
Four parameters were considered: management information systems, web services, communication and technologically enabled products and services that include mobile banking, EFT, RTGS and ATM services.
Management information systems and technologically enabled products had the highest weighting at 30 per cent each.
MIS includes the core functions available (transactions, financial management and HR.
Products and services included ATM, pay bills, loan application, internet banking, EFT, RTGS and other innovative products, and electronic loan disbursement.
Communication looked at the use of emails, SMS, WhatsApp, Facebook, Twitter, and Skype had 20 per cent. Existence, accessibility and services available on the website (profile, products and services, loan calculator, downloadable forms, financial statements, member portal services, feedback, gallery, announcements, new member recruitment portal had 20 per cent.
Most improved
The most improved award was arrived at as a combination of all the growth parameters, which include membership, capital, deposits, loans, asset and income with different weighting allocated.
Percentage growth in membership, income and member deposits each had the highest at 20 per cent. Percentage growth in loans disbursed had a 15 per cent weight, followed by percentage growth in total assets and percentage growth in loan book balances at 10 per cent each.
Percentage growth in shareholder’s funds received the lowest weighting at 5 per cent.
Best in social/environmental impact
This award considers unique corporate social undertakings by cooperative societies that significantly impact the environment or society at large. The award is informed by documented evidence obtained from detailing their undertakings over the years.
Best Managed
A combination of all the above awards categories was considered to win in this category.
The weight was distributed among all parameters in order of importance, with credit management being the most efficient and risk management taking the highest weight. Scores that were more than 100 per cent were capped at 100 per cent to ensure equal distribution of performance among all parameters.
Most efficient and best in credit management had a weight of 25 per cent each, with risk management at 20 per cent. Capitalization and most improved had a weight of 10 per cent each as best in savings, and best in technology optimization had a weight of 5 per cent each.
Best in investments
This category was specific for investments and housing societies, and the evaluation was based on growth in an investment portfolio and return/rebates to members.
It also looked at the return on assets and number of projects undertaken in the last two years, the value of the projects as well as the income made from the projects.
