In a recent annual report by the Sacco Societies Regulatory Authority (SASRA) -Sacco Supervision Annual Report, 2023 – critical challenges facing the Sacco subsector have been brought to light. Despite their crucial role in driving national economic development, Saccos are grappling with a range of obstacles, including loan defaults, stringent regulatory requirements, digital technology challenges, foreign exchange risks, and high interest rates.
The report reveals a concerning dominance of large Saccos. Only 53 out of 357 regulated Saccos, considered large-tiered with assets above Ksh5 billion, control a staggering 73.34% of the total assets. This leaves the remaining 304 Saccos with a mere 26.66% of the total assets, creating an environment of cutthroat competition that severely limits the growth opportunities for small Saccos.
SASRA strongly recommends that small Saccos consider mergers or amalgamation as a strategic business move to combat this inequality. This approach would allow them to benefit from economies of scale and level the playing field in their competition with larger Saccos.
Another pressing issue highlighted in the report is loan defaulting, particularly among Saccos that rely on the direct deduction from the source model. The report pinpoints the government and its agencies as the primary defaulters in remitting owed funds to Saccos. To address this, SASRA proposes a policy shift to ensure that funds are deducted directly at the source by the National Treasury and promptly paid to the affected Saccos.
Furthermore, the regulatory landscape presents substantial challenges for Saccos, with stringent compliance requirements posing significant barriers for small societies to meet operational and legislative demands. SASRA emphasizes fair and favourable legislation and procedures to support the growth and success of both small and large Sacco entities.
In addition, the adoption of technology in the Sacco industry has introduced a host of challenges, including cyber threats, fraud, money laundering, and insufficient digital infrastructure, all of which impede efficiency and erode customer trust and engagement. SASRA issues a stern warning to the public against engaging in financial transactions with digital Sacco Societies unless authorized by the authority. Collaborative efforts with other government agencies are underway to combat these challenges effectively.
Foreign exchange risks and high interest rates from external borrowing also cast a shadow over the profitability and operations of Saccos. To address these risks, SASRA urges Sacco leaders to diversify their services, bolster savings and deposits, reduce reliance on external borrowing, and implement strategies to mitigate the impact of foreign currency fluctuations. This proactive approach will safeguard the Sacco industry and ensure its continued growth and success.
