Savings and Credit Co-operative Societies (Saccos), permitted to collect deposits from the public, are pinning their hopes on the next Parliament to fast-track establishment of a Central Liquidity Facility (CLF), allowing them to lend to each other.
The move follows a Cabinet approval of the draft legal structures for establishing the inter-Sacco lending facility paving the way for its deliberation in the National Assembly.
At the moment, DT Saccos have to borrow at expensive rates from banks to solve their cash-flow problems.
Peter Njuguna, Chief Executive Officer of the Sacco Societies Regulatory Authority (SASRA), said a team of financial sector regulators is already undertaking the amendments to existing laws to set up the facility. He expressed optimism after the Cabinet approved the draft legal framework.
“We are now hopeful that the incoming Parliament will usher in the inter-Sacco lending facility improving operating liquidity,” he said.
While National Treasury had set aside undisclosed funds to set up this inter-lending facility, the Sacco industry has been slow in putting in place the required structures for the past six years since the plan was hatched.
The proposed establishment of the Central Liquidity and Shared Technology platform has been on the cards since 2016.
The law requires Sacco to maintain the regulatory 15% liquidity ratio of monthly savings deposits and short-term liabilities. Daniel Marube, CEO of Co-operative Alliance of Kenya (CAK), told this publication in a past interview that plans to set up the central finance facility are still in the formative stages. With Cabinet endorsement, it only requires National Assembly to pass into law.
Currently, those DT Saccos with extra cash deposit them with banks, which usually pay lower rates than what Saccos would earn through inter-lending.
The fund is expected to enhance operational efficiency in deposit mobilization and reduce the cost of funds in the medium to long term within the Sacco sub-sector, giving financial co-operatives a competitive edge.
CLF will also provide a shared technology platform, reducing Saccos’ reliance on costly bank loans to maintain monthly statutory cash-flow ratios.
The Cabinet approved a framework on May 12 for shared services, including a shared technological platform and inter-Sacco lending platform that now awaits Parliamentary approval.
Mhasibu Sacco Chief Executive Officer Anthony Gichia welcomed the Cabinet’s approval, terming it as a new dawn for the sub-sector.
“This is a going to be a game-changer since the majority of Saccos are going to work in synergy. Liquid Saccos will now have an option to expand their portfolio and be able to lend to the ones with a deficit,” he said. “This has been long overdue.”
The inter-lending facility for Saccos is expected to encounter opposition from the banking industry, which stands to lose out on its current business with Saccos.
