Savings and Credit Cooperative Societies (SACCOs) have become vital pillars in Kenya’s financial landscape, significantly enhancing the country’s economic resilience and growth. According to the Kenya Financial Stability Report 2023, SACCOs have played a crucial role in driving economic recovery since the COVID-19 pandemic. The report emphasizes their contribution to stabilizing and growing the financial sector, positioning them as essential players in the broader economy.
In the first quarter of 2024, the Kenyan economy expanded by 5.1%, followed by a growth rate of 4.6% in the second quarter. It is projected to grow by 5.1% by the end of 2024 and reach 5.5% in 2025, with key sectors, including SACCOs, driving this performance. This growth is part of a recovery from the economic shock caused by the pandemic, during which SACCOs provided essential financial services and access to affordable credit, enabling many households and small businesses to recover and thrive.
In 2023, SACCOs in Kenya experienced remarkable growth, with total assets increasing by 28.4%, compared to 9.1% in 2022. This surge in asset growth was primarily driven by an increase in gross loans issued by SACCOs, supported by a significant rise in member deposits. Member deposits grew by 29.7%, providing a stable funding base for loans. This influx of deposits ensured that SACCOs could meet the growing demand for credit at a time when traditional banks and digital lenders were charging higher interest rates.
SACCOs’ ability to offer loans at lower interest rates than banks and digital lenders has been a key factor in their growth. They have capitalized on attracting low-cost deposits from members, which they then lend at competitive rates. Consequently, more individuals and businesses have turned to SACCOs seeking affordable loans, further fueling the growth of this sector and driving the broader momentum of Kenya’s financial industry.
The report noted that of the 357 licensed SACCOs operating in 2023, many relied on external borrowing, which increased by 10.2%. This rise reflects the growing demand for affordable credit as SACCOs attract borrowers seeking better terms than traditional financial institutions.
The financial performance of SACCOs has also been impressive. The rapid growth in assets, combined with more efficient resource use, led to an increase in profitability by December 2023 and throughout the first half of 2024. Return on assets, a key measure of profitability, rose from 9.1% in 2022 to 9.8% in 2023. This growth can be attributed to higher net interest income and the adoption of technological solutions by SACCOs, which have improved their operational efficiency.
Despite global economic challenges, the core capital to total assets ratio of SACCOs remained above regulatory requirements, indicating their soundness and financial stability. Additionally, SACCOs maintained a liquidity ratio of 71.8%, ensuring they could meet short-term liabilities while creating adequate buffers to protect against potential liquidity shocks.
Recognizing the challenges small and medium-sized SACCOs face, the sector introduced SACCO Central, a secondary SACCO platform designed to provide shared services and a central liquidity facility through inter-SACCO borrowing. This initiative is expected to help smaller SACCOs achieve economies of scale, improve financial stability, and better manage risks. SACCO Central will also grant these SACCOs access to national payment systems and help them keep pace with technological advancements, making the entire sector more resilient.
The establishment of SACCO Central represents a significant step toward enhancing the soundness and competitiveness of SACCOs, ensuring they continue to play a vital role in Kenya’s financial ecosystem.
Kenya’s financial sector, which includes six key subsectors—banking, insurance, capital markets, pensions, SACCOs, and microfinance—plays a crucial role in the country’s economic development. The performance of these subsectors directly impacts the overall economy. The Kenya Financial Stability Report indicated that the economy grew by 5.6% in 2023, a 0.7% increase from 2022’s 4.9%. With their extensive reach across various economic strata, SACCOs have proven to be a key driver of this growth.
SACCOs have also been adopted as the preferred vehicle for advancing the government’s Bottom-Up Economic Transformative Agenda (BETA). With their capacity to provide affordable credit and financial services to a broad section of society, SACCOs are well-positioned to assist the government in achieving its goal of inclusive economic growth.
The robust performance of several key service industries, including transport, storage, insurance, communication, and accommodation, has further boosted the growth of the financial sector. Agriculture, a vital part of the economy, also plays a significant role.
