The latest Kenya Financial Stability Report for 2023 reveals that the Savings and Credit Cooperatives (SACCOs) funded loans to members using borrowed funds, which increased by 10.2 percent. This significant rise in external borrowing is attributed to SACCOs offering loans at lower interest rates compared to banks and digital credit lenders.
As a result, SACCOs are taking advantage of the lower cost of deposits from their members to meet the demand for more affordable loans as members shift away from high-cost credit options. The report, prepared by financial regulators, also indicates that the rapid growth of assets relative to expenses led to an increase in profits as of December 2023 and the first half of 2024.
“Return on assets rose from 9.1 percent in 2022 to 9.8 percent in 2023. This increase is due to higher net interest income and improved efficiency, thanks to the implementation of technology in SACCO operations,” the report states.
Despite a decline in core capital to total assets and institutional capital to total assets—from 18.6 percent and 11.9 percent to 16.5 percent and 10.6 percent, respectively—these ratios remain above the minimum regulatory requirements. Additionally, the quality of assets improved, with non-performing loans (NPLs) to gross loans decreasing by 2.4 percent. At the same time, provisions for NPLs increased by 16.8 percent, while the growth rate of NPLs fell by 8.3 percent.
The liquidity ratio stood at 71.8 percent, well above the regulatory requirement of greater than 15 percent, allowing SACCOs to meet their short-term liabilities while maintaining adequate buffers against liquidity shocks. This soundness and stability enabled SACCOs to efficiently manage funds and enhance profitability.
Building on the momentum from 2022, following a recovery from the COVID-19 shock, SACCOs experienced growth in 2023 and the first half of 2024. A total of 357 licensed SACCOs were operational in 2023, of which 176 were deposit-taking and 181 were non-deposit-taking. The total assets of the sector increased by 28.4 percent in 2023, compared to a 9.1 percent increase in 2022, primarily driven by growth in gross loans. The SACCO sector successfully attracted deposits from members, which rose by 29.7 percent, providing a stable funding base for loan disbursement.
