Savings and Credit Cooperatives Societies (SACCOs) recovered in 2021 following the reopening of the economy, says Kenya Financial Sector Stability Report published by the Central Bank of Kenya(CBK).
This report indicates that the Balance Sheet size of the Sacco sub-sector grew by 4% Annual growth, to KSh 700.3 billion in 2021, mainly driven by gross loans.
There was a 5.4% decline in actual non-performing loans to KSh 35,607 Million, 31.7% increase in net income to KSh 59,355 Million and 2% growth in Total Deposits to KSh 473,302 Million further indicating a recovery of the Sacco Sub-sector.
The Sacco sub sector had mixed performance of Financial Soundness Indicators (FSIs) as of December 2021. The Non-performing loans ratio shed 0.12 percentage points to 6.81 percent in December 2021, an indication of easing credit risk, but still above the statutory minimum of 5.0 percent.
In addition, all capital ratios increased in 2021, signifying the enhanced ability to absorb credit risk and thus continued stability and resilience.
Liquidity ratio declined by 28.8 percentage points but remained well above the statutory threshold of 15.0 percent. External borrowings to total assets ratio further declined to 3.5 percent in 2021, from 5.0 percent in 2016, signifying low external funding risks to Saccos. Leveraging moderated to 110.5 percent in 2021 from 110.1 percent in 2020.
To strengthen and grow the sector, SASRA operationalized the non-withdrawable deposit taking SACCO regulations 2020, in 2021, with a transition period of six (6) months.
This brought on board three categories of SACCOs.
The first category consists of SACCOs whose accumulated non-withdrawable deposits exceeded KSh100million.
Second category involves those Saccos that mobilize savings and credit services through virtual platforms and the last group is that of Saccos that mobilize membership, savings and provide credit to Kenyans living abroad – Diaspora Saccos.
As of 2021, SASRA had processed all the applications and authorized a total of 185 SACCOs to conduct specified deposit taking Sacco business.
SASRA now supervises a total of 360 SACCOs comprising of 175 Deposit-taking and 185 non-withdrawable deposit taking SACCOs, with more SACCOs expected under SASRA’s regulatory perimeter as they grow deposits, especially through digital platforms.
Rapid adoption by Saccos of digital financial solutions such as mobile and internet banking for efficient service delivery and offer more friendly financial products has contributed to growth in revenue streams.
However, the CBK report says this has introduced cyber security risks and fraud leading to lose of funds in some SACCOs.
SASRA in collaboration with service providers, has developed guidelines for enlisting mobile money technology service providers to ensure system integrators have integrity and secure their systems to reduce attacks.
SASRA also issues regular alerts on cyber threats for SACCOs to maintain vigilance over their ICT systems for early detection of cyber threats and prevention of fraud incidences. It also holds joint technical forums with ICT Systems providers and key staff in SACCOs to share experiences and respond appropriately to emerging threats.
SACCO’s are also expected to report incidences of attacks for immediate investigations to inform appropriate corrective action.
 SASRA signed a memorandum of understanding with Directorate of Criminal Investigations to establish Fraud Investigation Unit to combat financial crime in SACCOs. The unit is fully operational.
CBK says that SACCOs are increasingly being exposed to environmental risks such as climate change. For instance, the Agro-based SACCOs are prone to unconducive climatic conditions, with loans to household spent on health care and education.
In addition, the SACCOs business model affects social and a poverty outcome in the society.
As a result, the Kenya Financial Sector Stability Report notes that there is need to incorporate environmental, social and governance (ESG) best practices in the SACOOs business to reduce exposure to ESG risks. T
The report says any sustainable SACCOs business model should incorporate environmental and social impact of mobilizing deposit and lending to the society.
 SASRA did not renew licenses of four (4) deposit taking SACCO’s due to failure to meet the minimum regulatory ratios and loss of business.
The CBK said SACCOs face compliance risks emanating from current and new legislations which directly affect their business operations. These include tax laws, unclaimed financial assets, data protection, anti-money laundering among others, that negatively affect their operations.
The Kenya Financial Stability Reports provide an assessment of the financial sector stability by the Financial Sector Regulators in compliance with the Central Bank of Kenya Act, Section 4(2) and the Financial Sector Regulators Memorandum of Understanding (MOU) of 2009.
