The Sacco Societies Regulatory Authority (SASRA) has pointed out that a time has come for the Sacco subsector and its players to commence a policy dialogue on voluntary mergers or amalgamations and consolidation in the subsector.
This follows what the regulator cites as stiff competition in the national financial sector driven by heavy capital expenditures in marketing, competitive pricing, digital financial products, and service.
Analysis by SASRA, in its latest report, has established that only large and well-resourced financial institutions which enjoy economies of scale shall be able to survive in the long run.
Saccos will be forced to take this route given the aggressive mergers and acquisition taking place in the commercial and microfinance banks- seen as the main competitors of Saccos in the mobilization of savings and credit provision business.
To enjoy economies of scale, the SASRA report recommends that these small Saccos can amalgamate, merge, or consolidate with each other based on similarities of fields of membership or common bonds to enjoy economies of scale and compete effectively, not just within the Sacco subsector space but also within the national financial sector space.
“In the absence of such consolidation and given the opening of common bonds (field of membership) by nearly all the financially endowed and larger Saccos particularly the Government-based Saccos, it is clear that the smaller Saccos shall feel the heat of competition with their larger counterparts eating into their market pie more and more, since the interest of members (notwithstanding the common bond affiliation) will always remain effective and efficient service delivery.”
And since the larger Saccos can meet the member demand at competitive prices, the smaller Saccos will always remain in a disadvantaged position to compete effectively.
Despite being social enterprises in their nature and formation, Saccos are principally economic businesses that will thrive and be sustainable to meet members’ obligations when they enjoy economies of scale.
The statistical information contained in the SASRA report 2021 shows that there are too many small Saccos in the subsector.
For instance, there were 49- Agriculture based Saccos in the country in 2021, which controlled less than 10% of the subsectors’ total assets and total deposits.
Equally, there were over 107-Private sector based Saccos, whose total assets and total deposits portfolios are less than 13% of the subsectors’ total assets and total deposits.
A similar scenario obtains regarding the 88-Community based Saccos, which had a proportion of the subsector’s total assets and total deposits at about 11.84% and 12.86%, respectively.
The analysis, therefore, shows that 67.59% of all Saccos controlled a paltry 36% of the subsector’s total assets and deposits; while the remaining 32.41% of all Saccos being the 117- Government-based Saccos controlled a whopping 64% of the subsector’s total assets and total deposits.
Other than Government-based Saccos, it can be concluded that on average other clusters of Saccos are relatively small in their respective asset sizes and deposits and cognizant of the assets being the principal revenue stream for Saccos.
The respective incomes and revenues generated by these Saccos were, on average, quite low, thus affecting their stability and sustainability.
Additionally, the commencement of prudential supervision of the NWDT-Saccos in 2020 revealed that many Private sector-based NWDT-Saccos and Community-based NWDT-Saccos actually draw their membership from the same fields of membership and common bonds.
For instance, it is not uncommon to find two or more NWDTSaccos drawing membership from the same employer – company or similar faith and religious-based organizations.
