Regulator warns saccos on physical branches expansion spree

Sacco Societies Regulatory Authority Board Chairman John Munuve speaking on the Non-deposit taking SACCOs regulations. [Wilberforce Okwiri, Standard]

An industry regulator has discouraged the rush by savings and cooperative societies (Saccos) to open new branches, asking them to instead embrace technology.

Saccos Societies Regulatory Authority (Sasra) told Saccos to borrow a leaf from banks and microfinance institutions whose number of physical branches is reducing.

Sasra, in the latest supervision report covering 2021 indicates that while the number of physical branches of deposit-taking (DT) saccos increased by 33 between 2019 and 2021 to 559, those of commercial banks reduced by 31 to 1,459.

Microfinance bank branches were also reduced within the same period from 123 to 115.

"Saccos should borrow a leaf from their banking counterparts and manage investments in physical branch networks which are capital intensive, and instead adopt the usage of ICT in provision of services and reaching of their members," the report reads.

Such technology means investing in advancements like Automated Teller Machines (ATMs) which Sasra notes are key for customer convenience.

"However, since saccos cannot directly access the national payment system, they are unable to provide ATM services without partnering with the commercial banks," noted the regulator.

For this to work, saccos are required to open settlement accounts with commercial banks.

Internal transactions

One Sacco, the report says, acquired an internal ATM to offer financial services to members, instead of the physical tellers. "However, such internally-owned ATMs offered by Saccos are limited to internal transactions only as they are not connected to local or global payment networks," the report adds.

The report notes that Cooperative Bank through Sacco Link remains the most preferred service provider to DT-saccos, enabling sacco members to access ATM services.

During the year ended December 2021, there were 5.99 million members in the Sacco sub-sector comprising 5.54 million members from the 176 DT-Saccos and 460,785 members from the 185 non-withdrawable DT saccos.

In 2019, the sacco sub-sector had a membership of 4.5 million - an increase of 28.8 per cent to 5.8 million in 2020. [Graham Kajilwa]

"During the year under review, the number of DT-Saccos providing automated tellers access through Sacco link remained unchanged at 113-DT-Saccos," Sasra says in the report noting the critical role of Cooperative Bank in this sphere.

Sasra notes that the number of DT-Saccos that have not entered arrangements with commercial banks to enable their members to access ATM has reduced to 59 (from 60 in 2020).

"This is still a high number given the ease of access and convenience that the use of ATM offers to members," says the regulator.

Perhaps the push for Saccos to increase the number of physical branches is being propelled by the increase in their membership as well.

"However, a total of 1.18 million members were reported to be dormant among the total membership, implying that these members had not conducted any transactions with their Saccos for a period exceeding six months to the close of the financial period ended December 2021," the report says.

The majority of the dormant members, says Sasra, were drawn from the DT-Saccos which had over 1.07 million members being classified as dormant which is a decline from 1.37 million members by the end of December 2020.

Sasra adds that unlike the DT-Saccos segment in respect of which the dormant members declined substantially, the dormant members reported by NWDT-Saccos substantially increased from 75,272 members reported in 2020 to 114,930 members reported in 2021.

"It is however observable that despite the NWDT- Saccos being the majority in number and accounting for over 51.25 per cent of all the Saccos in the subsector, their proportionate membership accounted for a paltry 7.68 per cent of the sub-sector's total membership," the regulator says.

This is while the DT-Saccos which accounted for 48.75 per cent of all the Saccos had a combined proportionate membership of 92.32 per cent of the total membership in the subsector.

"Consequently, it can be concluded that the average membership in NWDT-Saccos is quite low compared to the average membership in DT-Saccos," says Sasra.

Sasra says Saccos being member-based socio-economic enterprises which thrive better on economies of scale, such low average membership in individual Saccos brings to fore the question of their sustainability particularly in view of stiff competition within the financial sector space from other financial service providers.