Sasra warns Saccos on rising loans competition

Saccos have been cautioned to expect stiff competition from banks in the wake of the falling interest regime by the Central Bank of Kenya (CBK), which is aimed at pushing credit to the private sector. The Sacco Societies Regulatory Authority (Sasra), in the Sacco Supervision Annual Report 2024, notes this competition, adding that for the first time in three years, Saccos paid dividends to members below the Central Bank Rate (CBR). The regulator has proposed solutions, such as common bonds, to improve the liquidity of the institutions in order to provide more credit. However, the authority has also warned Saccos not to use the low-interest regime to borrow further from banks, but to find ways to encourage more deposits from members through product offerings. While Saccos have always been the go-to institutions for cheaper credit, most charging one per cent per month on reducing balance, the sustained lowering of the benchmark lending rate by CBK since August last year threatens to put both institutions on par. Since August 2024, the CBR has moved from 13.0 per cent to the current 9.50 per cent. As such, weighted lending rates in the market have reduced from 16.0 per cent to 12.0 per cent. And it could go further down for some borrowers as the banking sector implements the Risk-Based Credit Pricing Model spearheaded by the industry regulator. It is against this backdrop that Sasra has warned Saccos that they might lose a portion of their credit market if the necessary steps are not taken. "On the other side of the spectrum, the downtrends in the cost of borrowing as being signalled by the Central Bank of Kenya's base lending rates, with resultant consequence of low lending rates by other credit financial institutions, have the implication of bringing an additional layer of competition in the credit market," says Sasra in the report. Sasra says regulated Saccos have to contend with options of cheaper credit in the market, especially when dealing with micro, small and medium enterprises (MSMEs), even when their loans have traditionally been considered cheaper. "In this regard, regulated Saccos must take stock of their credit products and align them to the emergent members' needs to avoid losing their memberships' (credit)needs to other credit financial institutions," the report says. But while Sasra warns Saccos on competition from banks, it also cautions the institutions that they should not patronise the low-interest offers by banks to beef up their liquidity. Cooperatives and MSMEs Development Cabinet Secretary Wycliffe Oparanya, last week, warned Saccos against external funding without the express written approval from the Commissioner of Cooperatives. Commercial banks are the major source of Saccos' external funding. "The projected decrease in the commercial banking lending rates, due to the lowering of the Central Bank Rates (CBR), should, however, not be a panacea for regulated Saccos to increase their borrowing, but to still put more efforts towards mobilising deposits from members to fund their assets," Sasra says in the report. The report notes that several regulated Saccos are still relying on external borrowings from commercial banks, with the industry owing Sh25.64 billion at the end of December 2024. "The external borrowing by regulated Saccos will continue to be impacted by the Central Bank of Kenya's base lending rates (CBR)," the report says. It adds: "Despite the projected improvements in the lending environment in the short to medium terms, regulated Saccos are still encouraged to avoid reliance on commercial bank loans but rather rely on their own internally sourced funds to finance their asset portfolios." One way that Saccos have traditionally attracted membership and deposits is by offering higher interest on savings and share capital compared to banks. The report notes that in 2024, the comparative analysis showed that, on average, the payments by regulated Saccos as dividends on members' share capital and interests on deposits were above the rate of what banks paid their customers. This is with a difference of 6.32 per cent for dividends and 3.00 per cent for interest on deposits. "... thereby underscoring the competitive advantages of patronising financial services offered by regulated Saccos," the report says.

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