Kenyan Savings and Credit Cooperative Organizations (SACCOs) have emerged as a critical financial lifeline for borrowers in the face of persistently high interest rates from commercial banks. Despite three consecutive reductions in the Central Bank Rate (CBR) by the Central Bank of Kenya (CBK) to the current 11.25%, commercial banks have been slow to reduce their loan charges. This has prompted many Kenyans to seek more affordable credit options through SACCOs, resulting in notable growth in membership and usage.

SACCO Membership and Growth Trends

According to the 2024 FinAccess Household Survey, SACCO usage has grown significantly, rising from 9.6% to 11.7% as households increasingly turn to these cooperatives for lower-interest loans. The survey highlighted how SACCOs offer loans with friendlier terms compared to traditional banks, which remain reluctant to pass on the benefits of CBR reductions to customers.

This growth reflects SACCOs’ ability to provide tailored solutions that address members’ financial needs, particularly during periods of economic strain. Unlike commercial banks, SACCOs distribute their profits among members, a practice that often results in better interest rates for borrowers and higher dividends for savers.

Technology Adoption and Service Delivery

One of the most significant shifts within the SACCO sector has been the adoption of modern technology. Mobile platforms, including USSD codes, mobile apps, and internet banking, have become the dominant mode of service delivery, preferred by 70.6% of users. This marks a departure from traditional SACCO usage, such as physical branch visits, which now stands at 66.1%.

Rural vs. Urban Preferences:

• Rural Areas: A majority (75.1%) of rural users still rely on traditional SACCO branches, compared to 60.7% in urban areas.
• Urban Areas: Urban members favor mobile-based platforms more than rural users, with adoption rates of 56.8% versus 44.1%.

This urban-rural divide underscores differences in access to technology and financial literacy. Moreover, older users (above 55 years) exhibit a strong preference for traditional channels, with 80.2% favoring branch-based services compared to 41.8% who use mobile technologies.

Gender and Technology Adoption

The survey revealed distinct gender disparities in technology usage. Women tend to favor digital payment options, such as Paybill services, due to their simplicity and accessibility, with adoption rates of 28.5% in urban areas and 14.3% in rural areas. However, men are more likely to use mobile apps and USSD codes, with a slightly higher adoption rate of 51.6% compared to 47.8% for women.

To bridge these gaps, experts emphasize the need for tailored training programs and user-friendly digital interfaces. Enhanced financial literacy initiatives, particularly in rural areas, could help drive greater adoption of mobile platforms, ensuring inclusivity in SACCO service delivery.

Challenges and Member Retention

Despite their growing popularity, SACCOs face challenges in retaining members. The FinAccess survey noted that 51.7% of respondents who ceased using SACCOs cited voluntary withdrawal as the main reason, followed by an inability to maintain their accounts (46.2%). Urban members were more likely to withdraw voluntarily (51.1%) compared to their rural counterparts (47.4%).

These figures highlight the importance of addressing barriers to member retention, such as financial literacy gaps, account maintenance requirements, and competition from other financial institutions.

SACCOs vs. Commercial Banks

The slow response of commercial banks to adjust loan charges in line with CBR reductions has placed them at a competitive disadvantage. While the CBK has reduced rates from 12.75% in August to 11.25% in December, banks have maintained relatively high interest rates, discouraging borrowers.

In contrast, SACCOs have remained agile, providing loans with more favorable terms and tapping into their cooperative structure to share risks and benefits among members. This competitive edge has bolstered their reputation as a viable alternative to traditional banks, particularly during times of economic uncertainty.

The Economic Context

Kenya’s high-interest-rate environment has been driven by inflationary pressures, global economic volatility, and local fiscal challenges. As the government implements measures to stabilize the economy, SACCOs have played a crucial role in cushioning borrowers from the adverse effects of rising borrowing costs.

Policy Implications and the Future of SACCOs

As SACCOs continue to grow in importance, policymakers are likely to explore ways to support the sector further. This could include:

1. Regulatory Support: Simplifying compliance requirements to encourage innovation and expansion.
2. Financial Literacy Programs: Promoting awareness of SACCO benefits among underserved populations.
3. Technology Infrastructure: Investing in digital platforms to enhance service delivery and accessibility.

The resilience of SACCOs during high-interest-rate periods positions them as a cornerstone of Kenya’s financial ecosystem. Their ability to adapt to changing economic conditions and meet the diverse needs of members suggests a bright future for the sector.

Conclusion

The shift toward SACCOs highlights the transformative potential of cooperative finance in Kenya. As commercial banks grapple with the challenges of high-interest rates and regulatory constraints, SACCOs have stepped in to provide affordable, accessible, and member-focused financial solutions.

By embracing technology, addressing barriers to inclusion, and maintaining their commitment to member welfare, SACCOs are poised to play an even greater role in Kenya’s financial landscape. This growth not only reflects their ability to adapt to market dynamics but also underscores their importance in fostering financial resilience and inclusion across the country.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

9th December, 2024