Saccos face cash crunch as members withdraw savings

When it rains, it pours, and Kenya's Savings and Credit Co-operatives Societies (Saccos) now understand this too well.

As the shockwaves of the coronavirus pandemic ravage economies, the survival of many Saccos hang in the balance - with many at risk of collapse. And every dawn spells possible decimation of entities that were gaining traction before the crisis.

Last month, Co-operative Alliance of Kenya Chief Executive Daniel Marube warned that Saccos face the risk of sinking in the face of the pandemic should they fail to immediately start making prudent financial decisions.

This is because as the economy slows down, many employees have been laid off or are on unpaid leave. Others have resorted to making withdrawals off their Sacco savings to meet basic needs.

And for Saccos unable to monitor their cashflows carefully to navigate the terrain, he warned, they could see their lending and investment operations affected - hurting savings in the sector.

"There is concern by the management of credit unions of the affected sub-sectors as their members are opting to withdraw their savings to finance daily needs, mainly food,” he said.

“This trend, if not curtailed, is likely to affect the liquidity levels of the societies and equally discourage the saving culture in the country.”

But most of the mass withdrawals aren't possible as the Saccos say they are “cash strapped,” with most of the money in the hands of members who have obtained loans.

Saccos with membership drawn from the travel and hospitality industry are the most affected, with activities in these sectors remaining at a standstill.

A Sacco in the airline industry has experienced sharp downturns in member contributions - threatening its existence. Several members have stopped contributing after their employers temporarily closed shop.

“We have faced a reduced cash inflow since a significant number of members have either been put on pay cuts or sent on unpaid leave. This could lead to increased delinquency on loans,” a source told Weekend Business.

In this scenario, a raft of measures have been mooted to ensure the survival of such Saccos during this pandemic that threatens to cripple economies.

Some Saccos, particularly in the airline industry have, with time, restructured loan terms. “We have temporarily suspended long-term loans and are only advancing short-term ones. We are allowing loan repayment holidays or reduced loan installments on case by case basis.”

Mr Marube said many other cooperative societies will have to restructure loan repayment plans for members, with the idea of offering grace periods mooted. Moratoriums will also be established to create reasonable repayment arrangements.

“Saccos are people-centric. We are here because we have a common bond and purpose, and so empathy. Thus, the discussions are going to happen,” he says.

Metropolitan Sacco Chief Executive Benson Mwangi noted that they are yet to record recalls in members’ contribution that could be attributable to the pandemic.

The Sacco plans to extend dividends before the Annual General Meeting (AGM), obliterating doubts that bad economic times and the coronavirus crisis could rob members of the benefits, or make them come much later.

Members will also have interest rebates.

“The Sacco has dedicated its energies towards ensuring the digital channels and call centres are up and running for members to access services, review fees, avail dividends and interest rebates to members pre-AGM in addition to facilitating online registration and subscription,” he said.

Mwangi maintained that there have been no withdrawals due to the economic crisis.

Wanandege Sacco, which boasts 3,500 members, is still going strong despite reduction in contributions by members from the aviation industry. About 20 per cent of the members are still making contributions.

Among the measures the company is taking is extending short term loans.

“We are offering short term lending recoverable within one month. We also prioritise zero capital expenditure and have reduced operational expenditure,” said Wanandege Sacco acting Chief Executive Catherine Githinji.

The Sacco is also investing the loose cash flows.

Wanandege has had more withdrawals following the pandemic, but Catherine is unwilling to consider them substantial. “We are handling on case to case basis and at most, allow partial withdrawal,” she says.

Mr Marube maintains that cooperatives’ core mandate of providing financial services to members and to grow their social-economic well-being stands, noting that they are determined to make the best decisions for members.

Alongside asking members to minimise expenditures, Marube advises them to reduce investment at this time and concentrate on acquisition of basic needs.

The pandemic, he noted won't last forever, and that members can access their resources as they are used to.

But for Mwangi and Catherine, Saccos have to embark on new activities to bolster them. “We will embark on recruitment of Small and Medium Enterprises (SMEs) who as of now are keeping the economy afloat,” says Catherine. “We will also think about diversification into other industries.”

Mr Marube says diversification is inevitable as new market gaps emerge to replace those that are going obsolete.

The real-estate industry has, in the recent past, experienced a huge downturn in fortunes, and Saccos involved in land-buying could resort to linking up with other cooperatives and shift focus on more profitable ventures.

Opportunities have also opened up in the manufacturing industry, with local manufacturers rushing to seal supply chain gaps that emerged following a ban on international travel and cessation of procurement of imported industrial supplies.

The textile industry has also been resuscitated as local tailors take the frontline to produce masks for the country.

Marube expects numerous partnerships and collaborations as cooperative societies try their hand in fields that are growing increasingly relevant and rewarding, such as in offering ICT solutions.

"Some members are even telling me that if we had pooled resources early enough, we would have even constructed a large, equipped hospital pre-corona. These are eye-opening times, and a lot will happen post-corona.”

Also, most Saccos are cutting unnecessary expenditure. "We have reduced spending to save as much cash as possible so that we can ensure that once the situation normalises, we can meet member demands,” says Catherine.

As the pandemic persists, hurting the economies, only the fittest of Saccos will come through this unprecedented storm unscathed.