Saccos remain profitable despite digital disruption

Members of Metropolitan Sacco Ltd line up for their annual dividend payout outside their offices along Koinange street, Nairobi. [Elv is Ogina]

In recent weeks, rumours have swirled around how some Saccos have been hit by a run.

And while it might be true that Mwalimu Savings and Credit Cooperatives (Sacco) might have issues, it is not true that Saccos as a vehicle for lending and saving are on trial.

True, like a savings instrument, Saccos might have lost favour among Kenyans as their mobile phones elbowed them out, according to the 2019 Household Survey. However, Saccos have remained profitable.

Analysis of audited results for more than 100 companies — listed and non-listed — by Financial Standard showed that deposit-taking Saccos were doing well, unlike microfinance banks (MFBs), which made losses.

Only two Saccos slid into losses. This was a far cry from ten that saw their profits increase. The profit-makers in the year to December 2018 included Kimisitu, Kenya Police Sacco Society, Mudete Factory Growers, Mwalimu National and Stima.

Other Saccos in the list that returned a profit in 2018 were Boresha Sacco Society, Gusii Mwalimu Sacco, Metropolitan National Sacco and Imarisha Sacco Society. The loss-makers included Afya Sacco and Kenversity Sacco Ltd.

Saccos are struggling with a vote of confidence after the Ekeza Sacco scandal that has seen members lose their hard earned cash — while Mwalimu and Stima Saccos have been latched with doubtful investments with industry players saying the malaise seeps deep in the sector.

But Metropolitan Sacco Chief Executive Francis Ng’ang’a says there is nothing to worry about. He says there are many Saccos facing challenges, including dealing with a membership that comes from outside the traditional pool.

Metropolitan Sacco, for example, was supposed to be a co-operative society for teachers, particularly from Kiambu.  It opened its membership to the public, which he reckons brought some positivity in terms of financial strength, but also exposed it to external factors.

Near collapse

Moreover, Saccos have been hit with a tough economic environment including for Metropolitan Sacco, the near collapse of Nakumatt and Uchumi Supermarkets, which employed lots of their members.

“The fact that most of our members are in the teaching fraternity, any slight change in our finances has serious repercussions to our members who are not teachers,” Mr Ngángá noted.

He reckons that it was such wide linkages to the rest of the economy that normally to some extent tend to have a bearing on their performance.

“We have cushioned ourselves from these economic upheavals and hired a consultant to help stabilise our financial aspect,” said Ng’ang’a.

He explained that Sasra had given them licence for 2019. The Sacco has paid almost Sh718 million in dividend to 101,057 members mostly from the teaching fraternity in Kiambu that saw long queues in most of its outlets.

The Metropolitan National Sacco’s assets amount to Sh13.9 billion, while its share capital and deposits stood at Sh7.66 billion as of December 2017.

Sacco earnings have been squeezed by new stringent financial reporting standards. Almost all deposit-taking societies have been hit by the new IFRS 9, which became effective January 2018. 

IFRS 9 replaced the old International Accounting Standard (IAS) 39 for organisations that deal with financial assets, which rather than looking at expected credit loss instead focuses on incurred credit loss.

Saccos Societies Regulatory Authority (Sasra) Chair Sammy Ruto in the supervisory report published last year, also warned that the sector is facing unprecedented competition from mobile lending applications taking away their business.

“The Sacco sector must brace itself for stiff competition from other financial service providers; particularly, with the growth in popularity of the digital credit services that principally specialises in unsecured micro-credit loans, a forte hitherto associated with Saccos,” Mr Ruto said.

Inadvertently, Saccos also came into competition with banks for deposits after the Banking (Amendment) Act, 2016 set the interest rates payable on deposits held by commercial banks to not less than 70 per cent of the CBK base rate.

Treasury Cabinet Secretary Henry Rotich has dipped his hands into pockets of the small savers with a 10 per cent charge on dividends.

“The government is trying to find revenue one way or another, and because predominantly people trust Saccos more than banks then the government may make substantial amounts from this,” said Kunal Ajmera, Chief Operating Officer, Grant Thornton Kenya.

Already, Stima Sacco, the second largest in the country after Mwalimu Sacco, was forced to reduce interest on deposits from 12 per cent to 10.5 per cent as it sought to be compliant with the new standards.

Stima Sacco new Chief Executive Chris Ngeta Useki said the Sacco provisioned in excess of Sh800 million, noting that they might be beginning to get the hang of the Reporting Standards (IFRS 9).  Stima Sacco has over 114,000 members.

Sheria Sacco provisioned close to Sh41.5 billion after the introduction of IFRS 9 with effect from the year 2018. “In line with the regulator’s guideline to comply with IFRS 9, the society made a provision of Sh41.55 million, being one per cent of the performing loans (Sh4.2 billion),” said Sheria Sacco in its statement.

Network Sacco provisioned for a loss of Sh1.6 million in the financial year ending December 2018. The provision of loan loss was at the rate of one per cent of loan balances as of December 31, 2018.