Sacco lending to housing sector drops to Sh124b on good rains, coffee reforms

Co-operatives Principal Secretary Patrick Kilemi during the Kenya Union of Savings and Credit Co-operatives Ltd 50th anniversary celebrations in Nairobi. [File, Standard]

Improved rains and aggressive reforms in the coffee sector led to a drop in loans issued by Saccos in the housing sector last year.

The latest report from the Sacco regulator shows an increase in advances by Saccos to the agricultural sector as loans towards housing and land acquisition dropped.

Nevertheless, money advanced towards housing and land acquisition took the largest portion of Sacco loans in 2023 amounting to Sh124.2 billion according to the Societies Regulatory Authority (Sasra).

This amount represents 26.97 per cent of the total loans issued in the period.

It is on this background that the Ministry of Cooperatives and Micro, Small, and Medium Enterprises (MSMEs) has positioned Saccos and cooperatives as the suitable vehicle for home ownership.

According to the Sacco Supervision Annual Report 2023 by Sasra, the Sh124.1 billion disbursed in the year is a drop compared to 2022 when the total percentage of housing and land loans stood at 33.24 per cent.

Regulated entities in the period issued total loans of Sh460.47 billion where the bulk went to housing and land.

“This was, however, a decline from a proportionate share of 33.24 per cent of the sectoral lending which was advanced by regulated Saccos towards the lands and housing sectors of the economy in 2022,” the report reads.

The report released shows the education sector took the second highest chunk of the credit disbursed amounting to Sh96.33 billion - representing 20.92 per cent of all the credit disbursements, with agriculture coming third with 16.96 per cent.

The disbursement to agriculture is an increase from 13.76 per cent.

“The proportionate decrease in the credit disbursements towards land and housing sector of the economy is explainable by the sharp increase in the proportion of credit lending towards agricultural sectors of the economy which increased from 13.76 per cent in 2022 to a proportion of 16.96 per cent amounting to Sh78.10 billion in 2023,” the report explains.

The highest proportion of the Sh78.10 billion to the agriculture sector funded crop production - mainly tea and coffee.

“The credit disbursements of Sh78.10 billion within the agricultural sectors of the economy shows that the highest portion thereof amounting to Sh41.42 billion representing nine per cent of the total credit disbursement funded the crop production mainly the cash crops of tea and coffee,” the report says.

The government has been aggressive in implementing coffee reforms whose outcome has seen improved yield in 2023 compared to 2022.

In 2022, production stood at 875 tonnes which increased to 8,870 tonnes as of June 30, 2024, according to the latest figures provided by the Ministry of Cooperatives and MSMEs.
Additionally, the intention of the government to write off billions in coffee debts has made the sector more attractive.

The Ministry plans to waive Sh2 billion of coffee debts this financial year.

The country has also been receiving improved rainfall, having come out of a prolonged drought after the 2020 Covid pandemic which, combined with the State’s efforts such as fertiliser subsidies, seem to make the agricultural sector more attractive.

State Department of Cooperatives Principal Secretary Patrick Kilemi, while speaking during the rebranding of SIC Investment Cooperative, formerly Safaricom Investment Cooperative and referencing the Sasra report, said the space for housing cooperatives is vast in the country.

However, he pointed out that the sector has suffered from an ugly history, citing Mbo-I-Kamiti a land-buying company whose wrangles lasted decades leaving a trail of bloodbaths and deaths.

Such incidents breed fear among Kenyans whenever they think of owning property through Saccos or cooperatives.

However, Saccos and cooperatives are still the most suitable vehicles for the majority of Kenyans to own property which the latest report from the regulator confirms.

PS Kilemi deduced that since independence, the banking industry has delivered 30,000 houses through mortgages despite there being 53 such institutions.

“If you dig down, why are people taking loans from Saccos, they call them development loans, about 50 per cent are to go and buy houses and land. Kenyans buy land, pay the loan in four or five years, and take another to build,” he said.

He said this is a space where Saccos and societies can leverage considering that there is a vast market of individuals who can spare Sh25,000 a month to service these loans. “Kenyans are not getting service for housing needs from the banking sector,” he said.

For the first time, the number of mortgages offered through the banking sector surpassed 30,000 in 2023 according to the Bank Supervision Report by the Central Bank of Kenya (CBK).
According to the report, there is almost an equal number between those who borrow from Saccos and societies to buy houses and, those who purchase a piece of land.
Mortgage finance in the Sasra report stood at 0.81 per cent in 2023 compared to 0.40 per cent in 2022.

“The aforementioned credit disbursements were distributed between the land (purchase and acquisition) which received Sh63.62 billion accounting for 13.82 per cent of the total sectoral lending; while the credit disbursements to housing (outright purchase or construction) amounted to Sh60.57 billion accounting for 13.15 per cent of the total credit disbursements made in 2023,” the Sasra report reads.

“It is significant to note that comparatively, there was a drop in the proportion of credit towards land acquisition or purchase from 18.59 per cent in 2022 to 13.82 per cent in 2023, while the proportion of credit towards housing construction or purchase equally decreased from a high of 14.65 per cent recorded in 2022 to 13.15 per cent in 2023, thus resulting in the overall decrease in the proportion of credit disbursements towards land and housing.”