Kenya’s Cabinet has sanctioned a plan for Saccos to join the National Payment System, enabling them to offer banking services and reduce dependency on commercial loans. The Sacco Societies (Amendment) Bill, 2023, outlines reforms aimed at modernizing the sector and enhancing inter-Sacco lending opportunities. This integration is anticipated to improve operational efficiency and competitiveness within Kenya’s financial framework.
Kenya’s Cabinet has approved an integration plan for Savings and Credit Co-operatives (Saccos) into the National Payment System (NPS). This initiative aims to reduce dependency on bank loans and enable Saccos to offer various financial services such as cheque books and foreign currency trading. The proposed reforms, outlined in the Sacco Societies (Amendment) Bill, 2023, are focused on modernizing financial operations, particularly benefiting smaller Saccos.
Among the key reforms is the establishment of a Sacco Shared Services Framework, which allows the financial institutions to pool resources and enhance cooperation while retaining operational autonomy. A Central Liquidity Facility is also proposed to facilitate inter-sacco transactions and enhance their participation in the National Payment System, while a centralized data repository will bolster regulatory oversight.
The amendments aim to create a structure where Saccos can lend and borrow from each other, promoting efficiency and reducing the need for traditional bank loans, which are perceived as costly. This new inter-Sacco lending market will enable Saccos to manage their liquidity more effectively and support financial stability within the sector.
Historically, Saccos faced challenges in integrating with the NPS, often relying on banks and third-party fintechs for access, resulting in unfavorable arrangements. Furthermore, the lack of emergency liquidity assistance mechanisms left them vulnerable to high costs associated with contingency planning with commercial lenders.
The Sacco Society Regulatory Authority (SASRA) has advocated for a shared services model to improve the technological capabilities of Saccos. A feasibility study conducted in 2019 recommended the establishment of a Sacco Shared Service Organization (SASO) to offer shared services, akin to models seen in North America. SASO was officially registered as a Secondary Co-operative in June 2022.
Stakeholders from the sacco sector perceive the integration into the NPS as transformative, enhancing competitiveness within the financial sector. Discussions are underway concerning whether to facilitate access to the NPS through regulatory channels or a market-driven approach. Legislative measures addressing these considerations are currently in parliament, signifying progress in strengthening Saccos’ roles in financial inclusion and economic empowerment.
The approval for Saccos to integrate into Kenya’s National Payment System marks a significant advancement in the financial landscape. It allows Saccos to offer essential banking services directly, reducing reliance on expensive bank loans and facilitating inter-Sacco lending. These developments, coupled with proposed reforms such as a Central Liquidity Facility and shared services, are set to enhance the operational efficiency and competitiveness of Saccos in Kenya’s financial ecosystem.
Original Source: www.zawya.com
