Kenya’s Cabinet has approved a proposal for Saccos to integrate into the National Payment System, aimed at reducing reliance on bank loans. Key reforms include a Central Liquidity Facility and a Sacco Shared Services Framework to enhance their operational efficiency. The amendments to the Sacco Societies Act, 2008, seek to modernize financial operations, potentially revolutionizing Saccos’ role in the financial sector.
Kenya’s Cabinet has approved a proposal enabling Savings and Credit Co-operatives (Saccos) to integrate into the National Payment System (NPS). This initiative aims to reduce their dependence on bank loans and to take over financial services typically provided by banks, such as cheque issuance, foreign currency trading, Real Time Gross Settlement (RTGS), and Electronic Funds Transfers (EFTs). The proposed reforms, contained in the Sacco Societies (Amendment) Bill, 2023, are intended to modernize the operational and technological functions of smaller Saccos, enhancing stability and competitiveness.
The amendments include the formation of a Sacco Shared Services Framework, which would allow Saccos to pool resources, implement fintech solutions, and promote cooperation while maintaining their operational independence. A Central Liquidity Facility is also planned to facilitate inter-sacco transactions, provide short-term lending, and integrate them into the National Payment System, complemented by a central data repository for improved regulatory oversight.
These proposed changes bolster the ongoing amendments to the Sacco Societies Act, 2008, aiming to enable Saccos to engage in a streamlined inter-sacco lending market. This new mechanism allows Saccos to directly lend to one another at competitive rates, diminishing their reliance on commercial banks, whose services are perceived as costly.
Currently, Saccos face challenges integrating with the NPS, often depending on banks and third-party fintechs, which results in unfavourable arrangements for their members. Additionally, Saccos lack access to state-backed emergency liquidity assistance, often resulting in costly contingency measures with commercial lenders. The Sacco Society Regulatory Authority (SASRA) is advocating for a Shared Services Platform to leverage technology and liquidity services.
A feasibility study conducted in collaboration with the National Treasury explored the potential for a shared services model among Saccos. The outcome recommended establishing a Sacco Shared Service Organization (SASO), similar to the Credit Union Shared Organization (CUSO) model in North America, to facilitate shared services beneficial to Saccos.
The SASO, now registered as a Secondary Cooperative, aims to foster financial stability among its members by providing necessary liquidity and technological support. With the inaugural setup on April 15, 2023, and initial membership from 55 Saccos, the integration into the NPS may potentially revolutionize their role in Kenya’s financial landscape. Sources suggest that successful integration would place Saccos in direct competition with commercial banks.
Currently, discussions are ongoing regarding whether Saccos will access the NPS through their regulator or employ a market-driven approach. There is a consensus among industry players that obtaining direct access to the NPS is crucial for enhancing Saccos’ competitiveness. The legislative framework in place, particularly the Sacco Societies (Amendment) Bill, 2023, is designed to support this integration and facilitate the establishment of a centralized structure for Saccos.
In summary, the Kenyan Cabinet’s approval to enable Saccos to integrate into the National Payment System is a pivotal development aimed at reducing reliance on banks, enhancing competitiveness, and modernizing operational capabilities. The proposed reforms, including the Central Liquidity Facility and shared services model, are designed to promote financial stability among Saccos. Ultimately, these changes could significantly elevate Saccos’ status within the financial system, allowing them to operate at par with commercial banks. Discussions surrounding access to the NPS will continue to shape the future of Saccos in Kenya’s financial landscape.
Original Source: www.zawya.com
