Why banks and saccos should join forces
What you need to know:
With the basic distinction between banks and savings and credit societies now increasingly blurred, the challenge for saccos is how to remain competitive and sustainable in the long-term.
But first, we must disabuse people of this notion that saccos and banks can only be competitors or rivals.
Rather, we should focus more on how to harness their collaborative synergy for mutual benefit.
Such collaborative partnerships represent the next level in the transformation of financial services in Kenya and Africa as a whole.
The role of savings and credit co-operative societies in providing affordable financial services in Kenya is well-documented.
Saccos, as they are known, play a vital role in growing savings and channelling credit. They have been cited as a key pillar in mobilising savings and investments under the Kenya Vision 2030.
POVERTY ALLEVIATION
Millions of Kenyans rely on saccos to finance their social and economic obligations. By official estimates, there are over 7,000 registered saccos in Kenya, with a total asset value of Sh442 billion.
Saccos are also crucial in poverty alleviation as they increase access to credit and affordable financial services, especially by the unbanked population.
For this reason, saccos have traditionally been viewed as informal financial institutions. Originally anchored on the “common bond” principle, where members guarantee each other loans, saccos were preferred to formal financial institutions like banks, in that they offer a more flexible savings and lending mechanism.
But as they grew in scale and scope, this model has evolved. The introduction of deposit-taking services necessitated prudential regulation that came into effect in 2010.
Kenya today boasts not only the largest sacco sub-sector in Africa but also a very well-regulated one. The question then is, what is the future role of saccos in Kenya’s financial services sector?
With the basic distinction between banks and savings and credit societies now increasingly blurred, the challenge for saccos is how to remain competitive and sustainable in the long-term.
But first, we must disabuse people of this notion that saccos and banks can only be competitors or rivals. Rather, we should focus more on how to harness their collaborative synergy for mutual benefit.
EXPANSIVE CLIENTELE
If financial institutions can team up with telecommunications service providers to offer mobile money services, nothing stops saccos and banks from working together to grow their respective businesses.
Such partnerships can take various forms. In some cases, mergers or acquisitions of banks by saccos and vice versa, provide an optimal institutional and financial structure for synergy.
One such example is the acquisition of Spire Bank by Mwalimu National Sacco. The partnership has allowed Spire Bank to tap into Mwalimu Sacco’s expansive clientele within the teaching fraternity.
On the other hand, Mwalimu National Sacco has gained by having an experienced banking partner as well as the unique services offered by Spire Bank.
There is also a lot that both institutions can learn from each other. But most significantly, the deal continues to boost Spire Bank’s capital base, diversify its business portfolio and clientele.
With time, the partnership will grow and become a launch pad for innovative financial services.
Moreover, the partnership marks a major milestone for Kenya’s financial services sector and a good, practical business model for collaboration between banks and saccos. Such collaborative partnerships represent the next level in the transformation of financial services in Kenya and Africa as a whole.
Ms Mutegi is the Board Chair, Spire Bank. [email protected]
