Kenya’s Cabinet Approves Plan for Saccos to Enhance Financial Independence
Kenya’s Cabinet has approved Saccos to integrate into the National Payment System, aiming to reduce reliance on bank loans and enhance services offered by these co-operatives. The amendments to the Sacco Societies Act, 2008, will enable Saccos to engage in inter-lending and access crucial financial services independently, fostering competitiveness and financial inclusion.
The Cabinet of Kenya has approved a significant proposal allowing Savings and Credit Co-operatives (Saccos) to integrate into the National Payment System (NPS). This initiative aims to diminish dependency on bank loans and enable Saccos to offer services like cheque books, foreign currency trading, and various electronic transactions, improving their competitive edge. The amendments to the Sacco Societies Act, 2008, are encapsulated in the Sacco Societies (Amendment) Bill, 2023, now with parliament.
These proposed reforms include the introduction of a Sacco Shared Services Framework, which will enable Saccos to pool resources, adopt fintech solutions, and improve operational autonomy. Additionally, the establishment of a Central Liquidity Facility (CLF) will facilitate inter-Sacco transactions and enable participation in the National Payment System, enhancing regulatory oversight via a centralized data repository.
These changes will empower Saccos to lend to one another and reduce reliance on commercial banks known for their high-interest loans. The reformed legal framework is expected to lead to the implementation of the CLF and a market where Saccos can maintain healthy liquidity positions by exchanging funds among themselves at more favorable rates.
Historically, Saccos have struggled to integrate into the NPS due to dependence on banks and third-party fintechs, which resulted in high costs for their members. Without state-supported emergency liquidity assistance mechanisms, Saccos typically had to negotiate costly contingency plans with commercial lenders.
The Sacco Society Regulatory Authority (SASRA) has been advocating for a Sacco Shared Services Platform to allow Saccos access to both local and international payment systems. A feasibility study from 2019, conducted in conjunction with the National Treasury and supported by development partners, recommended the creation of a Sacco Shared Service Organization (SASO) to facilitate these services.
The SASO, or Sacco Central, aims to promote financial stability and competitiveness among member Saccos by providing a CLF and shared technological resources. It was officially inaugurated in April 2023 with 55 initial members. Industry insiders suggest that integrating Saccos into the national payments landscape may significantly enhance their competitive abilities, positioning them similarly to commercial banks.
Discussions are currently underway about the best method for Saccos to access the national payments system—whether through a regulatory body or a market-driven approach akin to how banks utilize their industry lobby, the Kenya Bankers Association. The ongoing legislative reforms outlined in the Sacco Societies (Amendment) Bill, 2023, should facilitate this access and establish operational clarity regarding a Sacco Central.
In conclusion, these proposed amendments and initiatives are anticipated to transform the role of Saccos within Kenya’s financial inclusion and economic empowerment framework. By eliminating their reliance on banks, Saccos are positioned to provide more services directly to their members, thereby enhancing their financial stature and operational capabilities.
In summary, the Kenyan Cabinet’s approval for Saccos to integrate into the National Payment System marks a pivotal shift in the financial landscape. By reducing dependency on bank loans and allowing Saccos to exchange liquidity amongst themselves, these reforms pave the way for enhanced competitiveness and financial stability within the sector. The introduction of a Sacco Shared Services Platform and Central Liquidity Facility further supports this goal, positioning Saccos as vital players in Kenya’s economy.
Original Source: www.zawya.com
