Kenya’s Cabinet has approved a proposal for Saccos to integrate into the National Payment System, enabling them to issue cheques, reduce bank reliance, and enhance competitiveness. The amendment to the Sacco Societies Act will establish a Central Liquidity Facility and shared services platform, promoting operational efficiency and support for inter-Sacco transactions. These reforms aim to bolster Saccos as pivotal players in Kenya’s financial landscape and economic empowerment initiatives.
Kenya’s Cabinet recently approved a pivotal proposal allowing Savings and Credit Cooperatives (Saccos) to integrate into the National Payment System (NPS). This initiative aims to reduce reliance on bank loans and enables Saccos to provide financial services such as cheque issuing, foreign currency trading, Real Time Gross Settlement (RTGS), and Electronic Funds Transfers (EFTs). The proposed reform is outlined in the Sacco Societies (Amendment) Bill, 2023, currently before parliament, with the intent of modernizing operations especially for smaller cooperatives.
Key reforms include the establishment of a Sacco Shared Services Framework, encouraging resource pooling, fintech adoption, and operational independence among Saccos. Additionally, a Central Liquidity Facility (CLF) will support inter-sacco transactions and short-term lending, enhancing regulatory oversight through a centralized data repository. This integration into the NPS is anticipated to empower Saccos by allowing them to lend to each other and mitigate dependency on commercial banks for financing.
The inability of Saccos to directly engage with the NPS has historically forced them to rely on banks, making arrangements costly for their members. The establishment of a framework for emergency liquidity assistance is also crucial, as Saccos currently face challenges in devising individual contingency plans with commercial lenders, which incur high expenses.
The Sacco Society Regulatory Authority (SASRA) has advocated for a Sacco Societies Shared Services Platform to facilitate technology and liquidity services. Following consultations and financial support from development partners, a feasibility study recommended the creation of a Sacco Shared Service Organization (SASO) to provide essential shared services for member cooperatives—similar to North American Credit Union Shared Organizations.
The SASO, established as a Secondary Cooperative in June 2022 and inaugurated in April 2023, aims to enhance the financial stability and competitiveness of member Saccos through shared technology platforms and payment solutions. Sources within the sector have indicated that this integration into the NPS could significantly elevate the competitiveness of Saccos, placing them alongside commercial banks in Kenya’s financial landscape.
Currently, discussions are underway regarding whether Saccos will gain access to the NPS through regulatory channels or a market-driven approach, paralleling the banks’ access via the Kenya Bankers Association. The ongoing industry discussions are crucial to determining the optimal model for NPS access, as legislation through the ongoing Sacco Societies (Amendment) Bill acknowledges the forthcoming establishment of a Sacco Central. These reforms are set to position Saccos as significant contributors to Kenya’s financial inclusion and economic empowerment strategies, and bolster their capacity to serve their members effectively.
In summary, the approval of the proposal for Saccos to integrate into the National Payment System represents a significant shift in Kenya’s financial landscape. By enabling Saccos to issue cheques and manage inter-Sacco lending, the reforms are expected to reduce reliance on banks, enhance operational efficiency, and foster competitiveness among these cooperatives. The legislative changes will help arrest high costs and streamline access to essential financial services, thereby reinforcing Saccos’ role in economic empowerment and financial inclusion within the country.
Original Source: www.zawya.com
