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By Jackson OKOTH
Any movement in the Central Bank Rate(CBR), a monetary tool that sends signals to banks on the level of interest to charge customers for loans, has a profound effect on how Savings and Credit Cooperative Societies(SACCOs) do their lending business.
During its Monetary Policy Committee(MPC) Meeting held on June 10th 2025, the Central Bank of Kenya(CBK) top decision-making think-tank lowered the CBR by 25 basis points to 9.75 percent from 10.00 percent.
While a change in the CBR can affect how SACCOs do business, the impact may not be as direct as how this tool affects banks.
SACCOs, especially deposit-taking ones, may see changes in their lending rates, borrowing costs, and overall financial performance due to how the CBK’s tool impacts the broader financial market.
Financial Fortune sought views from industry players on how this decision affects how SACCOs lend to its members.
“If a CBR reduction triggers cheaper loans compared to that of SACCOs, those SACCOs that offer more expensive facilities will be affected,” said Mr. Patrick Njenga, Chief Executive Officer, Tower DT SACCO Limited.
He told this publication that while the CBK has been pushing banks to lower the interest rates, banks have been reluctant to do so, preferring instead to put their cash into safer treasury bills and bonds or the more lucrative infrastructure bonds.
“Banks prefer investing in fixed income securities rather than offer cheaper unsecured loans to the riskier individual borrowers. Lending to individuals has enormous risk elements while investing in infrastructure, treasury and corporate bonds has none. With a high demand for cheaper bank loans and banks not lending to individuals, this will automatically lead to a rise in bank interest rates,” said Njenga.
Financial experts maintain that while the CBK has been pushing banks to lower their lending rates, through a reduction in the CBR now at 9.75% from 10% two months ago, banks have been reluctant to move their lending rates lower, in tandem with the CBR downward adjustment.
Available data indicates that most SACCO loans are priced at an average interest rate of 12%. SACCOs also have loan products whose repayment rates are pegged upwards of 15-18%, on reducing balance.
With CBR now at 9.75%, Banks have to put a mark-up of 1.25% to match what SACCOs are offering.
“So if banks were to lower their base lending rates, based on the CBR signals- a situation that is doubtful given the conditions in the credit market, then SACCOs will be adversely affected, “said Njenga.
A reduction in the CBR has minimal effect on how SACCOs do their lending business, according to other SACCO Executives who spoke to this publication.
“Even with a reduction in the CBR, Banks still have to put their mark up before fixing their own rates when lending to customers. Members of SACCOs know that the CBR and bank lending rates are not fixed and will keep on fluctuating.
So any reduction in the CBR will not trigger a significant shift of loan seekers from SACCOs to banks. How low a bank can charge on their loan products also depends on their source of funding, which means there is a limit below which banks can lower their rates.
SACCOs fixed their lending rates with no fluctuations, giving members more certainty and stability unlike customers with bank loans, “said Joseph Njoroge, CEO QONA DT SACCO.
He, however, admits that SACCOs that borrow from the banks for onward lending to members, will benefit if bank loans are cheaper.
“SACCOs operate a fixed interest regime and thus are not affected with what happens with bank lending rates, which are usually flexible and change as per the CBK signals,” said Njoroge.