Kenya approves plan for saccos to issue own cheques

By Jackson OKOTH

Sacco and Credit Cooperative Societies(SACCOs) that offer quasi-banking services will soon link to the National Payments System(NPS), enabling them to provide new products and services including issuance of cheques- a service now provided by these SACCOs through third parties.

 

This is as soon as the SACCO Act is amended to allow these organizations to join this platform. The Cabinet, on 11th March 2025, approved proposals to make amendments to the law, to allow SACCOs join the NPS.

“Allowing SACCOs to join the National Payments System is a step in the right direction. We have the capacity to offer all the financial services that banks are currently offering and therefore there is no need to lock out SACCOs from the National Payments System. We are also regulated by SASRA the same way that banks are by the CBK,” said Mr Sichangi Wanyonyi, CEO TNT Deposit-Taking SACCO Limited.

Once admitted to the national payments system, SACCO Executives disclosed to Financial Fortune that they will be able to offer a more sophisticated range of products and services to members.

A section of the SACCO sub-sector is already excited about these prospects.

 “The idea of SACCOs joining the National Payments System is welcomed. Most Sacco members have not been fully patronizing the financial services and products that Saccos offer. This is partly attributed to lack of access to the National Payments System. Now, they will be able to transact among themselves as well as with those not within the Sacco movement.

At present, members are not able to transact freely with those not within the movement. The process has been long and expensive. But with the new developments, more members will join the movement with the confidence that they can do more,” said George Yongo Ngala, Chief Executive Officer, Imarika DT SACCO.

In a statement issued after its meeting on 11th March, the Cabinet also approved plans to amend the law so as to establish a central liquidity fund- a platform that will allow for short-term Inter-Sacco lending/ borrowing activities.

“Proposals to set up a liquidity fund have been in the works for some time now. We are glad that the Cabinet was able to finally approve these proposals. We have Saccos that experience liquidity challenges while there are also others that have excess cash,” said David Mategwa, Chairman of the Board of Directors, Kenya National Police DT Sacco Limited.

Worldwide, credit unions have cash to lend between themselves, making it cheaper and convenient for them to access funds for onward lending to members. But in Kenya, this opportunity has yet to exist.

“If SACCOs join the National Payments System, they will be able to grow their deposits, loans disbursed and membership. We still have headroom in bringing more members to join SACCOs. While this proposal has been in the works for years, things have really moved fast and are now at very advanced stages and nearing operationalization, which will be sooner than later. Access to the National Payments System will allow those in the diaspora to wire money directly to SACCOs here in Kenya,” said Mr Mategwa.

At present, diaspora Kenyans have to remit their cash to a commercial bank before the same hits the accounts of SACCOs. This is a long and tedious process that inconveniences SACCO members in the diaspora wishing to send cash to their SACCO accounts at home.

Mr Alfred Mlolwa-Board Chairman Qwetu Sacco Society Limited, says allowing SACCOs into the NPS has an immense impact on the country’s financial system.

“At present, our SACCO businesses have been constrained by Banks who monopolize the cheque clearing system and the credit market. We have members who are in the diaspora who are not able to remit cash directly to their SACCO accounts without opening an account with the Banks. The same applies to pensioners-who are unable to receive their dues directly to their SACCO accounts, without first processing these payments through a bank account,” Mr Mlolwa told this writer in a previous interview.

“Entry into the National Payments System will go a long way in opening up this channel and allow for seamless transactions between SACCOs and diaspora members. At the moment, we issue certain financial products such as personal cheques through third party arrangements. We ride on networks provided by the banks to be able to do that, making the exercise costlier for SACCOs as well as members,” said Mr Ngala.

“With the entry of SACCOs to the NPS, these financial organizations will be able to do faster issuance of cheque in an efficient and cost-effective manner. SACCOs will also be able to perform money transfer services without the need of third parties,” said Mr Ngala.

This is the second attempt by the Kenya Kwanza administration to set up a liquidity facility for SACCOs.

A previous one taken by Hon Simon Kiprono Chelugui, former Cabinet Secretary for Cooperatives, Micro, Small and Medium Sized Enterprises(MSMEs) Development, was time barred when the CS was dropped from Cabinet in a reshuffle.

In this plan, the Government was to set up a third-tier National Payments System for SACCOs- a platform that was to comprise a cheque processing platform and a Central Finance Facility, all at a cost of KSh 1 Billion.

The project involved bringing all SACCOs into one clearing house that also links to a central finance facility. SACCOs could then issue and clear their own branded cheques and provide such new products to members such as LPO loans and enable others to also open accounts.

This platform or a third tier facility was designed to be a clearing house- to take care of small depositors at the low end of the pyramid-therefore not offering any serious competition or threat to the inter-bank market that is run by Kenya Bankers Association on behalf of commercial banks.

Creating a clearing house for SACCOs in Kenya, is expected to provide them with the standards enjoyed by credit unions in the more developed markets such as those in the United States of America(USA), Europe , Asia and Canada. Kenyan SACCOs will be able to tap into the functionalities of a National Payment and Settlement System, opening their services to more firms, persons, institutions and organizations by enabling these customers to receive or make all types of payments via cheques.

SACCOs that run Front Office Service Activities(FOSAs)-which are basically quasi-banking services- will be able to issue and clear their own cheque and process personal cheques.  Figures indicate that Kenya has some 260 financial cooperatives, made up of Deposit-Taking and Non-Withdrawable Deposit-Taking SACCOs.

At present, these SACCOs have to rely on banks to offer Trade Finance, Treasury Management, Electronic Funds Transfer (EFTs) and Real Time Gross Settlements (RTGS), all at a fee. While some SACCOs are bigger than banks, this entire sub-sector still relies on a cheque clearing house run by the Kenya Bankers Association(KBA) on behalf of the banks.