Police Sacco targets SMEs for growth

By Monica Muema

Kenya National Police Sacco is targeting to attain an asset base of Sh50Billion in the next 21 months and will incorporate small and medium enterprises (SMEs) to meet its ambitious goal.

The society posted an impressive Sh39 Billion last year, up from Sh34.8Billion it announced a year earlier – a 12 per cent growth, underpinned by online growth and steady customers’ deposits which jumped to Sh32.6Billion in 2020 compared to Sh29.1Billion a year before.

Police Sacco Chairman David Mategwa said the financial institution was working on various products tailored to suit SMEs needs.

“It is a target that is achievable, the tough business working conditions brought by the pandemic, notwithstanding. We recently opened a common bond and we are hopeful that this will open the doors for non-members including the SMEs,” Mr Mategwa said in an interview.

“This year already looks promising owing to the fact that the economy has opened, with more businesses now in operations. We are also confident the vaccine will also play a key role in the economic recovery,” he said.

A recently conducted survey by Kenya Private Sector Alliance (KEPSA) found that SMEs have been hardest hit by the effects of COVID-19 on the economy.

A total of 2,466 businesses participated in the survey, with 81 per cent reporting they have been impacted by Covid-19.

“Small and mid-sized companies reported the largest impact (high to very high) at 85 per cent and 83 per cent in comparison to 78 per cent of micro-enterprises and 70 per cent of large companies,” Kepsa said in the report.

Tourism and education sectors were the most impacted, with 95 per cent and 93 per cent of them respectively reporting very high impacts due to the closures of schools and most tourist spots.

Further, the Sacco is betting on the implementation of an inter-Sacco lending market and eventual integration into the National Payments and Clearing system – a key ingredient Mr. Mategwa believes will offer lending opportunities for bigger Saccos with steady liquidity to smaller Saccos and individual SMEs who are non-members.

“We do not have any loan from any external financier, we have our own generated cash, and we can use this cash to lend to our colleagues at an interest rather than have that money lie idle in the bank. So this will also be a good business opportunity to us,” said Mategwa.

Most of the Sacco’s members are drawn from the police service unit, who whose saving patterns were not impacted by the pandemic due to the fact that their salaries were not affected as was seen with majority of employees in the private sector.

Sacco Societies Regulatory Authority (SASRA) the industry regulator is working with a multi-agency team comprising the State Department of Co-operatives, the National Treasury, Central Bank of Kenya (CBK) and the Kenya Law Reform Commission (KLRC), and has drafted the legal framework for the operationalization of the Central Liquidity Fund (CLF) where Saccos can lend and borrow money from each other thereby cutting ties with Commercial banks whose loans are considered very costly.

Under the new regime, Saccos will run their own inter-Sacco market where they can lend and borrow from each other at reasonable interest rates to offset their financial positions which was not possible in the past.

The draft legal framework is currently under review by the office of the Cabinet Secretary in charge of Agriculture, Livestock, Fisheries, and Co-operatives and is expected to be submitted to Parliament by March as part of the Budget Policy Statements for the 2021/2022 fiscal year.

About 50 Saccos have shown interest in the initiative and are working with Sasra.

In 2019 President Uhuru Kenyatta issued a policy directive towards the establishment of a Central Liquidity Fund (CLF) for Saccos, with the ultimate objective of   integrating deposit taking (DT) Saccos into the National Payment System.

The move will also see Saccos drift away from external borrowing as a funding source for their assets largely due to the expensive loans and stringent conditions made by commercial banks.

In 2019, the Saccos’ cost of external borrowing stood at Sh2.33 billion, according to the authority’s annual supervision report (2019).