SACCOs Excited About Own Cheques, Overnight Lending Window

By Jackson OKOTH

Kenyan Savings and Credit Cooperative Societies(SACCOs), especially those that offer Front Office Service Activity(FOSA), will soon have an overnight lending window and link up to the National Payments System.

This is if the SACCO law is amended to allow the establishment of a liquidity platform to facilitate Inter-SACCO transactions, overnight or short-term SACCO lending and allow these financial societies to issue own-branded cheques.

At present, SACCOs cannot issue cheques and have no access to the Cheque clearing house. Further, SACCOs that face cash shortages cannot borrow from each other, like banks do on the inter-bank window.

“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.

“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, Kenya Police DT Sacco has diaspora members who have to channel their funds first to Cooperative Bank of Kenya before the money hits the FOSA accounts of members. Now this will change once SACCOs are admitted to the National Payments System.

“This move to allow SACCOs into the National Payments System is a step in the right direction. After all, in a few years, the total balance sheet size of all the SACCOs in Kenya will overtake that one of the commercial banks.

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 that they will be able to introduce new products and services.

 “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 Limited.

Most Saccos also have membership in the diaspora and are experiencing difficulties in remitting funds directly to their SACCOs back home.

According to Mr Alfred Mlolwa-Board Chairman Qwetu Sacco Society Limited, if the Government is able to deliver infrastructure that allows SACCOs to participate in the National Payments System, the impact on Kenya’s financial system would be immense.

“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.

We will now be able to issue cheques faster, efficiently and also be cost-effective. We are also looking at money transfer services where movement of funds will now be eased with no need to pass through third parties,” said Mr Ngala.

A previous attempt by Simon Kiprono Chelugui, former Cabinet Secretary for Cooperatives, Micro, Small and Medium Sized Enterprises(MSMEs) Development, to link SACCOs to the National Payments platform did not happen. This CS was dropped from Cabinet in a reshuffle.

Creating a clearing house for SACCOs in Kenya, will bring them at par with other credit unions in the more developed markets such as those in the United States of America(USA), UK, France and Canada.

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.

At present, Trade, Treasury Management, Electronic Funds Transfer (EFTs) and Real Time Gross Settlements (RTGS) are offered to SACCOs by commercial banks, through a third party arrangement.