Saccos face survival test as Corona hammers economy

Friday, July 10th, 2020 00:00 |
Sacco delegates at a past annual general meeting. Photo/PD/File

The co-operative movement is likely to come to terms with the reality of reduced profits as institutions struggle to stay amidst rising cases of coronavirus disease. 

Stakeholders in the sector caution that savings and credit co-operative organisations (Saccos) will be the most affected as investors are likely to divert savings to other uses as a mitigation strategy against the increasing effects of Covid-19.

Kenya Union of Savings & Credit Co-operatives Ltd (KUSCCO) managing director George Ototo says the future is uncertain as business levels of the Saccos will be adversely interrupted and thus not able to meet their financial obligations.

“One certain situation you cannot rule out going forward is that the world will be faced by recession which Kenya will not escape. The consequences of the same to the co-operative movement will be huge as the institutions will record low profits and witness mass exodus of depositors,” he said.

Close down

Further, Ototo added, a good number of the players, mainly small Saccos are likely to close down their operations and eventually be liquidated.

Speaking to Business Hub during a recent interview in his office, Ototo said so far majority of Saccos have reduced employment, delayed remittances by depositors while some credit unions have started experiencing withdrawal of the savings.

“The global cash crunch will repress the saving culture which co-operatives are best known for and thus will strangle investments financing,” he added.

He, however, observes that big Saccos are awash with cash and are likely to continue enjoying high liquidity owing to savings from salaried customers, though at a cost.

The ripple effects of the global recession on the economy will derail financing of many investments.

Demand of cash to finance investment will be less especially in the big Saccos that enjoy salaried employees though currently they have a lot of liquidity.

Harambeee Sacco Chairman Macloud Malonza agrees that Saccos, especially those that have membership drawn from companies that have reduced workforce will suffer financial loss and reduced market share.

“We are reaching out to the co-operative department as part of crafting away out to bail out the struggling Saccos,” said Malonza who is also the vice-chaiman of the co-operative Alliance of Kenya (CAK), during a webinar organised by a local TV station.

It is estimated that Kenya’s co-operative movement controls 45 per cent of the national savings with financial Saccos controlling in excess of over Sh600 billion savings and an asset base of more than Sh800 billion.

Ali Noor Ismail Principal secretary Cooperative department said currently, the number of co-operatives registered has reached over 21,000 with a membership of 15 million co-operators. 

“Out of these, less than 50 are unions, national co-operative organisations and the apex body –CAK,” he said, adding that  the total asset base of all co-operatives in Kenya is over Sh1trillion.

The co-operative movement as envisioned in the Vision 2030 is supposed to boost housing supply by 25 per cent in the next 10 years. 

Kenya police Sacco Chairman David Mategwa observed that well- capitalised Saccos will weather the harsh economic effects.

Credit unions

“But to cushion the credit unions against the likely chaotic situation needs to fast-track innovative strategies such as reducing interest rates, rescheduling loans and sticking to their strategies,” he said.

Stima Sacco Chief executive officer Hassan Gamaliel opines that the financial co-operatives need to relook at their strategies, rethink over current activities during the current trying moments.

Ototo advised the management of the Saccos to focus on advancing short-term loans and increase repayment period for existing long-term loans.

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