Kenya’s Cabinet has approved Saccos’ integration into the National Payment System, aiming to lessen dependence on bank loans and expand financial services. This change, encapsulated in the Sacco Societies (Amendment) Bill, 2023, introduces a Central Liquidity Facility and promotes resource sharing among Saccos, enhancing competitiveness and operational efficiency in the financial sector.
Kenya’s Cabinet has approved a significant proposal for Savings and Credit Co-operatives (Saccos) to join the National Payment System (NPS). This plan aims to decrease reliance on bank loans by allowing Saccos to offer services such as cheque books and electronic funds transfers. These changes, part of the proposed Sacco Societies (Amendment) Bill, 2023, will enhance financial operations, especially for smaller Saccos.
The plan includes the introduction of a Sacco Shared Services Framework, whereby Saccos can pool resources using fintech solutions while maintaining independence. A Central Liquidity Facility (CLF) will support inter-sacco transactions and short-term lending to better integrate them into the NPS. Additionally, a centralized data repository will improve regulatory oversight.
By amending the Sacco Societies Act, 2008, Saccos can now lend to and borrow from each other more affordably, diminishing their dependency on commercial banks. This initiative is expected to create a self-sustaining inter-Sacco market, where competitive rates help stabilize their financial standings.
Historically, Saccos faced challenges in direct integration with NPS, leading to expensive reliance on banks and fintech intermediaries. The Sacco Society Regulatory Authority (SASRA) has advocated for a shared services platform, enabling participation in both national and international payment systems.
In 2019, a feasibility study funded by development partners recommended forming a Sacco Shared Services Organization (SASO) to provide essential financial services, akin to the Credit Union Shared Organization (CUSO) model in North America. SASO aims to enhance financial stability for member Saccos via a CLF and shared technology platform.
Registered in June 2022 and inaugurated in April 2023, the Sacco Central currently has 55 member Saccos. The integration of Saccos into the NPS is projected to transform their competitiveness, potentially elevating them to a status comparable to commercial banks in Kenya.
Discussions are underway regarding how Saccos will access the NPS, with considerations on whether it will occur through a regulator or a market-driven approach, reflecting the banking sector’s own access routes. The ongoing legislative efforts, encapsulated in the Sacco Societies (Amendment) Bill, 2023, recognize the necessity of a centralized cooperative body, paving the way for enhanced integration into the financial sector.
The approval for Saccos to join the National Payment System is a pivotal development aimed at reducing their reliance on commercial bank loans. By enabling Saccos to issue their own cheques and partake in lending through the Central Liquidity Facility, this initiative enhances the financial operations of these institutions. Ultimately, the reforms position Saccos as vital contributors to Kenya’s financial inclusion and economic empowerment.
Original Source: www.zawya.com
