One of the leading banks in Kenya that began as a Sacco

The rationale behind the formation of Saccos is simple: unity in diversity. The strength in numbers as constituted in Saccos has led to personal economic empowerment and financial freedom to many Kenyans. Individual employees or producers band together to mobilise savings, thereby forming a powerful economic movement. This poweful weapon of solidarity ideally keeps loan sharks away while ensuring sound personal economic planning.

Saccos’ philosophy hinges on the fact that a well ordered economic life entails a balance between savings and spending. It involves doing away with pieces of advice such as: spend today, rather than save today. This movement is therefore a response to tying-up tommorrow to today.

Saccos in Kenya have been organised in both private and public sectors, in churches, in business and in farming communities. This is the only tangible gift that the past regimes in some good measure have bequeathd this nation. They have endured the divisive politics of our times. This is a cause for pride and and heritage we should  protect.

The economic devastation the country has faced in the past, could have been mitigated by these institutions. Loans from these institutions have enabled teachers in urban and rural areas get a shelter of their own. They  powered the matatu (transport) industry long before mainstream banks came on board. The loans have financed our childrens’ education; opened rural areas for business and have been the cog that has moved the rural economy when all was doom and gloom.

These are the only financial service providers that have not undergone any major mission drift. Microfinance institutions were ideally established to target the economically active poor shunned by the mainstream banking sector, but a visit today to their membership/clientele depicts a structural change. Their relevance is hinged on the attitude and poor distribution of the mainstream banking sector in Kenya and the MFIs breadth of outreach.

For the Saccos, their mission is first to conviniently and affordably serve their membership, rather than profits to their shareholders. Institutional sustainability is important too for Saccos, but their business model advocates “mutual sustainability” – institutional as well as membership sustainability. These are the only institutions that have kept their financial services pricing affordable. Despite their affodable pricing, better managed and innovative Saccos have grown rapidly and profitably over the period.

While Saccos have had everything work for them for the five decades, the exigencies of the day are different. Unless the institutions bring forth a lot of innovation in the way they do business; review their operational business models and product range and critically review their position in respect to the overall dynamism of the financial sector in Kenya, the future owes them no compassion.

The banking sector believes the main competitor and threat to their business are Saccos and Microfinance institutions. This is exemplified by the range of banking products on offer today. A quick review of the loan products indicates that mainstream banks are out to give a technical knockout to the cooperative movement and in particular the Saccos. The hawking of consumer loans by the banks that are purely based on payslip is the final blow. Any rational Sacco member would go for these loans without any second thought. The beauty in these bank loans unlike the Saccos is that no advance savings is required as is inherent with the Sacco movement. There is also guaranteed privacy – you don’t expose yourself to your friends and fellow employees when seeking their guarantee, only your employer has an idea of what you are getting into. One also gets substantial funds at once to solve his immediate financial need. One also gets a longer loan term that Saccos may not offer.

That said, what Sacco members don’t look for when running for these “sugar coated” bank loans are the other embedded services and incentives that Saccos should and can potentially provide. The speed Saccos respond to your emergency needs, the relationship you have built with them over time and the sharing of profits based on your shares and other insurance products cannot be underestimated. The banks may wish to offer these services amongst others but they cannot.

Most Saccos have problems ranging from governance and management to lack of vision and innovation. We need to jog our memory back and take a critical look at these institutions courting us today. They ran away from us in the late 1990s when we needed them most by closing rural branches and shutting and shirking most of us from banking by introducing excessive account opening and monthly charges beyond the reach of the Sacco member. They have done it in the past, there is no guarantee they cannot do it tommorrow.

Beware Sacco members, lets not throw away the baby with the birthwater. We have nurtured these institutions together in the past, and the best we can do is to ensure our past struggles are not in vain – lets confront the problem rather than run away from issues. This is possible if we all demand good management and governance systems, innovative financial products and services, creativity in doing business and credible institutional systems. If this is the price to pay to ensure continuity of our common bond and longer life for Saccos – why not? The more haste we make in a wrong way, the further we shall be from our journey’s end.