Kenya’s Saccos Granted Approval to Issue Own Cheques and Join National Payment System

The Kenyan Cabinet’s proposal allows Saccos to join the National Payment System, aiming to reduce reliance on banks by enabling them to provide their own financial services, including cheques. Key reforms include the establishment of a Sacco Shared Services Framework and a Central Liquidity Facility. The amendments intend to modernize operations and enhance collaboration among Saccos, ultimately positioning them as vital contributors to Kenya’s financial inclusion efforts.

Kenya’s Cabinet has approved a significant proposal that allows Savings and Credit Co-operatives (Saccos) to integrate into the National Payment System (NPS). This initiative aims to decrease reliance on traditional bank loans while enabling Saccos to offer services like cheque books, foreign currency trading, and real-time gross settlement. The amendments, encapsulated in the Sacco Societies (Amendment) Bill, 2023, focus on modernizing these financial institutions, particularly for smaller Saccos.

The proposed key reforms include establishing a Sacco Shared Services Framework. This framework will enable Saccos to pool resources, leverage fintech solutions, and enhance collaboration while maintaining their operational independence. Furthermore, the Central Liquidity Facility (CLF) is set to facilitate inter-Sacco transactions, allowing for short-term lending within this community. A centralized data repository will also improve regulatory oversight.

These amendments represent a major advancement in the Sacco Societies Act, laying the groundwork for fiscal autonomy among Saccos that have traditionally depended on commercial banks for loans considered to be financially burdensome. Through this proposed framework, Saccos will be allowed to maintain an inter-Sacco market, lending to and borrowing from each other at more economical rates.

Historically, Saccos have faced challenges in integrating directly with the NPS, forcing them to rely on banks or third-party fintech solutions that often come with substantial costs. By enhancing their capabilities, the new legislation aims to provide Saccos with the necessary backing for emergency liquidity assistance and avoid expensive contingency plans with commercial lenders.

The Sacco Society Regulatory Authority (SASRA) has advocated for a Sacco Shared Services Platform, capable of enabling technology and liquidity services within Saccos and facilitating their participation in both national and international payment systems. In collaboration with the National Treasury, a feasibility study was commissioned in 2019 to explore this shared services model, ultimately recommending the formation of a Sacco Shared Service Organization (SASO).

This newly established SASO intends to bolster financial stability among member Saccos by introducing a CLF, a shared technological platform, and improved payment solutions. Registered as a secondary cooperative in June 2022 and inaugurated in April 2023, the SASO currently comprises 55 initial members.

Industry sources emphasize that integrating Saccos into the NPS could transform the financial landscape for these cooperatives, elevating their status to rival that of commercial banks in Kenya. Currently, discussions are ongoing regarding whether Saccos should access the NPS via regulatory measures or a market-driven approach, similar to the method utilized by the banking sector through the Kenya Bankers Association.

Legislation, as described in the Sacco Societies (Amendment) Bill, 2023, appears to address these concerns while recognizing the role of the Sacco Central. The anticipated reforms are poised to position Saccos as crucial contributors to Kenya’s financial inclusion and economic empowerment initiatives. Any delays in accessing the NPS continue to compel Saccos to form partnerships with banks to offer necessary services, affecting their operational efficiency.

In conclusion, the Kenyan Cabinet’s approval for Saccos to integrate into the National Payment System marks a pivotal moment in financial services for these cooperative entities. The proposed reforms aim to enhance operational capabilities, reduce reliance on commercial banks, and foster a more competitive environment within the financial sector. By embracing modern technologies and shared services, Saccos can position themselves as influential players in advancing financial inclusion and economic empowerment in Kenya.

Original Source: www.zawya.com