Saccos fear cash crunch as cost of living skyrockets

Monday, April 4th, 2022 06:00 | By
More Kenyans ‘will fall into debt’ as cost of living bites
Goods at a supermarket. PHOTO/File

The surging cost of living could disrupt reserves for Savings and Credit Co-operative Societies (Saccos) as depositors use more money to purchase high priced basic commodities thereby reducing their saving power.

Players in the industry expressed concern that to scarcity of funds is likely to stymie remittances of the monthly payments.Economists have also predicted hard times ahead for depositors with investors equally likely to withhold their investments and thus leading to low economic growth.

Sacco Societies Regulatory Authority (Sasra) chief executive officer Peter Njuguna argued that the credit unions might also suffer loan defaults thus strangling intended investments both at the individual and Sacco level. He called on the Sacco industry leadership to be alert in terms of monitoring members’ remittances and loan uptake with a view to ensuring business operations remain afloat.

“Leaders have the option to even restructure current loans and contribution models in order to remain afloat in the business,” said Njuguna on the sidelines of co-operative leaders’ meeting at Oltukai Lodge in Amboseli National Park.

Economic shocks

He said though easing of Covid -19 restrictions this year was a relief to the majority of the credit unions, the current economic shocks is a big blow to the multi-billion industry as it had already started picking up.  “The current situation is a great concern to the Sacco industry as the prevailing factors – drought, skyrocketing food prices and scarcity of the same will generally affect the income levels of the consumers and thus might not able to sufficiently service their loans and remit contributions as well,” said Njuguna.

He observed that despite the intense spread of the Covid-19 in the last two years, Saccos exhibited a high level of elasticity and thus managed to continue to offer financial services to their members.

“A good number of the financial cooperatives excelled in providing services to their members owing to the employment of robust information and communication technology programmes,” said Njuguna.

Currently, Sacco industry is enjoying Sh700 billion-plus assets which 75 per cent is drawn from the public sector based credit unions and loan uptake increased by 11 per cent to Sh523 billion in 2021 compared to 2020. Samuel Nyandemo, a senior lecturer in the school of economics at the University of Nairobi, warned that the economy will suffer low production due to high energy and transport cost and the prevailing drought in the country.

“Majority of Sacco members will suffer from low-income levels as their financial spending will be based on priorities, for example, food and rent among other key needs,” he said. Nyandemo added that the depositors will turn to the already saved deposits to cushion themselves against further harsh economic crises.  

Kenya Police Sacco National chairman David Mategwa observed that the credit unions might suffer reduced remittances as members will be more interested in financing basic needs.

Last two years

“If a member has been contributing Sh2,000, and the situation continues deteriorating the depositor will be forced to reduce the contribution by half to Sh1,000,” he said. Co-operative Alliance of Kenya (CAK) chief executive officer Daniel Marube recalled that in the last two years Covid-19 has continued to batter the economy, co-operative societies were not spared either. “The last two years with the advent of Covid-19, cooperatives suffered because of low savings and some either reduced operations or closed shops as they could not endure the huge impact,” he said.

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