As smaller Saccos tackle the uphill struggle to mobilize deposits, the giant Saccos continue to deepen the control of deposits, which is the chief lending source to members, with the top 20, already controlling more than half of the total deposits.
By June Njoroge.
The Sacco Societies Regulatory Authority (SASRA) has issued a clarion call to small Savings and Credit Co-operative Societies (SACCOS), to merge, in order to ensure they remain competitive, efficient and stable whilst lowering operational costs. As smaller Saccos tackle the uphill struggle to mobilize deposits, the giant Saccos continue to deepen the control of deposits, which is the chief lending source to members, with the top 20, already controlling more than half of the total deposits.
SASRA states that the 20 DT Saccos, controlled a cumulative total deposits of Kshs 224.75 billion in 2019, which accounted for 59.08%, which is over half of the total deposits which stand at Kshs 380.44 billion. An analysis indicates that the bulk of the deposits are concentrated in the few DT-Saccos with a deposit size in excess of Kshs 5 billion.
This coming after the Regulator revoked licenses of several Saccos and put some on restricted operations due to liquidity constraints. Since 2015, SASRA has revoked licenses of 14 DT Saccos, on account of failing to maintain the required levels of core capital.
In 2019,12 Saccos were given license renewals, but with conditions attached because they were in breach of some ratios. The Regulator warns that as the market share of small Saccos continues to come under pressure from large Saccos, they are at risk of folding up, making it a Hobson’s choice to merge and consolidate.
“A time has thus come for the Sacco subsector to start policy conversations and dialogues on voluntary consolidation and amalgamations of the many small DT-Saccos, in order for them to remain competitive and benefit from associated comparative advantages,” noted the Regulator.
According to SASRA data, in 2012, there were a total of 215 Saccos as opposed to the current 172 licensed DT-Saccos which means that 43 Saccos have dropped out in a span of 8 years. In reiteration, the Central Bank of Kenya, has been open to the mergers and acquisitions, stating that they are crucial for bringing stability in the sector. A total of 99 DT-Saccos whose total deposits were below the Sh1 billion threshold, controlled a paltry 8.4% of the total deposits within the system.
Large Deposit-Taking Saccos (DT-Saccos) have been urged to absorb these smaller entities, in a mutually beneficial venture whereby, the large Saccos increases membership and consequently stability, whilst the smaller Saccos will be saved from imminent insolvency, should the consolidation in the Co-operative movement come to pass. Similarly, this has been witnessed in the banking sector, whereby, small banks have been bought out by large banks; where over 70% of deposits lay in the hands of the top eight out of the 40 entities. The recent case scenario being the acquisition of the Jamii Bora Bank, which was renamed Kingdom Bank, after full acquisition by the Co-operative Bank.
“In the absence of such consolidation and amalgamation initiatives, a time will come in the medium to long term when the market share of these small DT-Saccos will be wiped out, thereby rendering them financially unviable,” warns the Regulator.
The stipulated regulations by SASRA, require among other things, that all DT Saccos maintain at all times the prescribed minimum core capital of not less than Kshs 10 million. In addition, the DT Saccos are also required to maintain a minimum of capital adequacy ratios of core capital to total assets of not less than 10%; core capital to total deposits at 8% and institutional capital to total assets at 8% respectively.
This a move towards strategic growth in the movement, which is meant to also shield members in the cases where a Sacco license in revoked leading to its consequent liquidation, whereby it becomes a long and tedious process for members in the recovery of their savings. Deposits are very crucial and account for over 90% of funding for loans and other credit facilities issued by DT-Saccos.
Consequently, without adequate deposit mobilization, their existence is compromised because the Sacco business model thrives on allowing members to borrow up to three times their savings. This move will also help seal poor corporate governance loopholes and boost the confidence of members, from small Saccos, who would have otherwise been thrust in a precarious position, in the case of the aforementioned license revocation and consequent liquidation or insolvency.