Saccos Outpace Banks in Loan Disbursements: A Shift in Financial Dynamics

In a noteworthy trend within Kenya’s financial landscape, Savings and Credit Cooperatives (Saccos) have significantly outpaced commercial banks in loan disbursements during the first eight months of 2024. This shift reflects changing consumer preferences driven by rising interest rates imposed by banks, prompting borrowers to seek more favorable terms from Saccos.

Key Highlights

According to recent data from the Central Bank of Kenya (CBK), Saccos disbursed Sh46 billion more in loans between January and August 2024, bringing the total to Sh749 billion, up from Sh703 billion. In stark contrast, commercial banks experienced a decrease in loan disbursements, which fell by Sh154 billion to Sh4.045 trillion during the same period.

George Ochiri, the CEO of Harambee Sacco, noted a marked increase in requests not just for new loans but also from customers looking to transfer their loans from commercial banks to Saccos. This surge is attributed to commercial banks maintaining interest rates in the range of 20%, while Saccos offer more attractive rates averaging around 12% on reducing balances, effectively lowering the cost of credit for borrowers.

Implications for Borrowers

The preference for Saccos can be linked to their stable interest rates amidst the rising costs in the banking sector. As commercial banks grapple with heightened operational costs leading to increased borrowing rates, Saccos have maintained competitive rates, benefiting from a funding base composed primarily of member deposits.

Dr. Ochiri emphasized that the cooperative structure of Saccos allows them to offer lower rates, as a significant portion of funds lent is sourced from member contributions. This model not only supports individual members but also ensures that loan repayments circulate back into the community, fostering economic growth.

Resilience of Saccos

The resilience demonstrated by Saccos in loan disbursement reflects their essential role in providing financial relief to cash-strapped households and businesses in a challenging economic environment. In August, credit growth among Saccos stood at 9.3% year-over-year, despite a slight decline from 13.6% in December 2023. In comparison, commercial banks saw a significant drop in credit growth, collapsing to 1.3% from 12.2%.

The CBK acknowledged Saccos as vital players in the credit market, particularly in the face of increased demand for loans amid economic uncertainty. This trend indicates a growing recognition of the cooperative model’s ability to meet the financial needs of individuals and businesses alike.

Challenges Ahead

Despite their success, Saccos face challenges, particularly from government borrowing instruments such as Treasury bills and bonds, which offer competitive returns that can deter private sector credit growth. Additionally, microfinance banks have reported a decline in lending, further highlighting the shifting dynamics in Kenya’s financial sector.

Conclusion

As Saccos continue to expand their loan disbursement capabilities, they provide a critical alternative to traditional banking services. The favorable interest rates and community-focused lending models make them an attractive option for borrowers seeking relief from high commercial bank rates. The current landscape serves as a reminder of the importance of diverse financial services in supporting economic resilience and growth.

For further insights, read the full article on Business Daily here.