Savings and Credit Cooperative Societies (SACCOs) in Kenya have officially been granted approval to set up an inter-lending facility, a move expected to strengthen liquidity management and financial resilience within the cooperative sector.
The Capital Markets Authority (CMA) and the Sacco Societies Regulatory Authority (SASRA) have endorsed the initiative, allowing SACCOs to lend to each other, similar to how commercial banks access funds through the interbank market. This facility is designed to address short-term liquidity shortfalls among SACCOs, ensuring they can meet members’ demands for loans and withdrawals more effectively.
Industry players have welcomed the development, terming it a step toward modernizing Kenya’s cooperative movement and enhancing its stability. Previously, SACCOs with excess liquidity had limited investment channels, while those facing shortfalls struggled to access affordable short-term funds. The inter-lending system now enables SACCOs to tap into a centralized liquidity pool, promoting mutual support and reducing reliance on external borrowing.
According to SASRA, this initiative will also encourage SACCOs to adopt stricter risk management and credit assessment frameworks, as they will now be accountable to peer institutions within the cooperative sector.
“This facility will help SACCOs manage liquidity stress while fostering greater financial discipline and collaboration within the sector,” SASRA CEO Peter Njuguna noted.
The rollout aligns with the government’s broader financial inclusion agenda and efforts to digitize the cooperative sector, which serves millions of Kenyans, particularly in rural and informal sectors.
The inter-lending facility will initially be piloted among deposit-taking SACCOs (DT-SACCOs) before being expanded to non-deposit-taking SACCOs. SACCOs participating in the platform will contribute funds to a common pool and access loans based on pre-agreed terms and compliance with set guidelines.
Kenya has one of the most vibrant SACCO movements in Africa, with over 13 million members and assets exceeding KSh 800 billion. The inter-lending facility is expected to further bolster the sector’s role in supporting economic growth, job creation, and financial empowerment at the grassroots level.
Potential Benefits
- Enhanced Liquidity Management: SACCOs facing short-term cash flow issues can now access funds quickly from fellow cooperatives, reducing the risk of liquidity crises.
- Reduced Reliance on External Credit: SACCOs can avoid expensive loans from banks or other financial institutions by borrowing within the cooperative network.
- Strengthened Sector Stability: A centralized pool fosters solidarity, financial resilience, and a more stable SACCO sector.
- Promotes Financial Discipline: SACCOs will be required to adhere to stricter risk management and lending standards to participate in the facility.
- Supports Financial Inclusion: The move is expected to improve service delivery to millions of SACCO members, particularly in rural areas.
Potential Risks
- Credit Risk Exposure: If weaker SACCOs default on loans from the facility, it could expose stronger SACCOs to financial strain.
- Moral Hazard: Some SACCOs may take on riskier lending behaviors, assuming they can always rely on the facility for bailouts.
- Governance and Oversight Challenges: Ensuring transparency, fair pricing, and proper governance within the platform may require enhanced regulatory frameworks.
- Operational Risks: The facility will need robust systems to prevent fraud, mismanagement, or delays in fund disbursement and repayment.