How Saccos alleviate poverty and foster growth

Sacco Societies Regulatory Authority (SASRA) CEO Carilus Ademba (L) looks on as Ministry of Industrialization and Development Secretary for Cooperative Development Dr. Nelson Githinji (C) and SASRA Chairman John Nthuku (R) shake hands during the launch of
"Sacco Supervision Report 2012" at the Kenyatta International Conference Center on August 26, 2013. PHOTO: DIANA NGILA/NATION 

In Summary

• Evidence from poverty eradication strategies shows that without empowering the poor by training them on how to utilise limited resources, focusing on the provision of credit will lead to excessive debt burdens and poverty.

By Benard Ayieko
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The Savings and Credit Co-operatives (Saccos) sub-sector has over 16,000 societies with 14 million members, making it the largest in Africa.

Saccos in Kenya account for 62 per cent, 65 per cent, and 63 per cent of the continent’s savings, loan and assets respectively.

About 28 million Kenyans, 63 per cent of the entire population, depend on the co-operative related activities, directly and indirectly, for their livelihoods.

In Kenya, Saccos control 30 per cent of the GDP and accounts for 80 per cent of the total accumulated savings.

Saccos are gradually responding to the fast-changing and competitive financial environment and are adopting new approaches to the model.

Membership has for long been based on common bonds which has since been opened up.

Emphasis on know-your-member has enabled Saccos to manage credit risks, enforce lending contracts and reduce transaction costs.

Saccos were formed to combat poverty. Recently, developing countries have emphasised their potential as a tool for sustainable poverty alleviation.

Evidence from poverty eradication strategies shows that without empowering the poor by training them on how to utilise limited resources, focusing on the provision of credit will lead to excessive debt burdens and poverty.

Therefore, empowering the poor on how to utilise resources wisely and developing a saving culture is vital. Savings are prerequisites for investment since they generate start-up capital for SMEs that play a pivotal role in poverty reduction.

Why place emphasis on Saccos? The Sacco movement in Kenya controls over Sh490 billion in the form of assets and savings, an amount equivalent to 35 per cent of our national budget.

The composition and diverse location of Saccos targets members of diverse economic backgrounds and geography thus encouraging “distributed” development.

Co-operators, the majority of whom are drawn from low-income earners, play a major role in promoting economic activities that support the poor.

STIMULATING PRODUCTION

This boosts household incomes that support the livelihoods of those that Paul Collier refers to as the “bottom billion”.

Savings and the income generated have a positive impact on the circular flow of income in the economy, thus stimulating the production, income and expenditure phases in baking the national cake.

Saccos have helped in shaping our monetary and fiscal policies too. They not only mop up excess liquidity (that would otherwise exert inflationary pressures) in the form of savings, they also mobilise members’ resources for wealth creation.

For us to maximise the potential that Saccos hold for socio-economic development, policy-makers and regulators should come up with regulations that integrate Saccos into the formal financial sector and access to national payment services, encourage fair competition by demolishing unethical business practices, create new business opportunities, and shift focus to institutional development rather than individual directors and managers.

The use of cutting edge technology, proper legislation, democratic leadership and management, access to affordable credit and capacity building through suitable training programmes will play a major role in boosting efficiencies.

This will cut down on the operating costs that hinder Saccos from applying lower lending rates.

The advent of devolution propels the objectives that Saccos were meant to achieve. In the “Vision 2030” blueprint, co-operatives have been touted as the key to mobilising savings, creating jobs and alleviating poverty.

Today, most Kenyans in rural and urban areas own decent homes courtesy of funds sourced from Saccos.

Mr Ayieko is a trade economist and a commentator on welfare economic