Savings and Credit Cooperative Organisations, or Saccos, in Kenya possess a unique advantage that could enable them to outperform banks. They have a large base of loyal members who save regularly, providing a cheap source of funds. However, most Saccos are not utilizing this advantage effectively. Instead, they are losing out to banks that have embraced digital technology, offering fast and convenient services such as mobile loans.
The rapid adoption of digital technology by banks has significantly changed the financial landscape in Kenya. Banks now offer loan services through mobile apps, allowing members to access credit within 90 seconds. In contrast, Saccos still rely on traditional methods, requiring members to fill out forms and obtain guarantors. This slow pace of service has led to a decline in Sacco membership, particularly among young Kenyans who prefer faster and more convenient services.
Mobile lenders have also captured the small, fast credit market that Saccos previously dominated. Loans for school fees, stock, and emergencies are now readily available through mobile apps, further eroding Sacco membership. Governance failures have exacerbated the problem, with many Sacco boards composed of elected members who may not possess the necessary skills or expertise to drive digital transformation.
The election of Sacco board members often prioritizes popularity over competence, leading to a lack of understanding about credit-scoring models and data architecture. Term limits also create a short-term focus, with boards prioritizing immediate gains over long-term investments in technology and infrastructure. As a result, Saccos remain primarily savings boxes with limited loan windows, failing to leverage their data to become serious lenders.
To remain competitive, Saccos need to bring in new talent with a technology background and a culture that prioritizes data-driven decision-making. Independent directors with expertise in data architecture and credit scoring can help Saccos unlock the value of their member data and develop more effective lending strategies. This requires a deliberate effort to recruit and appoint individuals with the necessary skills, rather than relying on existing members.
The tragedy for Saccos is not that they may eventually lose to banks, but that they were built to win and are being held back by their own leadership. With their existing deposits, trust, and data, Saccos have the potential to become major players in the financial sector. However, this requires a fundamental shift in governance and leadership, prioritizing competence and technology expertise over traditional community standing.
Kenyan Saccos are sitting on a valuable asset that could be used to drive growth and innovation. By embracing digital technology and appointing leaders with the necessary skills, Saccos can unlock their full potential and provide better services to their members. Ultimately, this will require a cultural shift within the Sacco sector, prioritizing investment in technology and expertise over traditional practices.
Key points
- Saccos in Kenya have the potential to outcompete banks but are held back by governance failures and outdated leadership.
- The adoption of digital technology by banks has significantly changed the financial landscape in Kenya, with Saccos struggling to keep pace.
- To remain competitive, Saccos need to bring in new talent with a technology background and a culture that prioritizes data-driven decision-making.
