Kenya’s Cabinet has approved a proposal allowing saccos to join the National Payment System, which will reduce reliance on costly bank loans and empower saccos to offer financial services. The amendments in the Sacco Societies (Amendment) Bill include a Central Liquidity Facility and shared services to improve competitiveness and oversight. This reform is anticipated to elevate saccos’ roles in Kenya’s financial landscape and economic development.
Kenya’s Cabinet has approved a proposal allowing Savings and Credit Co-operatives (saccos) to integrate into the National Payment System (NPS). This initiative aims to lessen dependence on bank loans and will enable saccos to offer various financial services such as cheque issuance, foreign currency trading, Real Time Gross Settlement (RTGS), and Electronic Funds Transfers (EFTs). The Cabinet noted that these reforms are detailed in the Sacco Societies (Amendment) Bill, 2023, currently under parliamentary consideration.
The proposed amendments include establishing a Sacco Shared Services Framework, enabling shared resources and fintech solutions while ensuring operational autonomy. Furthermore, a Central Liquidity Facility (CLF) is set to facilitate inter-sacco transactions and short-term lending, thereby improving regulatory oversight through a centralized data repository. These enhancements are expected to solidify the integration of saccos into the NPS and establish a functioning CLF akin to the interbank money market.
This legislative update will empower saccos to lend and borrow amongst themselves at competitive rates, reducing reliance on commercial banks regarded as costly sources of loans. Currently, saccos have been dependent on banks and fintechs for access to the broader financial ecosystem, a dependency that often incurs higher costs.
The Sacco Society Regulatory Authority (SASRA) has advocated for the creation of a congenial platform that allows saccos to leverage technology and central liquidity services while participating in payment systems. A 2019 study, commissioned by SASRA in collaboration with the National Treasury, offered insights into operationalizing a shared services model for saccos and recommended forming a Sacco Shared Service Organization (SASO) to streamline common services akin to those offered by Credit Union Shared Organizations in North America.
The recently established Sacco Central, registered as a Secondary Co-operative in June 2022, has initiated its activities with an initial membership of 55 saccos. Integration into the NPS is anticipated to enhance the competitiveness of saccos, aligning them more closely with commercial banks due to the size and capacity of these institutions.
Discussions are underway regarding whether access to the NPS will be facilitated through a regulatory framework or a market-driven approach, similar to how banks utilize the Kenya Bankers Association for access. Current legislative efforts through the Sacco Societies (Amendment) Bill, 2023, acknowledge the need for a Sacco Central to advance these initiatives.
These reforms aim to elevate saccos as pivotal contributors to financial inclusion and economic empowerment within Kenya, potentially transforming their operational landscape and reducing previously incurred costs associated with banking partnerships.
In summary, the recent approval by Kenya’s Cabinet for saccos to integrate into the National Payment System marks a significant shift aimed at reducing reliance on banks for financial services. The amendments proposed in the Sacco Societies (Amendment) Bill, 2023, advocate for the establishment of a centralized liquidity facility and shared services to empower saccos, facilitating competitive lending and borrowing practices. This strategic move is expected to enhance the saccos’ role in financial inclusion and economic empowerment in Kenya’s economy.
Original Source: www.zawya.com
