The SACCO Societies Regulatory Authority (SASRA) is advocating for mandatory Credit Information Sharing (CIS) with Credit Reference Bureaus (CRBs) to promote financial sustainability in the SACCO sector.
SASRA Chief Executive Officer Peter Njuguna while speaking at the Sacco Leadership Forum hosted by Metropol on March 21 said there is a need for full file sharing to be made a law.
The Sacco Leadership Forum brought together CEOs and Credit managers of over 200 DT Saccos from different counties to address the rise in Non-Performing Loans (NPLs) among Deposit-Taking (DT) SACCOs.
According to the SASRA CEO, implementing file sharing as law would help SACCOs bridge information gaps and make more informed lending decisions.
“The CIS mechanism has been in place for nearly two decades. The journey has been about balancing awareness and capacity development. The reluctance is not intentional; it is about enacting the right legislation,” Njuguna said.
At the same time, Njuguna said implementing full file sharing as a legal requirement would align SACCOs with other financial institutions that have already adopted risk-based pricing.
Why SACCOs need to embrace Credit Information Sharing
Metropol CEO Gideon Kipyakwal echoed Njuguna’s remarks, noting that embracing full file sharing would boost borrowers’ creditworthiness and help reduce Non-Performing Loans (NPLs).
“When all financial players, including SACCOs. digital credit providers, microfinance banks and commercial banks, leverage data and analytics for credit scoring, creditworthiness becomes a valuable currency. This will significantly lower NPLs and ultimately lead to a reduced interest rate regime,” said Kipyakwai.
Regulated SACCOs have reported portfolios at risk exceeding 8% for the past three years, with rising NPLs posing a significant threat to profitability and asset value.
Also Read: List of SACCOs at Risk of Losing Billions After KUSCCO Heist
CIS Kenya CEO Jared Getenga cautioned SACCOs against selective listing of borrowers, urging them to adopt comprehensive data sharing to maximize the benefits of CIS.
“The CIS mechanism benefits both lenders and borrowers, depending on the completeness of data submission. When SACCOs fail to actively engage in this framework, consumer records remain incomplete at credit bureaus, affecting credit scores and profiles,” Getenga noted.
SASRA exposes gaps
Despite the importance of credit referencing, SASRA revealed that the SACCO industry is yet to fully embrace the practice, leading to potential gaps in credit decision-making
The regulator revealed ongoing challenges in implementing effective credit scoring mechanisms which have hindered responsible lending and financial sustainability.
To grow SACCO membership growth and financial resilience, the sector has been urged to embrace technological advancements, innovate new products, and diversify income streams to improve liquidity and drive financial inclusion.
Also Read: KCB Posts Ksh 61.8B Profit, Banks with Cheapest Loans & New SACCO Rules
The SASRA Annual Report 2023 highlighted critical issues in credit risk management that need urgent redress to reverse that upward trend.
One of these is the need to adopt proactive credit risk management practices that entail implementation of strategies and processes aimed at preventing and mitigating credit losses before they happen.
These approaches focus on identifying potential risks early, monitoring loans more. closely, and taking corrective actions before defaults escalate.
Govt announces new rules
The new proposal comes after the Commissioner of Cooperatives David K. K. Obonyo earlier in March announced new rules that will force SACCOs to stick to their core purpose of collecting deposits and issuing loans.
This came following the illegal withdrawal of billions of shillings at the Kenya Union of Savings and Credit Co-operatives (KUSCCO) which led to the loss of funds from members.
The commissioner’s office, in conjunction with the Ministry of Co-operatives and KUSCCO’s Interim Board, recently concluded a comprehensive inspection that unearthed alarming financial irregularities.
The probe revealed that inflated dividends were a major challenge, prompting tighter control of how SACCOs declare returns.
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