Savings and Credit Co-operatives should trade at the Nairobi Stock Exchange and buy government securities to diversify their revenue portfolios.
Co-operative Alliance of Kenya chief executive Dan Marube said most Saccos currently heavily depend on depend on members savings, internal reserves and deposits fo heir lending.
“This can be taken up as a business decision on the less risky instruments rather than a policy, to raise funds that can be lent to members at affordable rates,” Marube said.
In its draft 2019 National Co-operative Development policy, the alliance proposes that Saccos participate in national payment system and agency banking.
“The policy objective will enhance financial deepening and investments through interventions in development of a regulatory framework for co-operative enterprises to raise capital using capital market instruments and the establishment of a secondary market for cooperative securities,” says the draft policy stated.
By 2017, CAK had 13,200 Saccos with accumulated savings and deposits of over Sh430 billion, Sh441 billion in loans and Sh601 billion in assets.
The Saccos had a membership of about 5 million persons.
“Despite this notable success, the Saccos are unable to accumulate savings and deposits fast enough to satisfy their members appetite for credit,” says the policy.
Due to this, Saccos rely heavily on loans from commercial banks to satisfy their members borrowing needs defeating the very purpose of coming together.
The problem is further compounded by the emergence of digital platforms offering access to quick loans.
According to Marube, the new venture would be a viable commitment especially if a society has enough funds.
The alliance has also raised worries on the practice of hypothecation, where debtor or third party pledges collateral for credit by financial institutions.
The practice has tended to encourage lenders not to evaluate the business case of the society borrowing which is mainly to increase produce, value addition or revenue, while relying on member earnings or payroll deductions for society cash flow projections.
“The same lenders have tended to continue to recover loans from members’ funds instead of realising the secured assets in case of default,” it added.
Despite this, the co-operatives expect to continue competing with some of the financial institutions over the same space despite their inability to raise funds through the national financial networks.