NAIROBI, KENYA: Savings and credit cooperative societies feel betrayed by members who sold their loans to banks after the interest rate cap was introduced last year.
Saccos lost loans in the last quarter of last year, assets that would generate income and some were forced to take a huge haircut on interests to match the incentives that were being issued by banks.
The World Council of Credit Union 2015 Statistical Report shows that Kenya’s Sacco movement has over five million members making it the largest in Africa.
“Even as the Board tries to bring members back home, we find our efforts frustrated by some members’ running back to the banks’ false embrace. The result is that our own members are contributing to the growth of profits for banks yet it is from the Society, and not the banks, that they expect higher returns and better services,” Chairman – Sheria Sacco Justice Patrick Kiage, said.
Justice Kiage, said that although the rate cap law was not directed to the Sacco movement, it has had a direct bearing on the way does its business. Sheria Sacco lowered its interest rate from an average of 15 per cent to 13.8 per cent.
“We were forced to revise downwards our lending rate and this adversely affected the incomes of the Sacco and our overall performance and growth,” he said.
Unaitas Sacco lowered loans ranging from 15 to 18 per cent down to 14 per cent according to a memo seen by the Standard.
“I wish to confirm that we have reviewed interest rates downwards to 14 per cent on reducing balance on term loans. However the rates for all advances remain the same,” the memo dated September from Unaitas boss Tony Mwangi reads.
Kimisitu Sacco however says the highest rate they were charging on loans ranged below 13.5 per cent and they did not have to get a haircut as they were below the rate cap target.
Development finance bodies also had to lower their lending rates led by Industrial and Commercial Development Corporation (ICDC) which announced a three percentage point reduction on November 1, from 16 per cent to 13 per cent.
Justice Kiage complained that some of his members who had benefitted from lower than market rates immediately sold their loans to banks.
“You will recall that in the year 2015, the popular product Personal Loans was introduced with the singular aim of bringing members who had gone to the banks, back home on the basis that our loans were appreciably cheaper than the commercial banks,” he said.
“With the capping of rates, the banks were forced by law to lower their lending rates and we lost our competitive advantage. In consequence, and this speaks more to lack of loyalty, ownership, and a measure of myopia as it does to financial prudence, we have in recent months witnessed a worrying trend where members who benefited from this product are now selling their Sacco loans to the banks,” Justice Kiage said.
Sheria Sacco’s total assets however grew from Sh4.12 billion in 2015 to Sh4.40 billion in 2016 representing 7 per cent growth rate compared to 21 per cent in 2015.
The Society’s main asset is loans to members grew by a modest 4 per cent compared to 32 per cent in 2015. The Sacco registered profits after tax of Sh90,237,814 in 2016 down from Sh95,888,728 a year earlier.
Unaitas Sacco recorded a 37.43 per cent drop in net earnings for 2016 to Sh267.8 million due to a cautious approach to lending and provisioning for loan loss in light of a tough lending environment.
Kimisitu which posted a 22 per cent growth in net profits for the 2016/2017 financial year from Sh440 million to Sh540 million in the period under review however saw loan uptake grow up by 24 per cent.