Embracing intersacco lending is the way to go for digital SACCOs to remain competitive and stay ahead in the ever-evolving financial industry.
Intersacco lending refers to the practice of SACCOs lending to each other, either directly or through a central fund, to meet their members’ credit needs. In most instances, the lending is often at a lower interest rate than the market rate. By pooling their resources, SACCOs can increase their lending capacity, reduce lending costs, and provide their members with affordable credit. Embracing intersacco lending also promotes collaboration between SACCOs, which enhances their resilience and sustainability. SACCOs are also able to diversify their lending portfolios.
Kenya’s Cooperative movement is one of the largest and most vibrant in Africa. With over 15,000 registered SACCOs and a membership of over 20 million, SACCOs play a crucial role in providing financial services to Kenyans. This is particularly noted in rural and underserved areas.
The government of Kenya has been actively promoting intersacco lending as part of its efforts to strengthen the country’s financial sector and promote financial inclusion. In 2018, the government launched the Intersacco Lending Program, which is aimed at facilitating collaboration between SACCOs to enhance their lending capacity and increase access to affordable credit for their members.
Limited access to affordable credit is one of the major challenges that SACCOs face. This is especially significant as it limits their ability to grow their businesses and improve the welfare of their members
The government of Kenya has come to rescue SACCOs by promoting intersacco lending. This is a measure intended to enhance SACCO lending and increase access to affordable credit for the members.
Structure of inter-sacco lending
The Intersacco Lending Program is being implemented by the Cooperative Bank of Kenya, in collaboration with the Kenya Union of Savings and Credit Co-operatives (KUSCCO). The program provides a platform for SACCOs to pool their resources and lend to each other at affordable rates. It also provides technical assistance and training to SACCOs to help them improve their lending operations and manage risks effectively.
There is an eligibility criterion for SACCOs which includes having a minimum capital base of Kshs. 20 million ($200,000) and registration with the Commissioner for Co-operative Development. Also, the SACCOs are required to undergo a credit rating assessment to determine their creditworthiness and risk profile.
Once a SACCO is deemed eligible, it can access the program’s central fund, which is managed by the Cooperative Bank of Kenya. The fund provides SACCOs with liquidity to lend to their members at affordable rates. The program also provides technical assistance and training to SACCOs to help them improve their lending operations and manage risks effectively.
SACCOs have embraced the InterSacco Lending Program thus the program has witnessed SACCOs joining and benefitting from the collaboration.
The government, in support of the initiative, has been working to promote the use of digital technologies to enhance the efficiency and effectiveness of intersacco lending. This led to the launch of the Digital Literacy Program for SACCOs.
The Digital Literacy Program has helped to promote the adoption of digital technologies among SACCOs. This has enhanced the efficiency and effectiveness of intersacco lending. Digital technologies, such as mobile banking and online lending platforms, enable SACCOs to reach more members and reduce their operational costs. Digital technologies also enable SACCOs to manage risks more effectively, by providing real-time data on member behavior and credit performance.
Benefits of Intersacco Lending.
Diversification of lending portfolios.
This is a key benefit of intersacco lending for digital SACCOs.
By collaborating with other SACCOs, digital SACCOs can access new markets and new types of loans. A case example is in a scenario where we have a SACCO that specializes in lending to small and medium-sized enterprises(SMEs) collaborating with another SACCO that specializes in lending to the agricultural sector. By doing this, the SACCOs can diversify their portfolio and reduce their risk exposure.
Reduce interest rates
By intersacco lending, SACCOs can offer better interest rates to their members.
Collaboration with other SACCOs has enabled digital SACCOs to have access to cheaper sources of funding. The SACCO members can then receive this in the form of lower interest rates.
Build SACCO relationships and networks
Intersacco lending provides an opportunity for digital SACCOs to expand their network and also build relationships with other SACCOs. Collaborations enhanced with other SACCOs have made this possible.
Digital SACCOs can gain access to new ideas and best practices. It plays a vital role in enabling them to gain access to new ideas and best practices. This, therefore, enables them to improve their operations and remain competitive.
Additionally, building relationships with other SACCOs can lead to future collaborations and partnerships. This is very beneficial to digital SACCOs and their members.
Challenges faced by SACCOs
Lack of a regulatory framework
Intersacco lending is largely unregulated. Formally, in traditional lending, there were regulations and guidelines to govern lending activities. With the introduction of intersacco lending, it is still therefore a bit difficult for trust to be established between SACCOs. The fact that SACCOs may be unsure about the legal and regulatory implications of such collaborations is a major attribution to this.
The lack of regulatory frameworks creates legal and operational uncertainties.
Lack of trust between SACCOs
To collaborate effectively, SACCOs need to trust each other and be willing to share information and resources. However, building trust has proven to be a long and difficult process. This is most especially when SACCOs are competing for the same members and resources.
Another valid reason for the lack of trust is concerns about the quality of credit assessment and risk management practices among SACCOs. This can increase the risk of default and loss of funds.
Therefore, lack of trust has been an issue that seems to be derailing the process of adopting intersacco lending.
Solutions for SACCOs
Despite the challenges witnessed, digital SACCOs can take steps to embrace intersacco lending and overcome these obstacles.
The government of Kenya has been working closely with SACCOs to develop regulatory frameworks and best practices for intersacco lending to address the challenges faced. Developing a framework for risk assessment and management as well as establishing clear roles and responsibilities for each SACCO in the collaboration does this.
The government has also been promoting the use of digital technologies to enhance the efficiency and effectiveness of intersacco lending.
For the issue of lack of trust among SACCOs, there is a need to build relationships. Participating in industry events and conferences can accomplish this.
In addition to that, SACCO members can engage in informal discussions and knowledge-sharing sessions. SACCOs can also work together on small projects or initiatives to build trust and establish a foundation for future collaborations.
In conclusion, embracing intersacco lending is the way to go for digital SACCOs. They cannot continue to operate in silos in today’s highly competitive financial industry. This is essential to remain competitive and stay ahead in the ever-evolving financial industry. Intersacco lending presents a unique opportunity for digital SACCOs to collaborate with other SACCOs, diversify their lending portfolios and offer better rates to their members. While there may be challenges, including the lack of regulatory frameworks and trust issues between SACCOs, digital SACCOs can take steps to embrace intersacco lending and overcome these obstacles. As the financial industry continues to evolve, digital SACCOs embracing intersacco lending will be better positioned to thrive in the future and provide more value to their members. This is because it is a laudable initiative by the government of Kenya to ensure access to affordable credit for members.
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