Saccos' Sh40b at risk as regulator warns of foreign aid dependence

Close to Sh40 billion worth of members’ deposits held in Saccos affiliated to implementing agents of foreign aid are at risk following geopolitical shifts in external funding to needy nations such as Kenya.

Saccos affiliated to organisations that depend on this stream of funds are said to have been left exposed as countries such as the United States cut back on foreign aid.

As such, deposits and assets of these saccos are at risk if strategies are not implemented to cushion this shock.

The Saccos Societies Regulatory Authority (Sasra) says it has initiated remedies to safeguard members’ savings in light of these changes. The Sacco regulator, however, warns that the situation may become dire if members start demanding their deposits.

This is also considering that cuts in foreign aid also result in downsizing, and workers affiliated to the saccos may seek to have their savings back. Additionally, if there are loans yet to be paid up, this increases the exposure.

Sasra suggested other business ventures or mergers as options to the current financial strain. Whilst detailing the role of Saccos amid the prevailing micro and macro-economic conditions, Sasra noted that the impact of these changing times will have both direct and indirect effects on the performance of regulated Saccos in the short, medium and long term.

“In particular, the authority is already alert to the potential impact of the unravelling geo-political policy changes at the global stage, and which portends direct impact on regulated Saccos which draw their membership from donor-funded projects, programmes and institutions,” Sasra said.

“The regulated Saccos likely to be affected by these changes have been identified and advised to take appropriate mitigation measures in their business models.”

The Sacco Supervision Annual Report, 2024, lists 16 saccos that have been left exposed as a result of this shift in foreign aid. These are 14 non-withdrawable deposit-taking Saccos (NWDT-Saccos) and two deposit-taking Saccos (DT-Saccos).

Far-reaching implications

The report notes that the major policy changes in the world’s geopolitical sphere, driven by the results of the elections in the United States in November 2024, as well as the continued conflicts in Europe and the Middle East, will continue to have far-reaching implications for the economy with direct overflow on Kenya’s regulated Sacco industry.

It adds that these policy changes are projected to have or continue having the effect of reduction or cessation of external or donor funding of local projects, institutions or programs, from which several regulated Saccos draw their membership.

“The Authority projects that a total of 16-regulated Saccos consisting of two DT-Saccos and 14-NWDT Saccos will be directly affected by these policy changes, and thus likely to experience sharp reduction in their membership with increased member exits and demands for deposits (savings) refunds, coupled with reduction in the growth of loan assets or deterioration of the quality of loans due to potential default,” the report says.

In total, 72,172 members are exposed. These are 34,114 from the two DT Saccos and 38,058 from the 14 NWDT Saccos. Total assets at risk stand at Sh49.68 billion, while members’ deposits exposed are Sh37.41 billion.

“The NWDT-Saccos are noted to be more exposed to these adverse effects than their DT-Saccos counterparts,” the report says.

Loans in DT Saccos, according to the report, stand at Sh23.89 billion, while in NWDT Saccos amount to Sh14.70 billion.

The United States Agency for International Development (USAID) was the major contributor to foreign aid in the country before a policy shift when President Donald Trump took office. Going by 2023 figures, Kenya has been getting in excess of Sh50 billion annually from USAID.

This funding is absorbed largely by non-governmental organisations (NGOs) which employ staff to implement the aid projects.

Since this funding has been consistent over the years, the workers would form Saccos to aid their savings culture.

In extension, some of the aid projects involve sponsoring community-led Saccos or savings platforms such as table banking, which explains the ripple effect this cessation of aid may have beyond the purview of Sasra.

Sasra says these regulated Saccos, whose membership was principally or to a large extent drawn from donor or externally funded projects, institutions or programmes, have been individually identified and appropriate supervisory advice issued for implementation in order to mitigate against these changes.

“Additionally, such regulated Saccos have been urged to explore other business-driven strategic decisions such as mergers and consolidation with other regulated Saccos, as well as opening of common bonds to diversify their membership, customer base and revenue sources,” says the authority.