September 10th, 2024

What can we learn from studying the history of Kenya’s Savings and Credit Co-operatives –  SACCOs, as they are popularly known?

This pilot project has combined archival and library research with interviews to look at how SACCOs have worked – and what they have done, for Kenyans and for Kenya’s economy.

Stories of problems at SACCOs are very familiar and regularly reported in the Kenyan press. Supporting and regulating SACCOs remains a real challenge for policymakers. Yet  the headlines and problems may distract from what is in fact a remarkable story of enduring relevance. Since the 1960s, SACCOs have helped generations of Kenyans as they reach for a better future. SACCOs have enabled people to buy land, to build, to invest in farming, to pay for school fees – and to ride out the crises that often threaten to derail people’s plans.

Looking back over sixty years of saving and lending through SACCOs helps us to understand both the problems and strengths  of SACCOs. This report draws out some key lessons:

The growth of Kenya’s SACCOs has been driven by popular demand

There was a government push to create SACCOs in workplaces in the 1960s and 1970s. But popular demand was an even stronger force: people rushed to form SACCOs because they offered a way to borrow for household investments.

SACCOs have been central to the way that that many Kenyans plan for the future

For decades, SACCOs provided the only way for many Kenyans to save and borrow – they were the ‘anti-bank’: accessible and friendly in a way that commercial banks were not . Even now, with a much more diverse financial sector, many people continue to choose SACCOs, often as part of a portfolio of financial instruments.

SACCOS continue to provide a distinct offer to savers and borrowers

While SACCOs have changed, they have retained key features which give them a significant comparative advantage. The system of shares has allowed them to provide credit more easily, and generally more cheaply, than other lenders. The basic assumption that members have a right to borrow encourages members to save.

Mutuality has been both a strength and a weakness for SACCOs

The SACCO model rests on the principle that a sense of shared responsibility will ensure that people borrow wisely and repay their debts. However, a sense of moral community can also encourage over-lending, or lead to tolerance of loan default.

SACCOs require both support and regulation to limit risks

Until 2008, policy towards SACCOs emphasised the provision of training and support;  current policy provides more robust regulation. This has strengthened large SACCOs but may be challenging for smaller SACCOs which lack the resources and experience to meet regulatory targets.

Most of all, this report emphases that SACCOs will remain part of Kenya’s financial landscape in the future – even as the sector becomes more diverse. Policy around SACCOs should assume both that these institutions have a future, and that they will continue to need both regulation and support to realise their potential for improving everyday lives.

Click here for the full “For their mutual benefit – Kenya’s SACCOs history and prospects” report

 

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