Kenya: Net savings in saccos increase to Sh17.5 billion

Net savings in saccos rose to Sh17.5 billion in 2021, reversing years of negative cash accumulation in the institutions where most Kenyans park their liquid wealth.

Data from the latest Economic Survey shows that saccos’ deposits rose to Sh540.5 billion in the review period when they issued loans worth Sh523 billion, leaving members with an aggregate net wealth of Sh17.5 billion.

Saccos have a goal of encouraging thrift but they also issue loans, sometimes at five times the savings of a member.

Retained earnings

In the previous four years, the institutions lent more money than deposits, dipping into their retained earnings to fund the disbursement of loans.

This pushed them into a negative wealth of Sh19.7 billion and Sh20.9 billion in 2020 and 2019 respectively. They were underwater by Sh16.3 billion and Sh15.1 billion in 2018 and 2017 respectively.

Wealth patterns vary significantly in the sacco sector, with some individuals remaining net savers while others leverage their deposits and those of guarantors to take large loans.

Saccos are increasingly expanding their capacity to lend by retaining part of their surplus and making investments in real estate and other sectors.

Previously, most of the surplus would be distributed to members as dividends.

Saccos are the most important financial institution for most individuals who earn dividends on savings.

The societies issue loans starting from 12% per annum which for many years was significantly cheaper than interest on bank loans.

Rate caps

The average lending rate on bank loans has dropped to 12.1%, largely on the suppression of the lenders’ attempts to charge higher interest after the removal of rate caps.