Dear Saccos. Do Not Compete. Collaborate.

Digital transformation is desperately needed in the Sacco industry. Here is where to start.

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Working together is the Sacco secret sauce.

It is a self-evident truth that Saccos are facing severe competition in the financial service industry. The M-Shwaris and Talas of this country are giving them a run for their money. Deposit-taking Saccos must integrate technology in the face of such stiff competition. Of course, there also exists the integration of payment and banking services, all these forming a deeper financial ecosystem. A subject open to exploration during CIO East Africa’s first-ever virtual summit, and the 2nd annual East Africa SaccoTech Forum.

Said truths are something that John Mwaka, CEO, Sasra (Sacco Societies Regulatory Authority) acknowledges. Saccos, are in one way or another, varying in their responses to digital transformation. This is apparent through individual investment in individual Saccos, in what is presumably the appropriate financial technology for the core system, the digital channels, information security as well as human capital.

“Human capital investments and humble technology have been able to sustain the Sacco business of deposit mobilisation, extension of credit facilities and even payment services to their members. We need to be able to understand Sacco members. They are largely the lower and middle-class segments of our population,” he says.

“The thing is that digital adaption by the Sacco industry has been more of a reaction to competition, rather than a strategic response to changing financial service customer preferences.”

Sacco services are essential for the socio-economic development of its members. The thing is that digital adaption by the Sacco industry has been more of a reaction to competition, rather than a strategic response to changing financial service customer preferences. Notably, there are multiple and commendable initiatives by what we call secondary co-operatives, and private fintech firms to provide technology and solutions to the Sacco industry. However, even with the responses to this digital revolution in the deposit-taking market in Kenya, Sasra have authoritatively observed specific issues.

  • Increased competition in the deposit-taking market. Especially with most Saccos struggling to respond in a timely, efficient and cost-effective manner to the ever-changing competition or competitive deposit-taking and credit service landscape. This situation is compounded by constraints like technical and funding limitations, cybersecurity issues or risks,  and even compliance to regulatory requirements as deployed by the authority.
  • Weak culture among Saccos to address strategic business challenges. Saccos are very successful and very good in many industry issues when it comes to cooperation. But on business and institutional challenges, each Sacco goes its own way. The result is individual Saccos struggling on their own as can be evidenced by over a thousand deposit-taking Saccos that have had their licenses revoked by Sasra. “If there were indeed cooperation on strategic business level, we would expect these Saccos to get a shot in the arm from their peers. But many struggled with very basic business and compliance issues over a long-term period until they had to close down,” notes Mwaka.

In the midst of all this Sasra developed Sacco jurisdictions to find greater strategic cooperation and not competition – to address industry challenges such as human and technology limitation for the good of the members and the citizens in general. “We do hope that the industry will rise to the occasion and develop and grow Sacco cooperation to include strategic business issues. The latter is what will help them grow.”

“We do hope that the industry will rise to the occasion and develop and grow Sacco cooperation to include strategic business issues. The latter is what will help them grow.”

  • A regulatory dilemma with growing license allocation. Financial regulation is becoming increasingly complex and very intrusive. Saccos face multiple regulatory jurisdictions while regulators are requesting an increasing amount of data. Thus, regulators are equally challenged to keep up with the fast-paced financial services industry or ecosystem driven by technology integration. Varying levels of deposit-taking technological capabilities and differing standards in deposit-taking Saccos don’t solve the problem They only serve to complicate effective regulatory supervision. The level of effort evidences this it takes to incorporate a straightforward regulatory adjustment within the returns the Saccos have to make or submit to the authority. They struggle with this.

“When it comes to digital transformation in Saccos, we see it as an urgent agenda. Studies have shown a need for deeper strategic collaboration by Saccos in technological investments towards a digital ecosystem leveraging on economies of scale and scope. A study on the feasibility of shared services, policy and frameworks for Saccos in Kenya, which we commissioned as an authority in 2019, and which entailed discussions with deposit-taking Saccos, vendors and industry stakeholders, has identified areas of significant collective interest including shared platforms, digital lending, and even data analytics and risk management.”

Sasra is presently drafting a policy and legal framework based on these findings, and will soon be presenting the same to the industry stakeholders for views and comments. This framework is designed to facilitate collaborations among other business services while addressing fears and concerns among the Saccos and technological firms.

  • Sasra is currently developing a supervisory technology that will significantly digitise monitoring, reporting and even analysis using technology tools. Incorporated in the system, will be a business intelligence layer to enable analysis of Big Data that is available from regulatory returns and also from member complaints collected in the course of supervision activity. This is very critical given the urgent need to collect credit data by Saccos for various segments of the economy in Q1 2020. Sasra is also set to expand their mandate as an authority regulating non-deposit Saccos. The regulatory technology, points out Mwaka, needs to be very robust so that they can be effective in addressing regulatory challenges.

“The pandemic has added a new dimension to the question of regulation. This implies greater reliance on off-site monitoring and compliance within the Saccos. Hence the need for greater integration with the Sacco systems.” Sasra further recognises that their supervision technology can only be as effective as need be if the Saccos deploy it.

“But it is not enough to deploy technology. There is a need to standardise digital platforms, something that is long overdue. This is a prerequisite for effective digital transformation in this industry.”

But it is not enough to deploy technology. There is a need to standardise digital platforms, something that is long overdue. This is a prerequisite for effective digital transformation in this industry. There is growing customisation of banking systems, and Saccos need to get in or at the very least desire to. For the Kenya-based Saccos, this is a welcome development. The digital innovation conversation should centre on standards; as well as solutions fitting the Sacco industry. Especially critical, this should be able to address the current challenges that are faced by the deposit-taking Saccos locally. Sasra are also anticipating the challenging constraint likely to come about by on-boarding non-deposit taking sooner rather than later.

The authority will keep on championing policy needs that seek to improve the technological capability for the two types of Saccos, all the while building confidence in fintechs that invest in the Sacco industry. The vision for shared services, legal and policy framework is quite critical. Initiative needs to be taken to address these challenges.

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