Saccos have become key pillars in Kenya’s financial landscape, significantly bolstering the country’s economic resilience and growth. Since the COVID-19 pandemic, they have played a crucial role in driving economic recovery, according to the Kenya Financial Stability Report 2023. The report highlights SACCOs’ contribution to stabilizing and growing the financial sector, positioning them as critical actors in the broader economy.
The Kenyan economy expanded by 5.1% in the first quarter and 4.6% in the second quarter of 2024. It is projected to grow by 5.1% by the end of 2024 and reach 5.5% in 2025, driven by key sectors, including SACCOs. This strong performance is part of a recovery from the economic shock caused by the pandemic, during which SACCOs offered crucial financial services and access to affordable credit, allowing many households and small businesses to recover and thrive.
In 2023, SACCOs in Kenya saw a remarkable growth in total assets, which increased by 28.4%, compared to 9.1% in 2022. This surge in asset growth was primarily driven by the increase in gross loans issued by SACCOs, supported by a substantial rise in member deposits. Member deposits grew by 29.7%, providing a stable funding base for loans. This steady influx of deposits ensured that SACCOs could meet growing demand for credit at a time when traditional banks and digital lenders were charging higher interest rates.
The ability of SACCOs to offer loans at lower interest rates than banks and digital lenders has been a key factor in their growth. SACCOs have capitalized on their ability to attract low-cost deposits from members, which they then lend at competitive rates. As a result, more individuals and businesses have shifted towards SACCOs, seeking affordable loans. This trend has further fueled the growth of the SACCO sector, driving the financial industry’s broader momentum in Kenya.
The report noted that of the 357 licensed SACCOs operating in 2023, many relied on external borrowing, which increased by 10.2%. This increase reflects the growing demand for affordable credit as SACCOs continue to attract borrowers seeking better terms compared to those offered by traditional financial institutions.
The financial performance of SACCOs has also been impressive. The rapid growth in assets, combined with a more efficient use of resources, resulted in an increase in profitability by December 2023 and the first half of 2024. Return on assets, a key measure of profitability, rose from 9.1% in 2022 to 9.8% in 2023. This growth can be attributed to higher net interest income and the adoption of technological solutions by SACCOs, which have improved efficiency in their operations.
Despite global economic challenges, the core capital to total assets ratio of SACCOs remained above regulatory requirements, signaling their soundness and financial stability. SACCOs also maintained a liquidity ratio of 71.8%, ensuring they could meet short-term liabilities while building adequate buffers to protect against potential liquidity shocks.
Recognizing the challenges faced by small and medium-sized SACCOs, the sector introduced SACCO Central, a secondary SACCO platform designed to offer shared services and a central liquidity facility through inter-SACCO borrowing. This initiative is expected to help smaller SACCOs achieve economies of scale, improve financial stability, and better manage risks. SACCO Central will also provide these SACCOs with access to national payment systems and help them keep pace with technological advancements, making the entire sector more resilient.
The establishment of SACCO Central represents a significant step in enhancing the soundness and competitiveness of SACCOs, ensuring that they continue to play a vital role in Kenya’s financial ecosystem.
Kenya’s financial sector, which includes six key sub-sectors—banking, insurance, capital markets, pensions, SACCOs, and microfinance—plays a crucial role in the country’s economic development. The performance of these sub-sectors directly impacts the overall economy. The Kenya Financial Stability Report indicated that the economy grew by 5.6% in 2023, a 0.7% increase from 2022’s 4.9%. SACCOs, with their extensive reach across various economic strata, have proven to be a key driver of this growth.
SACCOs have also been adopted as the preferred vehicle for driving the government’s Bottom-Up Economic Transformative Agenda (BETA). With their ability to provide affordable credit and financial services to a broad section of society, SACCOs are well-positioned to help the government achieve its goal of inclusive economic growth.
The financial sector’s growth has been further boosted by the robust performance of several key service industries, including transport, storage, insurance, communication, and accommodation. Agriculture, a vital part of Kenya’s economy, also recorded strong recovery due to favorable weather conditions, contributing to overall economic expansion.
